How does the end of Amer. Golf Corp. bode for GCA

[Lynn_Shackelford]

Effectively, American Golf Corporation is history.  The Starwood Group, with funding from Goldman and Sachs, is going to be the new owners/operators.  Aren't they involved with Troon Golf?  If there is to be an influence from Troon, will this open the door for other architects to renovate some of the properties?  Typically American Golf Corporation used a few architects for most projects.  Will this affect Superintendents?  Troon typically boasts how it spends so much money on capital projects.  Finally, are there some courses out there starving for some cash infusion?  Will it now come?  I sensed that American Golf Corp. was pretty selective the past couple years on which courses were properly maintained.  Will some municipal leases be in jeopardy?  I would presume an assignment of the lease will need to be landlord approved.  Many possible changes in about 200 courses.  Many questions to be answered in the coming months.

[JohnV]

According to the article on Golfweek's website, it isn't a done deal yet, but it probably will happen.  In the article they say that Starwood has 2 seats on Troon Golf's board so they must be a major stockholder in it.

I'm not surprised by this as AGC and NGP have been in serious financial hurt this past year or two.  But, they just announced a costly project at Pumpkin Ridge and it seems like it would be somewhat unusual for a company that is about to be bought out to be doing much capital spending.

The project is to rip up the first 12 feet of rough on each side of every fairway at Witch Hollow and re-sod it in order to get rid of the bent and poa incursion.

In the letter to the members of Pumpkin Ridge, they also said that they had put in a bid for Ghost Creek to host a US Open and they had plans to lengthen the course to over 7200 yards if they get it.

If this does come to pass, I bet they would dump a bunch of their money losing courses pretty quickly.

[A_Clay_Man]

I was under the impression that in the last six months they were dumping properties left and right.

I don't know about others experiences but I have never had any great love for the courses run by these corporations. They always seem so impersonal and that is mostly reflected in the employees that work there.

[Guest]

Hip hip, hooray!

Talk about a pump and dump company.  Good riddance!

[Evan Fleisher]

Adam (and others),

I too have NEVER been a fan of the AGC and how they run (or should I say run-down) golf courses.  Most of them have been ruined by poor conditioning and a lack of care by the folks who work there.

I don't see how they can do anything but improve on a situation that was really headed nowhere good.

[John_Conley]

American Golf is/was a management company.  That means they were outsourced to operate golf courses for the courses' owners.  (Sometimes this was an affiliated REIT and sometimes it wasn't.)  The very nature of their business was to cut costs by hiring less expensive help and putting only a minimum into maintenance.  I'm not sure what their sales pitch was, but it is obvious they wouldn't ever realize operating efficiencies with volume in the same fashion as a semiconductor manufacturer or pharmaceuticals company.

By the time American Golf was asked to run any property the owner had usually (or at least often) experienced difficulties.  Simply hiring them did not make the market forces for the courses in question any better or worse.

Could you explain what you mean by a "pump and dump company"?  And why on earth would you post anonymously?  Or am I to believe Bernie Ebbers really has nothing more important to worry about?

EVAN:

Remember my words... the next operator will still reach the conclusion that it just doesn't pay to keep a golf course in top-notch condition if there is too much supply in their market.

[Bill_McBride]

Starwood is the world's largest operator of hotels.  To the best of my recollection, they own Sheraton and Westin Hotels and a number of other hotels as well.  This could mean a lot more alliances between lodging and public courses, could be a good thing (more working capital and capital budgets), could be a bad thing (milk the cash).  It could open up a lot more play from conventioneers and business travelers.  Very interesting..............
From what I've heard for years, they couldn't do much worse than American Golf.

[Dr. Reynolds]

Lynn,

Wow... This is interesting info! I have heard of a number of golf courses considering ( some highly rcognized) bringing in a third party manager as a means to weather the current economic storm!  Is Troon Golf the wave of the future?

About ten years ago I had a long heart to heart with a well known architect and he expressed a grave concern that the rate of construction had greatly exceeded the demand for golf..
He went on to say that some day in the near future we would see a dramatic drop off in revenue in the newer courses
and player interest would revert back to the classics!


Is this the beginning!

[JohnV]

It is not Starwood directly that might be buying AGC/NGP, but a private capital company owned by Starwood.
 
Link to: Golfweek Article

[Tim Weiman]

Lynn Shackelford:

What happens to a place like Rec Park in Long Beach?

[A_Clay_Man]

JV- I can't speak for the guest who posted but in market lingo a pump and dump is a stock which gets listed and usually doesn't belong on any board. Prime examples of P&D's are one market co.'s that don't have the diversification of multi-conglomerates. Medical, golf, bio-tech and many other one dimensional stocks are usually pumped up hyperbolewise by brokers and traders and then when you finally buy in it is they that are selling it to you. The dump.

Once again I reiterate my opposition for anyone who enters the golf market for anything other than "love for the game" justifications. If individuals or groups are buying just to get the return on investment, especially now, are in for a long hard road. But price is everything and depending on that, if someone makes a dime there is sure to be the sheep that follow.

Do it for the betterment of the game and as with most labors of love it takes time to let that love show thru.

[JohnV]

Adam, I'm not the one who asked about pump and dump, but I don't really think of National Golf Properties (the force behind American Golf) as being that kind of company.  They didn't try to pump up the price and then dump the club.  In most cases, they bought courses and tried to cut costs to run them as cheaply as possible and make a big profit out of them.

They made their killing by buying courses from all those people who built courses for "the love of the game", but didn't consider how they were going to make enough money to survive.   The guys who started Pumpkin Ridge were a good example.  They wanted to build a pair of great championship courses and hopefully make money.  Well, they did the first, but the failed miserably at the second and had to sell 50% to NGP just to pay off the loan debt.   But, they were pretty smart businessmen and negotiated a annual payout of the proceeds for their remaining 50% that came off the top.  They've done well even though NGP didn't.  I believe this was the only time that NGP didn't buy 100% of a course.

American Golf had to take on other properties to manage in order to show that they were not just a shell game for NGP, which as a REIT couldn't manage the properties they owned.  They have been unable to make their payments to NGP because the cash flow hasn't been there.  In the end, they probably were done in partly by their poor practices and partly by the bad economy.

I will add that AGC has maintained Pumpkin Ridge in very good form and the people who have worked for them have mostly been very friendly and good to deal with.  I just hope that my membership sells in the next month before these other guys come in and lower the price again.

[Lynn_Shackelford]

Tim W.
I assume all leases will be assigned to the new entity.  However the landlord, in the case of Rec. Park, the City of Long Beach, will need to consent to the assignment.  American Golf may attempt to conceal the deal by indicating that the shareholder David Price will still be the majority shareholder and therefore no consent will be required.  A smart city will not buy this.  In the case of Long Beach, Rec. Park is not an issue, but Skylinks which is one of the worst maintained facilities in Southern California could be an issue.  If I were the powers that be in Long Beach, I would use this opportunity, leverage, to extract some effort by the management company to improve the conditions at Skylinks.  American Golf has been telling Long Beach that as soon as American Golf improved their financial position, they were going to do a major renovation at Skylinks.  That has been laughable, except to those who play there.

[John_Conley]

John V.:  You illustrate my point with a mention of Pumpkin Ridge.  It actually pays to maintain the course because they can drive revenue through premium rates.  Now try that at some of the other courses American Golf managed and you'll see you are wasting money.  Simply hiring a management company does not change the supply-demand profile of a property.  (I believe the only national branded golf courses that can charge a premium is the TPC network, and you might be able to throw in Troon.)

A Clayman:  I obviously know what a pump n' dump is.  I just don't see how it applies.  Perhaps someone doesn't understand American Golf at all.  National Golf Properties and Golf Trust of America were very viable companies.  It is very easy to say, with benefit of hindsight, that you knew they were bad investments.  However, we could point to America's most widely held stock - Lucent - as another company whose business failed to meet projections.  If anyone knew what would happen they would've sold 5 years ago, so it's a little hard to buy an "I told you so".

REITs are complicated investment structures.  As John V mentions, a number of operators are struggling... not just National Golf Properties.

[Mike_Young]

A Clay Man,
I think many that have been in the golf business for long never really considered the golf stocks viable.  Yousaw many astute business people buy into the "golf stock" deals just because of their affection for golf.  Otherwise they would have never done it with other investments.
Golf has always been and always will be mom and pop for the majority of the courses in this country.
It is funny that when the big golf companies were going strong people were running around saying " we have $50 million for purchasing courses.  Do you know of any?"  And I know they were asking this of all architects.  They didn't have $50 million anymore than me.  What they had was a deal that any of us could have had on Wall st.  If they could show a 20% return on investment then money was available.  And boy did some funny returns start showing up.  They bought these deals with hype and now as always supply and demand is left to correct the market.  So John Conley, I think he may be correct in saying that many knew these were bad deals...we were just hoping we were missing something.
Mike

[John_Conley]

Mike:

This is how REITs work.  YOU knew it was a bad idea because you have familiarity with golf economics.  But if you are given money to deploy to buy golf courses, you go out and buy golf courses.

Meditrust was a "paired-share" REIT in the health care world that met its demise.  Business failures are not limited to golf.  At some point too much investment in an area kills the return for everyone.  This happened with internet stocks in the late 90s and biotech stocks in the late 80s.  I'm just making the point that overinvestment was not limited to the publicly traded REITs.  The total portfolio of Golf Trust of America and National Golf Properties probably never even reached 1% of all U.S. golf courses.  

"we knew these were bad deals"... is that any different than established money managers contributing to the excesses by paying over 50 X earnings for Cisco stock or plowing money into bet-on-the-come internet stocks?  I don't think there was much difference.

I read the prospectus for Presidio.  It was going to be the 3rd REIT and own the courses run by Arnold Palmer Golf Management.  Some of the portfolio was going to be in Memphis.  I called my friend who was a golf pro there at the time and read him some projections.  He told me they would never be met.  The company never did successfully complete the IPO, but if anyone thinks they were the only ones projecting overly optimistic numbers for rounds played and average rate....

[Launch_Director]

AGC problems came down to simple math. They always believed that a 5-some could get around a course, on average, at the same pace a 4-some would. They refused to believe that there was a 20 percent difference (the April 99 issue of Los Angeles Mag takes them to task). If you're failing at math at such a basic level....Good riddance!