The following was sent to the MCA board of directors this morning. The intent is to constructively suggest to the board what needs to be done to deal with the vexing situation with our sports complex. Much of what follows was previously recommended to the MCA back in early April (74 days ago) but ignored. Perhaps a course correction should be considered.
A Possible Way Forward for the Meadows Sports Complex
With the MCA announcements of no immediate signing of a lessee for the sports complex, more postponements of board meetings, no town hall meetings and the fact that the MCA has terminated further negotiations with the Meadows Country Club (TMCC), where do we go from here? TMCC has threatened bankruptcy as leverage in its negotiations with the MCA. TMCC held no cards in the negotiations which dragged out for 2 months and, we believe, distracted MCA executives from focusing on obtaining a lessee. Let the TMCC go into bankruptcy and move on. If there is a “stain,” it will be on TMCC because it was not owned by the MCA.
The Transition Subcommittee, disbanded after 8 days of existence, provided a thorough list of questions and a transition road map back in April (Footnote 1). Some members of the committee continued to work together and provided the Board and community with an analysis of its options. To date, that advice has mostly been ignored and the residents can see the result. MCA executives need guidance from a qualified professional golf and club consultant, and would benefit from utilizing the skills available from MCA residents.
While more details need to be discussed, here is a possible road map for the MCA board. Some of these steps can be completed simultaneously by involving all capable Board members and community members with relevant skills. There are MANY community members who want to help out and they have skills and knowledge that the MCA board should maximize to the fullest (this was recommended way back in March).
- Secure the TMCC assets and equipment now on MCA property and change the locks. It’s unknown as to whether the MCA took a comprehensive inventory on May 1, but one needs to be done ASAP. Under Cl. 16 of the Lease Agreement, those assets should have been assigned and transferred to the MCA from May 1.
- MCA Lawyers need to immediately send a letter of demand to the TMCC to turn over all assets in compliance with the Lease Agreement. A simple assignment and transfer agreement should accompany the letter for the TMCC to sign and return within 5 calendar days of receipt. There should be no mention of accepting any TMCC debts (real or contingent). It is also obligated to turn over, not necessarily assign, its lease agreements with various vendors. If the TMCC should fail to comply, then the MCA would take the TMCC to court to enforce the demand.
- Select an independent golf industry expert. MCA Board members interviewed three (excluding the golf property broker LIPG) and hire one to assist with many of the following tasks.
- Determine whether one or more of the golf courses should be opened for the next 6 months or just continue to do minimal maintenance (i.e., keep the courses maintained at less than a playable standard so they can be brought up to playing standard in about 4 weeks).
- MCA needs to do a reasonable budget for minimal maintenance of the 3 courses with greenkeeping staff only, perhaps with minimal ICON corporate oversight.
- MCA needs to do a reasonable budget to possibly open 18 holes or more, utilizing the advice and assistance of the MCA’s golf expert. It is very unlikely that MSC will be able to generate sufficient rounds to justify more than 18 holes being open and we recommend the original 18 (members course 1-3 + 12-18 + Highlands 10-18). The budget needs to reflect that it will take approximately 4 weeks for the course to be in playing condition. Any holes not in use will still be minimally maintained. It must include a detailed marketing plan with expected results. This budget should be compared to TMCC’s August monthly budget as a “reality check”.
- For both options, the Treasurer must provide a funding plan.
- After completing reasonable due diligence and discussing the alternatives, the Board can then select which approach it will take.
- MCA needs to do a reasonable budget for minimal maintenance of the 3 courses with greenkeeping staff only, perhaps with minimal ICON corporate oversight.
We’ve summarized two alternatives based on the information available: Operating the courses, as advocated by MCA leadership, will have an estimated loss of over $400,000 per month. Minimal maintenance will cost less than $150,000 per month. (both for up to 6 months or until an operating partner is found)
We are assuming that MCA does not want to be an ongoing operator of the facilities. If MCA is considering this option, it must provide a capital budget and its impact on MCA homeowner assessments. MCA VP indicated up to $25 million may be required based on the current state of the assets. We have no idea how he arrived at this number or if it was requested as a commitment from potential lessees. Additionally, Club Benchmarking indicates that 18% of club revenues should be designated for repairs and replacement (that would be about $1.5 million per year).
5. If the golf courses will be operated, complete all legal governance and administrative steps to make the Meadows Sports Complex (“MSC”) operational. If MCA is only maintaining the golf courses, this is likely not necessary.
- Bylaws and directors for MSC need to be approved by the MCA. TMCC officers, directors and spouses should be expressly excluded. There are numerous legal reasons to exclude them because we don’t want creditors, the state and the IRS to think that the TMCC has closed and reopened under the guise of the MCA. Also, because the MCA is a not-for-profit entity and the MSC is a for-profit entity, the MSC should be as clean as possible in terms of governance.
- We need a written confirmation from the MCA treasurer that all sport complex assets, excluding the Wellness Center and possibly the pool, have been moved from the balance sheet of the MCA to MSC. While the MCA’s governance has been sloppy at best and nontransparent to the residents, we can start with the MSC.
- The books of the MSC need to be separated from the MCA. A control system to monitor the approval and movement of funds between the two entities needs to be set up, preferably by an MCA audit committee. MSC can use the same auditor as the MCA. In any event, we would change auditors after what we have seen of the audited MCA accounts.
- There needs to be a discussion with Centennial Bank about increasing the line of credit to support the MSC. They will want to see a detailed budget, cash flow forecast, and marketing plan. They will likely ask for an update of their security agreement, naming specific assets. The loan and security agreements signed in 2017 by the MCA treasurer pledged “all present and future assets.” It was not good business or financial judgement at the time.
- Enter into an appropriate contract with ICON.
6. If the golf courses are only going to be minimally maintained, obtain a skinny contract with ICON to manage the courses with minimal maintenance until further notice. We don’t need an F&B Manager or a Marketing Manager or other unnecessary administrative overhead. In fact, we don’t need a GM if we are on low maintenance. It can be handled by the groundkeeping supervisor with access to ICON corporate agronomic expertise.
7. Vendor contracts need to be reviewed, cherry-picked and renegotiated. I believe that we have the expertise to do this from the many residents of The Meadows.
8. Need a party to inspect and evaluate the status of equipment to determine state of condition and likely necessary maintenance. The cost of maintenance should be estimated per piece of equipment.
9. Work with the golf course expert to understand the MCA’s options for finding an operator/investor who will run the facilities for their own profit. Is a long-term lease partnership possible or not? What about a long-term management agreement? Is a joint venture with an operator a possible option given the amount of capital that may be required for the sports complex? If selling is the only plausible way to go, what are the protections we can seek to prevent future housing development that we don’t want. Document the alternatives, discuss them at the Board and pursue the selected approach. Develop an RFP and potential partner list with our golf industry expert.
10. Before opening Center Court Lounge, we need a detailed budget from the MCA treasurer. We have historical numbers which should help her develop a budget, but we also know that summer food service loses money–even more so with no members, and no liquor license.
11. Get a legal opinion from our attorney as to the state of the TMCC being unable to meet its liabilities (i.e., “debts”) as and when they came do, confirmation that they have to turn over assets to the MCA under CL. 16 of the Lease Agreement, and confirmation that in assuming the unencumbered assets, the MCA is not assuming any TMCC debts unless negotiated with the vendors on a case by case basis.
All of this could have and should have been done back in mid-April if the MCA executives were not so overly confident that they, with no company turnaround or insolvency experience or golf or club management experience, could handle the abrupt transition of operations from the TMCC to the MCA.
Richard Sommerfeld & Jim Laidley
(Former members of the disbanded Transition Subcommittee)
Footnote 1 – As the Transition Committee was given the task of facilitating a “seamless transition” of operations, many of its recommendations were oriented towards that goal. Based on information that later became available, it is apparent that keeping the golf courses closed with minimal maintenance is the best course of action for the MCA. However, many of the recommendations still apply to this approach.
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