Expert Opinions

By Kevin Reilly, CPA

PKF Worldwide
(Pannell Kerr Forster PC)

Generally, I would not support the idea of allowing vendors to advertise on a private club's web site.

The private club web site is an alternative way to communicate with members; is not a forum to sell products. I would not expect a club member to use the club’s site to shop. Instead, the member wants to know what is going on in the club and wants to be able to communicate with the club. Members might not look favorably on a site that is full of banners. This takes away from the exclusivity of the club and the private status of the club.

Some of the things a board member/owner or a club manager of a private club should look for in a web design revolve around what the club is trying to accomplish with the site. The club needs a responsive company that is willing to update the site on a regular basis. It should be knowledgeable about the nature of clubs and what can and can not be placed on a club’s site. The site needs to be easily accessible for members and provide sufficient security for the level of information provided. It also should provide excellent service and reasonable cost. Be sure and check references.

The IRS has not issued rules or guidance concerning Web sites. As a result, you can determine what should and should not appear but opinions will differ on this. Advertising is one of the problems that clubs face. Any type of direct advertising on a web page that is not member restricted should be avoided. On member-only pages, advertising should be limited to items the club would place in a club newsletter. Even more important than the tax issues, though, are the privacy issues. The more you resemble a public business, the more government entities are going to treat you as a public business. Privacy is an important concept that clubs sometimes seem to lose sight of until when a problem happens.

I think that links from member-only pages to other sites of interest to members (ie., vendors) is probably not a problem as long as the sites have some relationship to the activities of the club, such as golf information, weather and other non-commercial sites. However, members should not going to the club's Web site as an entry to the Internet.

No one should have access to the e-mail addresses of the members without the permission of the member. The first time that members are spammed by another member, the club is going to hear complaints. If the club puts its directory on-line on a member-only page, and the member willingly provides his/her e-mail, then no problem should arise. Access to the data should also be limited to employees on a need-to-know basis. Many people prefer to communicate via e-mail. This is okay as long as the member knows that information may be provided. Do not sell the list to vendors.

There are three further issues that should be considered with Web sites that also apply to taxable membership organizations.

1) Make sure the members are aware of what is going to be on the web site.

2) If a club receives a discounted rate for having a Web site that allows advertising on the site it could have problems. In addition to the privacy issues previously addressed, it also may be generating advertising income. This income is unrelated business income and is taxable.

3) There is a legal issue that has not been fully addressed and continues to develop as more states consider the issue. It is the issue of nexus. While it has not been addressed specifically with clubs, a California case concerning Web sites should give clubs pause. California held that it had jurisdiction over a business not located in the state because it sent its Web site into the state. As such, a lawsuit could be filed in California against the business. Taken to its logical (or illogical) extreme, a club member in California could make a reservation with a reciprocal club located on the East Coast. While on the East Coast where she breaks her foot. She goes back to California and sues the East Coast club there. The club must defend itself far away from home. You can expect the legal issues to be in fluctuation for a number of years as the courts struggle with the concept of business over the Internet.

Choosing the right Web site Company

There are a fair amount of web-site design and hosting firms out there. But be wary of those that promise "everything for nothing." They may look like a safe option, but the goal of these companies is to sign up enough clubs to attract advertisers down the road and market their products to their membership. For this reason, experts agree that the Web site design and hosting company you choose for your club should:

  • be based in the United States.

  • be interactive, meaning you have the ability to update the sections of the Web site immediately.

  • have a password-protected "members-only" section.

  • agree in writing not to sell advertising on your site–This is very important for your pro shop. Links to other golf related commercial sites will only mean more competition for your pro shop.

  • if you are a for-profit facility, agree to allow your club final approval of every ad placed and the right to cancel service with 30 days written notice, regardless of the reason.

  • agree not to "link" your site to commercial Web sites.

  • have been in business for at least three years.

  • provide you a contract for a term no longer than two years.

  • not sell your members’ directory or e-mail addresses.

  • not, in any way, be owned by a management company.

For privacy issues, the Internet company you choose should be a private firm with no ties to commercial vendors or golf management companies. You should never have to worry about outsiders having access to your members to sell them products or promote memberships at other clubs.

Finally, have an attorney review any contract before signing.