Hi Patrick,
I'm going to respond in detail at least once, but I'm not going to do your entire homework list of assignments. Before I address specific objections to my original post, let me summarize my issues and personal grievances with the golf club construction business.
It was not my primary intent to single out any one golf club owner here, though Donald Trump's name was used, in the opening post and as an example of course bankruptcy.
Here's what happened. I went looking for golf course bankruptcies to use as an example. I Googled "golf course bankruptcy", and the first page of results were all related to the recent Coco Beach G & CC, aka Trump Puerto Rico, chapter 11 filing. I did not want the focus of my discontent to be about Mr. Trump, but I was shocked by the amount of liabilities, which are over eight times the stated assets. So I included that example, but went looking for another high profile example and found Briar's Creek, a fine facility which has appeared in Golfweek's Next 100 Modern list.
Briar's Creek listed $1.56 million in assets and $37 million in liabilities, though they are careful to point out that the golf course is not included in the assets. A Houston executive led a group to buy the course and vacant home sites for $7.4 million, while assuming a $5.8 million liability in secured debt obligations.
My questions are these. Even if we value the assets at $10 million (add in golf facilities), how do you accumulate $37 million in liabilities? What type of person continues to solicit funds and investors in the project, knowing the liabilities will be unrecoverable? The $26 million in refundable initiation fees and loans will be paid back at a fraction of their value. I would be personally incapable of selling someone a golf membership, knowing there was no chance the redemption offer I was selling would never be honored.
The $26 million in question likely paid for the vast majority of the development and early operation of the club. They paid the lion's share of the salaries of the workers who built and operate the club. It appears that this limited liability corporation (LLC) truly has limited liability. The secured creditors still get paid, and the penalty for bankruptcy looks to be on the order of a $1 million loss, rather than $10-30 million. And that doesn't count the salaries the principals and their employees earned while executing a business plan. In my opinion, the penalty for building an unsustainable entity was not severe enough.
Rather than having politics as my primary motivation, I'd put my personal grudges as more relevant. In the last twenty years, I have been a member of five newly developed golf clubs, and invested a substantial amount to their development, twice as a founding or charter member. I will receive no redemptions, though I was promised an amount that approximately equaled my investment. I am still well received at each of these clubs, and was able to enjoy the phenomenal golf experiences of playing courses with modern, pristine playing surfaces. But to an extent, I was a whale, willing to invest large sums of money for promises that couldn't be honored.
I'm also mad because there's been a renaissance in golf course design, and my favorite designers have few opportunities to develop their superior product at home. New popular designers build wider golf courses with a less penalizing philosophy of the game's challenges. The name of the game now is wide and walkable, with strategic undulation, fewer lost balls and no artificial water hazards, and an eye towards lower construction and maintenance costs. But over the last thirty years, golf development used these financial engineering tools (debt and bankruptcy) and salesmanship to saturate the market with unwalkable golf courses and unsustainable business plans. And now those courses/clubs have been reassessed, and are in direct competition with a better brand of golf. That pisses me off.
Patrick, it comes as no surprise that you would champion the efforts of someone like Donald Trump, being from New Jersey and the land of financial engineering. I champion the efforts of the workers who build and maintain the courses, and offer hospitality to their clientele. I perceive the salesmanship and financial engineering used for golf club development, as often dependent upon members/investors who do not get repaid. I choose to admire people who create tangible products and services that I understand, and I have disdain for financial engineers who load the balance sheet with debt while enriching themselves. The need to financially manipulate and engineer a deal is only necessary when the idea does not stand on its own merits, and sells itself.