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| The Stonebriar Country Club photography courtesy of ClubCorp |
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| BOSS MAN: ClubCorp CEO Eric L. Affeldt is reshaping a company with nearly 170 properties, including the Stonebriar Country Club in Frisco. photography by Dan Sellers |
Some applaud them for breathing new life into stagnant enterprises. Others call them “strippers and flippers”—short-sighted cutthroats into slashing costs for the sake of quick returns. However they’re viewed, there’s no doubt private-equity firms have become the lightning rods of 21st-century capitalism. And North Texas has recently seen its fair share of their handiwork.
Over the last few years, Fort Worth’s TPG Capital LP teamed with Warburg Pincus to buy Dallas’ Neiman Marcus Group for $5.1 billion. Private-equity stalwarts The Blackstone Group and Bain Capital Partners snapped up Dallas-based Michaels Stores for $6 billion. TPG and Kohlberg Kravis Roberts & Co. combined to nab Dallas-based TXU Corp. for $45 billion—the biggest private-equity deal ever. And Denver-based KSL Capital LLC paid about $1.5 billion for ClubCorp Inc., a Dallas company that is the golfing industry’s largest owner of private clubs.
To better understand private equity’s controversial allure, consider the ClubCorp transaction. That December 2006 deal, which abruptly ended 50 years of local ownership of ClubCorp by the family of the late Robert H. Dedman Sr., is instructive for the way it unfolded and how it has changed one of Dallas’ oldest and most iconic companies. There’s been some pain, mainly absorbed by laid-off employees, but also some early signs of progress for the revamped company.
And the new man in charge of ClubCorp says the process was probably inevitable. “Anytime there is change, there is stress. And people say, ‘Who are those people, and what are they going to do?’” says Eric L. Affeldt, a former partner with KSL Capital who now serves as ClubCorp’s president and chief executive. “So rumors were rampant about what we were and weren’t going to do with ClubCorp once we acquired it.”
Frank Gore, a 30-year ClubCorp veteran who is the company’s executive vice president of membership and sales, says any initial misgivings about KSL have passed. “There’s no question there was fear and trepidation about all the ‘bad things’ that were going to happen,” Gore says. “Now that the year is over and people have seen the changes, there’s certainly a different attitude. ‘Oh my God,’ they’re saying, ‘there are better ways to do things.’”
Still, some 17 months after the KSL deal closed, not everyone is convinced.
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| ClubCorp Founder Robert H. Dedman Sr. photography courtesy of ClubCorp |
‘I DON’T NEED YOUR MONEY’
ClubCorp (it’s pronounced with a hard ‘p’) traces its origins to 1957. That’s when Dedman founded Brookhaven Country Club in Farmers Branch as a family-centric, non-discriminatory private club that was “exclusive without being exclusionary.” Dedman’s pioneering vision was to treat club members like royalty—to provide them with the ultimate “private club experience”—all in a for-profit setting.
In the five decades since Brookhaven’s founding, the company has grown from that single property to include nearly 170 golf courses, country clubs, resorts, and private-business and sports clubs. Among them are the famed Firestone Country Club in Akron, Ohio; The Homestead in Hot Springs, Va.; and 22 golf clubs and seven business and sports clubs in Texas. Dallas-Fort Worth boasts two of the business clubs—the Tower Club in Dallas and La Cima in Irving—as well as 10 golf clubs, including Gleneagles Country Club in West Plano, Stonebriar Country Club in Frisco, and Las Colinas Country Club in Irving.
With about $1 billion in annual revenue, ClubCorp employs roughly 16,000 people serving more than 175,000 member-households. Those members pay the company initiation fees plus monthly dues, both of which vary widely. In DFW, for example, initiation fees range from $40,000 (at Gleneagles) to as little as $3,500 (at Brookhaven). Companywide, monthly dues are between $100 and $300 for the business/sports clubs, and $275 to $750 for the country clubs. Nearly 100 of the company’s properties include golf courses, most of them surrounded by residential development.
So, it wasn’t that surprising when Affeldt’s firm knocked on ClubCorp’s door two years ago—and it wasn’t the first time KSL had come calling. In 1992, a predecessor fund to KSL Capital had tried to buy ClubCorp, only to be rebuffed by Dedman. “‘I’m already a centi-millionaire,’” Affeldt says Dedman told them then. “‘I don’t need your money.’” Undeterred, KSL continued expressing its interest in a deal with ClubCorp for the next decade and a half.
KSL Capital was well-acquainted with the golf and hospitality business. Established in 2005, the firm is a successor investment vehicle to a Colorado company called KSL Recreation Corp. KSL Recreation was co-founded in 1992 by Mike Shannon, a former president and CEO of big-time ski-resort operator Vail Associates Inc. (now Vail Resorts). KSL Recreation was controlled by the New York–based, private-equity behemoth Kohlberg Kravis Roberts (KKR), which provided KSL with capital to invest on its behalf in the travel, tourism, and recreation industries.
“We proceeded over the next 14 years to buy a variety of different companies,” including Miami’s Doral Resort & Spa and the La Costa Resort in Southern California, says Affeldt, a one-time financial adviser who joined KSL in the early 1990s. “We built a collection of independently branded properties, and in 2004 we sold the bulk of that portfolio to CNL Hospitality Properties for [more than $2 billion]. Then we decided in 2005 to raise a new fund, independently of KKR, called KSL Capital Partners.”
Corralling cash from about 35 investors like public and private pension plans, foundations, and some high-net-worth individuals, the KSL fund soon had at least $1 billion to invest in travel and leisure businesses that were “historically underperforming or undercapitalized.” KSL’s fundraising prowess might have been expected. “There are some pretty big hitters” on the KSL advisory board, says Dirk B. Landis, national managing partner-private equity services at Tatum LLC, a consulting firm. Among the KSL board members are a former Colorado congressman, a former president of retailer Williams-Sonoma Inc., and a former chairman of the Wells Fargo & Co. bank.
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| BLUE SKIES AND GREENS: ClubCorp’s Homestead club in Hot Springs, Va. photography courtesy of ClubCorp |
‘SUCCESSFULLY STAGNANT’
The leadership of ClubCorp, meantime, was growing restless in the wake of founder Robert Dedman Sr.’s death in 2002. So in May 2006, Dedman’s son, Robert Jr., and company CEO John A. Beckert announced that Goldman Sachs & Co. had been retained to “evaluate strategic alternatives” for ClubCorp.
In a few months, KSL, advised by Citigroup Corporate and Investment Banking, emerged as the winning bidder for the company over three rivals. “We put up a significant amount of equity out of our billion-dollar fund,” Affeldt explains, “and Citigroup [Global Markets Realty Corp.] was our bank partner to provide a significant amount of capital to buy the company.”
Did KSL consider ClubCorp to be undercapitalized or underperforming, its two acquisition criteria? “In our opinion, it was underperforming,” Affeldt says. “The company had become what I call successfully stagnant. It was doing well, was making good money … but over the past decade it really hadn’t grown very much.”
Within a few weeks of closing the deal, Affeldt moved from Colorado to Dallas to replace Beckert as CEO. Then he embarked on a listening tour of the company’s properties. (The Dedman family retained one of them—the century-old Pinehurst Resort in North Carolina—as part of the deal.) “I spent the better part of last year visiting more than 130 of our locations,” Affeldt says. “I think I became one of American Airlines’ best friends, because I was on the road virtually non-stop, basically just meeting with employee partners and members … trying to understand the business, what we do well, and what we can improve on.”
As a result of that tour and other internal reviews, the company undertook a number of immediate steps to jump-start ClubCorp’s growth. Those steps included:
›› Allocating approximately $175 million in 2007 and 2008 to freshen up the appearance of the clubs. Improvements will range from putting in new fitness facilities to installing water park–like features.
›› Building new tee boxes at all the golf clubs in order to offer a shorter-course alternative for younger and senior golfers. At Stonebriar in Frisco, for example, the new, shorter alternative cuts the length of the Country Club course from 7,064 to 4,500 yards.
›› Relaxing dining-room dress codes at the clubs, upgrading food-buffet stations, and providing takeout dining options there for the first time.
“Our mission is to take the traditional country club and turn it into what another company in the fitness industry calls a ‘sports resort,’” Affeldt says. “So instead of having golf be the focus, the focus may be the pool or water feature, it may be the fitness facility that competes with 24 Hour Fitness or Lifetime, or great casual dining. So it becomes what country clubs originally were: the center of their community, but broadened so they appeal to more people.”
As commonsensical as that may sound—these days, the very term “country club” seems anachronistic—KSL’s makeover of ClubCorp is not without skeptics. One is Addison golf-business consultant Scot Duke, who’s complained on an industry blog that ClubCorp’s new ownership has failed to keep its dues-paying members informed about its plans and goals. A member himself at the Brookhaven club, Duke contends that KSL has little experience managing membership clubs and says it seems the company is merely attempting to “put lipstick on a pig” to generate fast returns for its investors. As “proof,” he points to a $5 million renovation KSL announced for the 50-year-old Brookhaven facility, which Duke says needs a renovation costing many times that.
“I’ve heard from more than 150 people across the country and Canada,” Duke says. “It’s given me the feeling that there’s a lot more negativity [toward the new ClubCorp] than I thought.”
ClubCorp, for its part, rejects such criticism. Mickey Wszolek, general manager of the Gleneagles club in West Plano, says Affeldt has actually communicated more with members—via a new regular e-mail update to Gleneagles board members—than the previous owners did. Affeldt himself says the company has conducted numerous focus groups to gather information from members. “Having said that,” he adds, “you’re never going to make everybody happy.”
Affeldt also says the new ClubCorp has enjoyed considerable success. The company sold more new memberships in 2007 than in 2006, he says, though there was also a “higher than average” attrition rate among members, owing perhaps to the softer economy. And ClubCorp’s overall profitability grew at a faster rate in 2007 than ever in the company’s history, he says. Profitability growth in fact was so strong in 2007, Affeldt says, that ClubCorp was able to refinance its Citigroup loan before the debt markets imploded last summer.
“We had a great year, so we were able to return some capital to our limited partners, and they were very happy with that,” he says.
Landis, the Tatum private-equity expert, says recapitalizing so quickly is “not typical” in such situations. But it appears the company was able to do so by moving quickly during the “honeymoon” period to raise prices and slash expenses.
For example, ClubCorp boosted membership dues across the board last year by an average of 4.5 percent, even as it reduced corporate overhead by a little more than 20 percent. Explains Affeldt: “In some cases, we asked department heads, ‘Forget what you’ve done in the past; tell me what we really need to get the job done.’ Sometimes things tend to grow to the point where you ask, ‘Why do I have seven jackets in the closet? I only need three.’”
The company eliminated about 30 jobs at its headquarters operation off I-635, bringing the head count there to about 300, and deep-sixed an employee stock-ownership plan. (Affeldt says only around 13 percent of eligible employees participated, anyway.) It cut out a college-recruitment program, hiked employee copay costs for health insurance, and successfully drove a harder bargain in connection with its property-casualty renewal rates. It has also put eight of its clubs across the country up for sale, though Affeldt says the Dedmans routinely sold clubs as well.
Collectively, such measures have led at least one former ClubCorp executive to say the company has strayed too far from its roots. “How much is too much?” this ex-employee says of KSL’s makeover effort. “It’s frustrating to the people who have been there a long time.”
Affeldt, not surprisingly, disagrees. He stresses that KSL “likes the business,” and considers it a platform for growth into other member-related offerings over time. “We’re simply saying there is a better mousetrap. There’s a way to redesign this business that will make it more appealing to a broader spectrum of the population, and therefore it will hopefully be even more financially successful,” he says.
“I tell people that Robert Dedman Sr. had the privilege of inventing an industry,” he continues. “I have the privilege of reinventing it. That’s neat. I like that.”
The question now is who besides KSL’s investors will like it, too.
CEO Snapshot
Eric L. Affeldt
ClubCorp Inc.
Title: President and CEO
Personal History: Born in 1957 in Los Angeles. Divorced. Two college-aged daughters, Ashley and Marisa.
Education: Claremont McKenna College (California), B.A. in political science and religion, 1979.
Work History: Principal, KSL Capital Partners. President and CEO, KSL Fairways. Vice President and General Manager of the Doral Golf Resort and Spa (Miami) and the combined PGA West and La Quinta Resort and Club (California). One of the founding partners, KSL Recreation. President, General Aviation Holdings.
Other Activities: Member, Young President’s Organization. Board member, First Rate Investment Systems, Avendra, Youth With a Mission, and YPO Fellowship Forum.
Distinction: Ranked third on Golf Inc. magazine’s list of the “Most Powerful People in Golf.”
Hobbies: All sports, reading, and exercise. “But I’m a self-professed business junkie, and I’m habitually traveling.”
