Course Owner Hits Rough
After spending 30 years building a nationwide golf course empire, Los Angeles businessman and philanthropist David G. Price is struggling to salvage his companies and his reputation amid mounting financial pressures and charges of conflict of interest.
Price’s problems have surprised many in the golf business who thought his two Santa Monica-based companies, publicly traded National Golf Properties Inc. and privately owned American Golf Corp., were strong enough to withstand the intense competition and drop in demand facing the industry.
National Golf is the country’s largest publicly owned real estate investment trust focused on golfing properties, with shares traded on the New York Stock Exchange.
American Golf operates more than 300 properties, including the prestigious Mountain Gate Golf and Tennis Club in Los Angeles and five public courses owned by the city of Long Beach.
But American Golf finds itself in trouble with its lenders and is having difficulty making payments on many of its leases, primarily those involving the more than 130 golf courses owned by its sister company, National Golf.
Price and National Golf have been hit with shareholder lawsuits, and a proposal to merge both firms has been criticized as a deal that would primarily benefit Price. One likely scenario, according to a Wall Street investment bank, has National Golf filing for bankruptcy protection. Price declined to be interviewed for this story.
Despite the lawsuits and mounting criticism from investors and Wall Street analysts, people familiar with Price, who serves as chairman of both companies, don’t expect the former Navy fighter pilot to give up control of either company without a struggle.
“There are certainly some conflicts of interest,” said golf course industry consultant William H. Sherman. But “you are not going to force him out unless he wants to get out.”
Price may be out of favor on Wall Street, but on many a fairway and putting green, the 69-year-old is recognized as an industry pioneer and innovator who grew wealthy applying corporate-style operating methods and standards to the golf course business.
A former attorney with experience in the hotel and restaurant industries, Price founded American Golf in the early 1970s and was soon turning money-losing private and public courses into efficient and profitable ventures. Ironically, Price is not a golfer.
“I look at it as a business, not a sport,” Price told The Times in a 1986 interview. “Most golf courses are run by pros who, as athletes, know lots about the sport but generally not much about budgets, marketing or management. We come in and offer economies of scale. Cities make money. We make money.”
The wealth generated by the golf course business allowed Price and his former wife, Dallas, who also is a shareholder in both golfing companies, to maintain a prominent profile in Los Angeles society and to bankroll many charities and institutions. The couple helped found the Museum of Flying in Santa Monica, and Dallas Price donated $10 million to the Museum of Contemporary Art in Los Angeles. The Prices also have poured substantial sums into building the $30-million campus for the Oaks Christian High School in Westlake Village.
Price spent his early years in the business overcoming many skeptics and opposition from some golfers and public employees who claimed his concept of privately run, public courses would be a costly fiasco and result in steep fee hikes for golfers.
Government agencies nationwide dismissed such objections and turned to American Golf, which is nearly 90% owned by the Price family, for help in running their courses
“He had a brilliant idea,” said Craig Kessler, executive director of the Public Links Golf Assn. of Southern California.
American Golf “proved that the private sector could manage [public] properties and turn losers into winners.”
Price again broke ground in 1993 by founding National Golf Properties as the first publicly traded real estate investment trust that specialized in golf course properties. As a REIT, National Golf is prohibited from owning operating companies and contracted with American Golf to run most of its properties. As a result, it is dependent on American Golf for the vast majority of its income.
Once sources of strength, the close relations between the two companies and the Price family ties now are considered liabilities. Undermined by the golf industry slump, American Golf last year told National Golf it probably could not make lease payments and that its deteriorating financial health had put it in technical default on some of its loans. As a result, National Golf also was in technical default on its loans and was forced to cut its dividend.
A shareholder lawsuit filed in U.S. District Court in February said Price misappropriated National Golf funds through a “scheme of complicated financial dealings” that involved entities controlled by the executive. In addition, the lawsuit charged that $31 million raised by a secondary offering of National Golf stock went to a “Price-controlled entity,” Oaks Christian High School
A spokeswoman for National Golf said the firm has reviewed the lawsuit and found it “completely without merit.”
As concerns about National Golf have grown, its share price has tumbled by more than 75% since summer. On Monday, National Golf shares closed at $5.91, down 19 cents, on the New York Stock Exchange.
Investors also were rattled after investment firm Morgan Stanley said a bankruptcy filing “remained a real possibility” given the poor performance by American Golf and a batch of maturing loans.
But National Golf officials have ruled out filing for bankruptcy and have announced a merger between the two firms that would create a firm that would operate as a traditional corporation, not a REIT. The firm also has said it has worked with lenders to resolve its loan problems.
“This restructuring of the relationship with American Golf into a single entity will over time give better value to the stakeholders,” said Charles Paul, who heads a committee of independent directors and serves as National’s interim chief executive.
Paul said the directors, not Price, are calling the shots at National Golf while the merger and reorganization are being worked out. “We are independent from the American Golf interests and independent from the Price family-affiliated interests.”
But some analysts and National Golf investors say the proposed deal is skewed in favor of Price.
Carl Tash, chief executive of Cliffwood Partners, a Los Angeles investment firm that owns a 9% stake in National Golf, said he is concerned about loading the newly merged company with American Golf’s problems and debt.
“If American Golf has had financial difficulties, it should clean up its balance sheet first and then approach National Golf” about a deal, Tash said. “When you have a tenant that is not paying rent, why are you running into their arms instead of extricating yourself.”
The deal “almost looks like a bailout of American Golf by National Golf,” said Steve Sakwa, a real estate securities analyst at Merrill Lynch. “As a [National Golf] shareholder, why would I want to do that?”
Although the merger calls for National Golf and American Golf to be reborn as a new company, Price and his family would remain heavily involved in the operation. Under the terms of the proposed merger, David Price would serve as chairman of the board with a five-year employment contract.
The Prices, as majority owners of American Golf, also would receive most of the one million shares of preferred stock that would be convertible into common stock in the new company at $15 a share.
“To think that he is out is naive,” said one investment specialist who follows the company. “They are all so intertwined that it’s hard to get him out of the equation.”
