Nicklaus Companies, LLC

[Sean_A]

It seems to me, based solely on what I read in the linked articles, that Nicklaus should have engaged better legal representatives to negotiate the deal on his behalf.

I’m only speculating here, so I could well be mistaken, but when the entire family earns its living off one man, that could have played a role in encouraging JN to enter into this arrangement in the first place. It’s not unreasonable to think that the children had an incentive to monetize their father’s brand and likeness. I’m sure JN himself was not disinterested in the idea of monetizing the business and taking a significant upfront payment. It wouldn’t be the first time, and it certainly would not be the last time (see Gary Player and family, for example).

Because I’ve lost respect for Nicklaus over the past few years, I also find it somewhat ironic (and I’ll admit, not entirely without humor) that someone who believes in unfettered capitalism and is worried about being able to “continue to pursue the American Dream and not evolve into a socialist America” (his own words from 2018) is upset that he felt disrespected, controlled, and owned by his business partner. That’s called employment, Jack. Welcome to capitalism.

You lose respect for a guy because of his politics? What was the respect based on?

Discussing someone's business affairs is a strange thread. Does anybody really care in a public sort of way?

Ciao

[Kyle Casella]

I think the current situation is a by product of the fact that 2008 permanently impaired the value of Nicklaus Golf Design. Everyone here knows the evolution of golf design and how the tides shifted after the GFC. The historical profitability and future earnings projections were driven by the assumption that the good times would keep rolling. Even if the business was flat they wouldn't be having this argument but this is the kind of thing that happens all the time between debt and equity holders when things go sour (and here they went way worse than either party imagined).


In Jack's affidavit he says the deal "was supposed to be worth $300mm." That's only true if one believes the future cash flows are true. They turned out not to be so. Millstein was permanently impaired and did what he thought was best to try to recover as much value as he could. Any debtor would have done the same. The initial structure provided Millstein the financial and governance downside protection to do so. He's completely upside down as I doubt the value of Nicklaus today is more than $80mm which is what he needs to recoup his investment in entirety.


If Jack had wanted true freedom, he would have sold a true minority equity interest and not taken a wonky convertible preferred note. It was likely that this offered the most cash, but the structure had a ton of downside risk for Jack (which played out). Shame on the lawyers for not explaining that his non-compete was tied to his equity ownership and in addition to his employment. Shame on Jack for not reading the documents he signed and asking questions- rule one of signing a contract. This type of non-compete tied to ownership is extremely common and regardless of the value of the equity, he still retains the ownership of the shares.

[Stewart Abramson]

Jack's affidavit is not very persuasive. He lost control because the company couldn't service its debt resulting in issuance of PIK notes to Milstein's bank and failing its EBITDA covenant. I'd bet that scenario is clearly set forth in the purchase and sale agreement. I doubt that his lawyers failed to explain that possibility or that he failed to read the agreement in 2007. I think Milstein hit the nail on the head in saying that it was a scenario that neither of them expected to happen. Very few people predicted what would happen to the economy in general, and the golf course design business in particular, one short year after the agreement was signed. Nicklaus is basically complaining that he lost control of the company and lost his positions as CEO and Chairman to Milstein (all in accordance with the agreement) and now feels as if Milstein is "controlling him".  It has to be a bitter pill to swallow for someone of his stature, but it appears as though that was the deal he made.

[Charlie Goerges]

It has to be a bitter pill to swallow for someone of his stature, but it appears as though that was the deal he made.

So would the deal have looked bad to most experts at the time? It feels like Jack just got unlucky, sort of like how so many ordinary people did at the same time with their homes. At the very least, at least I'm glad he's not struggling to feed or house himself.

[John Kavanaugh]

Raters playing God. If Dismal White had gotten the love it deserved this would have never happened.


Erin Hills revisited.

[Eric LeFante]

It has to be a bitter pill to swallow for someone of his stature, but it appears as though that was the deal he made.

So would the deal have looked bad to most experts at the time? It feels like Jack just got unlucky, sort of like how so many ordinary people did at the same time with their homes. At the very least, at least I'm glad he's not struggling to feed or house himself.

I don't agree that Jack got unlucky. He took the most cash he could get upfront when his business was overvalued during a boom time, even though the structure had the most downside for him.


I agree people who bought a home in 2005 for their family to live in got unlucky. But those that were buying 3+ houses to flip that got caught holding the bag did not get unlucky because the good times didn't keep on rolling.

[Charlie Goerges]

It has to be a bitter pill to swallow for someone of his stature, but it appears as though that was the deal he made.

So would the deal have looked bad to most experts at the time? It feels like Jack just got unlucky, sort of like how so many ordinary people did at the same time with their homes. At the very least, at least I'm glad he's not struggling to feed or house himself.

I don't agree that Jack got unlucky. He took the most cash he could get upfront when his business was overvalued during a boom time, even though the structure had the most downside for him.


I agree people who bought a home in 2005 for their family to live in got unlucky. But those that were buying 3+ houses to flip that got caught holding the bag did not get unlucky because the good times didn't keep on rolling.

Fair enough, I mean, to what extent can someone who got hundreds of millions for something probably worth a lot less than that, be considered unlucky!

[Steve Lapper]

It has to be a bitter pill to swallow for someone of his stature, but it appears as though that was the deal he made.

So would the deal have looked bad to most experts at the time? It feels like Jack just got unlucky, sort of like how so many ordinary people did at the same time with their homes. At the very least, at least I'm glad he's not struggling to feed or house himself.

I don't agree that Jack got unlucky. He took the most cash he could get upfront when his business was overvalued during a boom time, even though the structure had the most downside for him.


I agree people who bought a home in 2005 for their family to live in got unlucky. But those that were buying 3+ houses to flip that got caught holding the bag did not get unlucky because the good times didn't keep on rolling.

Well put Eric. As veteran of the early days of junk bonds and distressed debt (where PIK covenants were rampant), there exists no world in the early 2000's where a seasoned and capable counsel and/or advisory group doesn't walk a principal through the risk parameters of a deal like this. Most, if not all, would make an analysis that minimally included a "worst-case scenario."


Hell, Jack would've had 2/3 of Wall Street offering their services for free or a sizable discount. Golf is The Street's primary participatory sport and the chance to meet with and work on Jack's behalf would've been quite the honor or privilege back then.

[archie_struthers]

 


Nicklaus, for all his success in playing golf had some bad times. Given his talent and ego it was most likely a very humbling experience for someone of his stature. This deal likely gave him a lifesaver and the upside probably looked quite good. It also ended the talks of "Jack" being broke. This should have been a "golden" time for him yet was fraught with economic peril. So though easy to dismiss post facto is kind of hard to do.


Jack monetized the most valuable asset he had , his legendary status!

[Ian Mackenzie]

This is my GUESS:


- Jack had a bad lawyer who did not grasp the new arrangement when this Milstein dude offered to "lend" Nicklaus Co needed capital during a downturn.


- The "loan agreement" probably had a bunch of tricks and traps (or covenants) that were put in place with a "wink and a nod" that "Oh, No, we would never do THAT"...as the agreement was being signed probably a mere days before the biz wouldve gone Chapter 11.


- a good lawyer wouldve flagged this and put in some protective verbiage.


- The loan covenants were tripped and the debt converted to equity and Milstein took control and he took the keys to the company.
- In essence, Jack did become his employee.
- If Jack had a rigid spine and less of an ego, he would've let the biz crater and then start over.


Happens EVERY day at all levels of American business: restaurants, start-ups and mid-market manufacturers.
Jack got snookered and had to sign a bad deal with a bad guy or face liquidiation or insolvency.


Jack sold his soul to the devil and was probably just naive about it and thought he could trust this guy.
That's why Kirkland and Ellis and others charge the big $$....right, Sven...?...;-)


Yet another example of the "Golden Rule": He who has the gold makes the rules.

[Stewart Abramson]

That's why Kirkland and Ellis and others charge the big $$....right, Sven...?...;-)

From my experience dealing with K&E over many years, they are one of the most difficult firm's to deal with. I never enjoyed having them on the other side of the table.

[Daryl David]

https://www.golfdigest.com/story/jack-nicklaus-lawsuit-jack-nicklaus-companies-firm-2022


Jack is back.

[John Kirk]

I don't see what the problem is.

Jack Nicklaus sold 49% of his company at the exact right time.  He received $145M for half of a company that is now valued at substantially less.

Here's the plan. Invest all $145M in a low cost S&P Index Fund.  The average S&P 500 price in 2007 was about 1500.  Squeak by on maybe $3-4M per year in dividends for 15 years, plus whatever else he makes working for the firm.  Open up the Wall Street Journal this morning and boom, the S&P 500 is 3900.  Rejoice, as now you're worth $350M and all it took was buckling down and being just a smidge careful for fifteen years.  Now nobody in that big family needs to work for hundreds of years.


What am I missing?

[Tom_Doak]

John:


Good summary!


The only problem is that Jack is not the retiring type.  I'd bet half my net worth [which is not $145M] that he still thinks he's the best golf course architect in the world, and he could be killing it now that things are booming again.  So he wants back in, at 82 (!?!).  He does not know how to relax and enjoy the Golden [Bear] years.  He is driven to compete.


Plus, that $350M might not last his family hundreds of years.  They have grown accustomed to a more expensive lifestyle than any of us!

[Kevin_Reilly]

What am I missing?

Taxes.

[John Kirk]

Hi Kevin,

Yes, of course.  Capital gains taxes were only 15% in 2007, with no capital gains tax in Florida.  However, I'm sure the finances are more complicated that that.

[Michael Morandi]

Age old lesson: choose partners wisely and never sell your name.

[V_Halyard]

Branding and playing golf are mutually exclusive in this case. The golf performance made the player a brand but that is where the connection needs to be severed and defined. The player performed, the brand get's pasted, printed and embroidered on things and leverages the performance of the player.
This is an unfortunate age old occurrence and is agnostic to industry. The Beatles owned Apple records and Cease and Desisted Apple Computer from starting a record label. Prince became a "Symbol" because Warner Brothers owned the name and Brand, Prince. You cannot use the terms "Super Bowl" or "Three-peat" without paying a license fee.
All of this has transformed US Collegiate sports via the NIL deals.
Lesson is to know the value of your Name and Likeness, and understand that you re giving up control regardless of your level of industry respect.

[Charlie Goerges]

Branding and playing golf are mutually exclusive in this case. The golf performance made the player a brand but that is where the connection needs to be severed and defined. The player performed, the brand get's pasted, printed and embroidered on things and leverages the performance of the player.
This is an unfortunate age old occurrence and is agnostic to industry. The Beatles owned Apple records and Cease and Desisted Apple Computer from starting a record label. Prince became a "Symbol" because Warner Brothers owned the name and Brand, Prince. You cannot use the terms "Super Bowl" or "Three-peat" without paying a license fee.
All of this has transformed US Collegiate sports via the NIL deals.
Lesson is to know the value of your Name and Likeness, and understand that you re giving up control regardless of your level of industry respect.

From what people are saying, Jack may not have thought of it as a NIL deal. Tom Doak mentioned that Jack likely thinks he's the best GCA in the world even now. It feels like a bit of a different animal, which is why it's very fascinating and more than a little tragic.

[Ryan Hillenbrand]

I'm interested in how this plays out regarding the renovation of historic Normandie golf course in St. Louis. Jack was donating his design fee as part of the project to make this a true community golf course and the headquarters of our First Tee chapter.


It would be a shame if Milstein prohibited Jack to offer charitable services as part of this non compete

[Joe_Tucholski]

I'm interested in how this plays out regarding the renovation of historic Normandie golf course in St. Louis. Jack was donating his design fee as part of the project to make this a true community golf course and the headquarters of our First Tee chapter.


It would be a shame if Milstein prohibited Jack to offer charitable services as part of this non compete

Looks like he'll be able to work the design side of his business under a new firm 1-JN (I guess pending full trial).


Court rules Jack Nicklaus, involved in lawsuit with Jack Nicklaus Companies, allowed to use his name for course design | Golf News and Tour Information | GolfDigest.com

[Ryan Hillenbrand]

I'm interested in how this plays out regarding the renovation of historic Normandie golf course in St. Louis. Jack was donating his design fee as part of the project to make this a true community golf course and the headquarters of our First Tee chapter.


It would be a shame if Milstein prohibited Jack to offer charitable services as part of this non compete

Looks like he'll be able to work the design side of his business under a new firm 1-JN (I guess pending full trial).


Court rules Jack Nicklaus, involved in lawsuit with Jack Nicklaus Companies, allowed to use his name for course design | Golf News and Tour Information | GolfDigest.com

Thanks Joe!

[David_Tepper]

New article on the legal battle:


https://www.golfdigest.com/story/jack-nicklaus-games-greatest-champion-lawsuit-company-he-founded?utm_medium=email&utm_source=050223&utm_campaign=hitlist&utm_content=DM39272&uuid=9861c6da148243648f1aa92679fb32a0

[Stewart Abramson]

Update rom Today's Golf Digest on line:


Jack Nicklaus wins arbitration case over company that bears his name
By Dave Shedloski

]July 10, 2024
Jack Nicklaus will be able to design golf courses again after winning an arbitration case Wednesday against the company that bears his name. A Florida arbitrator resolved a dispute between Jack W. Nicklaus and Nicklaus Companies LLC by ruling that Nicklaus no longer is restricted by an employment agreement with the company that expired on June 1, 2022. The ruling means the Golden Bear, 84, is now free to design golf courses and solicit the companies’ customers and employees. The case had been ongoing for six months. “The arbitration process was an arduous learning experience, but I am thankful for how it ended,” Nicklaus said in a statement. In late 2022, Nicklaus began offering golf course design services through a new business entity, 1-JN. “I get to keep doing one of the things that makes me happy bringing new golf courses to life and making old ones new again,” he said. “... I am involved in some great projects at the moment and look forward to a lot more of the same now that the effort to keep me on the sidelines has failed.”
[size=0pt][/size]

MORE: The inside story of Jack Nicklaus' legal battle against his own company[/

Nicklaus has more than 300 course design credits to his name. He became embroiled in a legal battle with New York businessman Howard Millstein several years after he sold a minority interest in Nicklaus Companies in 2007. Millstein eventually gained control and ownership of the Nicklaus Companies and expanded it to include other golf-related businesses.[size=0pt]Nicklaus severed his employment with the companies in June 2017 but was subject to a five-year non-compete provision that ended in 2022. During that five-year period, he continued to perform design services for Nicklaus Companies until ending his professional relationship with the entity in May 2022. Nicklaus Companies had sought to extend the non-compete terms, but the arbitrator ruled against it.[/size][size=0pt]While the arbitration case in Florida has been resolved, a lawsuit filed in New York by Nicklaus Companies against Jack Nicklaus is pending and makes similar challenges to Nicklaus’ ability to work independently and use his name and likeness in his endeavors. However, the judge presiding over the New York case denied the companies’ request for a preliminary injunction to prevent Nicklaus from designing golf courses in his own name, finding it unlikely that Nicklaus Companies would prevail in the case. A trial date for that case has not yet been set.[/size]

[Simon Barrington]

Yes, that is an interesting article and no doubt a very interesting situation/relationship/arrangement that has developed over the years.  Thanks for the post.

I recall that at least one of JN's sons was involved in JN's course design business. Yet there is no mention of any role the sons have or have had. I wonder if they are still involved in any way.

You are correct, Jackie was involved in several projects including Hanbury Manor in Hertfordshire. I have no idea if he is still involved