Turbulent Times for High-Flier

By ANTHONY PALAZZO
Staff Reporter

David Price isn't one to flinch under pressure. Trained as a Navy fighter pilot, he became a flight instructor during the Korean War. As an entrepreneur in the early 1960s, he revolutionized the business of managing golf courses. As a philanthropist, he funded a private school in the San Fernando Valley and a museum for his prized vintage aircraft in Santa Monica.

"Silk," is how one former business associate, Sandy Burns, describes Price's flying style. "He's as good as they come when it comes to flying an airplane."

Now 69, Price will test the limits of his training, his experience and his character as he navigates around the biggest storm of a spectacular career.

The golf empire Price built over 40 years is in danger of crumbling. Price, who once made the Forbes list of America's wealthiest people, has seen his fortune shrink to a mere fraction of its former worth. The two Santa Monica-based companies he controls, National Golf Properties Inc. and American Golf Corp., are heavily in debt, and shareholders have revolted against a plan to merge the two. Forbearance agreements have expired, and bankers can call in the loans at any time.

Yet friends, former business associates and industry veterans alike caution against counting him out.

"David Price is a very respected, shrewd guy and he's got great advisers. If there's a way for him to bring the company back to health he'll find it," said George Marderosian, president of Clubhouse Capital, a Providence, R.I., golf course finance and advisory firm.



'What do you know about golf?'

Price changed the golf industry some would argue he recreated it by taking over poorly run courses and making them profitable. Instead of golf pros or municipalities running things, he brought in businesspeople who understood how to keep costs down. "It was the old-time mentality that you're lucky we're playing at your golf course," Burns said. "David changed that."

In 1963, he hired Burns for a company called Garden Land Co./Palisades Builders. With partners from Texas, they built Westchester Golf Course, and took it over when it ran into trouble.

"David called me in and said, 'What do you know about golf,' and I said, 'Nothing. I can't even hit the ball straight.' " Burns recalled. "He said, 'Good, go down there and throw the bums out.' "

The business wasn't immediately successful.

"The first two or three years, I mean, it was a disaster. Everything that could go wrong went wrong," Price told CNNfn last August. He declined to comment for this story.

Burns was president, in charge of operations, acquisitions, construction. Price handled all the financing for what became, after a series of name changes, American Golf in 1973. "It was his dream that made this work," said Burns, who left American Golf in the early 1990s.

In the mid-1980s, American Golf embarked upon a nationwide expansion. Price hired Lynn Shackleford, the former basketball player and Lakers announcer, and Gail Goodrich, the Hall-of-Fame Lakers star, to help with acquisitions. Price met Goodrich at the 1984 Olympics, where he and his then-wife, Dallas, were in charge of the basketball event.

Price recently had gotten the contract to run several golf courses in New York another turnaround project. He asked Goodrich, who had a real estate background, to come to work for him doing acquisitions.

"He opened the books and showed me what he was doing. I looked at this and said at that point, this may be one of the best kept secrets in business," said Goodrich, who now lives in Connecticut. He worked for Price for 12 years, acquiring between 60 and 70 golf courses.

Like others who have worked for Price, Goodrich remains on good terms with his old boss.

"He taught me a lot of the business. He's a very likable guy, a charitable man, a terrific guy," he said. "He was always good to me and we got along very well."



Another side of Price

Burns was close to Price too; Price was the best man at Burns' 1966 wedding. But he, too, left in the early 1990s, after Price brought his sons-in-law into the business. "Obviously, if the son-in-laws were going to be in the business I certainly didn't need to be involved," Burns said. Price bought Burns out, and still owes him some of the payment. "Whatever it is, it's comfortable," Burns said. The two still have dinner a couple of times a year.

Some lower-level workers saw a different side of Price and his acquisition machine. Upon acquiring Seascape Golf Course in Aptos, Calif. in 1986, American Golf threw out the unionized groundskeepers and restaurant employees, later hiring some of them back, sans union, at lower pay.

Three years later, a National Labor Relations Board found that American Golf violated labor laws with respect to the groundskeepers, but not the restaurant workers, since the restaurant was closed for remodeling for a time after the purchase.

"They hurt a lot of people who had been at Aptos a long time, seasoned older people who lost their jobs," said Leonard P. O'Neill, secretary-treasurer of the Hotel Employees and Restaurant Employees Union in Monterey.

A Teamsters official, Pamela Chaney, recalls that the groundskeepers received a small check two or three years after they were fired. "They were very anti-union, they just didn't want to deal with us at all," she said.

In 1993, Price embarked on the biggest expansion of all. He divided American Golf into two companies. American Golf would continue to operate the courses, but they would be owned by a new company, a publicly held real estate investment trust to be called National Golf. Going public allowed Price to raise more money than was possible as a private company, and buy more courses in an industry that even then was being called overbuilt.

"National Golf Properties in my opinion was no more than a financing vehicle for American Golf to grow. It was off-balance sheet financing," said Goodrich. "National Golf had one or two other lessees, but that was showcasing. There was always a conflict of interest from day one."

But Goodrich added that, "It was all out in front for everyone to see. David's an honest guy."

Again, Price had set the trend. A number of golf REITs sprung up, and eventually, most of them, like National Golf, ended up running into trouble. In a sense, Price was a victim of his own success. By showing people there was money to be made, he attracted too many competitors.

"He's the big barracuda," said Jeff Christensen, a PGA professional who now runs a Twain Harte, Calif., company that operates seven courses. "He was conceptual when golf management was just starting. He had that vision and went with it. We are all trying to follow."



Model might not work

But to where? There is some treacherous territory ahead.

REITs are finance vehicles that are encouraged by Wall Street to acquire. If they've paid too much for a property, there's little chance of generating the cash flows that are required to service the debt. Ultimately, said one executive who's been through a bankruptcy with another company, the REIT model for golf courses "doesn't seem to work."

A plan to put Price's two golf companies together again appears doomed, Humpty Dumpty style.

Major outside shareholders of National Golf see the company as a separate entity from American Golf, and since it owns the hard assets they're not eager for a recombination with the debt-laden affiliate. Shareholders also are suspicious of a planned equity infusion that would dilute existing investors' holdings when the stock is trading for less than they think it's worth. Under Maryland law, where National Golf is headquartered, these shareholders appear able to block any transaction they don't like.

National Golf has been selling assets to raise cash, while its investment bankers have been shopping terms of a proposed equity infusion to prospective investors. But with so much opposition, the bankers, Lazard Freres & Co., are said to be wavering on the merger plan, and considering whether an alternative should be pursued.

"The situation is very fluid," said one golf course investor who's following the deal. Without knowing whether the investment would be in National Golf, American Golf or both, he said, no one's gotten past a very preliminary stage of review.

It's not clear whether Price could fund an infusion of capital into American Golf, or whether he could do so without selling his interests in National Golf, which is valued at about $35 million. Dallas Price, who is said to retain some involvement with American Golf, has a similar-size holding. Price also owns the Mountaingate Country Club near UCLA, but it is heavily mortgaged. The Prices borrowed more than $30 million from American Golf, as they funded the $40 million Oaks Christian School in the Valley and other charitable endeavors in the late 1990s, but National Golf press releases indicate Price is owed several million dollars due to other dealings.

Meanwhile, things aren't getting any better for either of the companies. In a filing last week, American Golf said its course revenues fell year-to-year, and it lost $31 million in the first quarter ended March 31. The company's liabilities outweigh its assets by $90 million. In El Segundo, the city has delayed for 90 days the start of a contract with American Golf to run its municipal golf course, The Lakes. The city wants to see if American Golf can clear up questions about its financial health.

At National Golf, cash balances fell to about $39 million from $63 million, despite the sale of six courses during the quarter for $18.7 million. Since then, another four have been sold for $26.5 million. The company also has agreed to sell six more, for $62 million.

"What we're worried about," said one large shareholder, "is they're going to get all the way down the road to September (when the merger is slated to close) and say, 'If shareholders don't approve this deal this company is a wasting asset. You have to vote for it or this company is going to zero."

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