Personally, I’m not a big golf fan. I think that, in general, golf courses are ecologically unsound (dangerous even, in some climates – Saudi Arabia doesn’t need to be wasting potable water on golf courses) and a waste of valuable land. They are extremely large, but provide services only to a small number of usually wealthy people. Having said that, I know that many people are passionate about the sport and love to travel the world to play on various famous courses. I’m sure those folks will find this story absolutely fascinating – it tells of how Pebble Beach, a globally famous golf course in California, nearly fell prey to financial machinations that may have destroyed the course. The course was rescued by an unlikely alliance of Hollywood and golf royalty, in a deal meant to preserve the course for a generation. – Felicity Duncan
How Clint Eastwood, Arnold Palmer and $820m took Pebble Beach off the auction block
By Brian Costa
(The Wall Street Journal) PEBBLE BEACH, Calif.—Twenty years ago, one of the most coveted pieces of golf real estate in the world was back on the market. Pebble Beach, the picturesque, seaside host of this week’s US Open, was about to be sold by the Japanese company that had bought it only seven years earlier. It would be the fourth time in two decades that the iconic course changed hands.
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Peter Ueberroth – former Major League Baseball commissioner, architect of the 1984 Olympics in Los Angeles and longtime Pebble Beach visitor – imagined how the ownership carousel could continue.
“I was worried that a major American company would throw a great big number at it and then once they owned it, figure out an exit strategy five years later,” Ueberroth said. “It just seemed to me this isn’t a place that should be shuffled around.”
That simple idea – that Pebble Beach is not an asset to be flipped but rather one to be preserved – has changed the course of its history.
It was powerful enough to help Ueberroth assemble an ownership group that included actor and director Clint Eastwood, late golf legend Arnold Palmer and former United Airlines chief executive Richard Ferris. It was compelling enough to clinch the deal at a price of around $820m, despite higher offers from rivals. And it solidified Pebble Beach, now in its 100th year, as one of the country’s most reliable hosts of championship golf.
In a rare move, the US Golf Association announced the return of the US Open in 2019 before the previous Open here in 2010 had even been played. Likewise, no matter how this week goes, Pebble Beach is already set to host its first US Women’s Open in 2023 and another US Open in 2027. That’s in addition to the annual celebrity pro-am that has been a mainstay of the PGA Tour for decades.
The Pebble Beach Company, whose assets include three other nearby courses and three hotels, is decidedly a for-profit venture. The listed rate for a round of golf at Pebble Beach is $550. But it also operates more like the caretaker of an old cathedral than an outfit wholly devoted to quarterly targets.
It has spent around $500m on upgrades ranging from the course to the hotels to a new practice facility. As part of a long-debated expansion agreement with environmental regulators, it also agreed to leave undeveloped more than 635 acres of forestland it owns. Company executives declined to detail its finances, beyond saying it is profitable.
“Some people would have bought it and, if they had hedge fund money or whatever, would have to show a return,” Ferris said. “Our focus has been on the preservation of this natural treasure in an economically sound manner. I would say we are patient.”
The ownership group includes more than 100 minority investors whose identities have remained a closely-kept secret. Ueberroth said they include some of the most prominent business executives in the US, including several owners of MLB, National Football League and professional soccer teams. One person privy to the list said it includes Charles Schwab, founder of the eponymous brokerage firm. A spokesman for Charles Schwab Corp. did not comment.
The investors were billed as an ultra-wealthy equivalent of a concerned citizens group. Shares sold for $2m each. It was akin to buying a stake in a professional sports team – less a financial decision than an emotional one.
“There was a currency of ego attached to it,” said Alastair Johnston, the longtime agent for Palmer, who died in 2016. “They were paying with no objective analysis of the investment beyond the basics of what they knew about it. There was a lot of idealism involved.”
The 1969 death of Pebble Beach developer Samuel Morse sparked an ownership shuffle that lasted for three decades. In 1979, 20th Century Fox, flush with cash from the original “Star Wars” movie, bought the resort for $81.5m.
Two years later, it came under the control of oil magnate Marvin Davis, who bought Fox and then kept Pebble Beach after selling the movie business in 1984. Davis drew criticism for allowing the condition of the course to deteriorate while fielding offers for it. But that paled in comparison to the controversy generated by its next owner.
After Japanese developer Minoru Isutani bought the resort in 1990 for a staggering sum of $841m, he tried to finance the deal by selling private memberships and limiting public golf access. When an intense public backlash scuttled that plan, Japanese lender Sumitomo forced Isutani to sell to an entity it partly owned.
Bank officials cited concerns over whether the course would be ready for the 1992 US Open as a reason for the takeover. When the new entity, Lone Cypress Co., later began fielding offers for Pebble Beach in 1999, few parties had more at stake than the USGA.
The course was just a year away from hosting its fourth US Open, which generates the vast majority of the USGA’s revenue. “All of a sudden it was like, ‘Who’s going to buy it? What kind of commitment are they going to have?’” said USGA chief executive Mike Davis.
One bidder was private equity firm KKR & Co. Schwab was initially involved with another bidder, according to two people familiar with the matter. A spokesman for Sumitomo Mitsui Financial Group declined to comment.
But Ueberroth had dealt with Japanese companies and believed the sellers, wary of being blamed for degrading Pebble Beach, would be swayed by the idea of handing the course to the most credible caretakers.
His first call was to Eastwood, whose longtime local civic involvement included a stint as mayor of Carmel. Eastwood is also wildly popular in Japan. Ueberroth then added Ferris, his former partner in the hotel business, and Palmer, who gave them trust from the golf world.
None of the four could simply write a check for the resort – their investments were for less than $20m each, according to two people familiar with the deal. Ferris met with a group of syndicated lenders to sell them on their plan.
“This won’t be a home run,” Ferris recalled telling the group. “It probably won’t be a triple. It might be a double. But it won’t ever be less than a single. It’s like putting your money in Fort Knox.”
Ueberroth said the highest bid for Pebble Beach exceeded $1bn. But his group’s offer was not contingent on an extensive vetting process. They offered to close in 10 days.
“We didn’t need to bring in people to see how much the real estate was worth,” Ueberroth said. “We just said, ‘We’ll buy it.’”
There was just one thing left to do before the closing: raise a few hundred million dollars from investors. General Electric Pension Trust was one of them. But the real feat was courting 132 private investors who put up between $2m and $10m each.
Relying on their combined Rolodexes, Ferris said he and Ueberroth did it in about a week.
“There was a bank account that had a zero balance in it, and all of a sudden wire transfers started showing up,” another person involved in the deal said. “It went from zero to, ‘Bingo!’”
The sale closed on July 31, 1999. Palmer spearheaded a series of changes to the course, rebuilding greens and adding bunkers in an attempt to move it closer to its original design. Since his death, his estate has sold its shares in the company.
Eastwood, 89, played a leading role for years in navigating the local politics of an expansion plan approved in 2012, which included a new hotel. The company had to agree to drop other proposed additions such as a new golf course.
The minority shares rarely change hands, but their value has more than tripled, according to Ueberroth, who said they sell for $7m to $8m. Both Ueberroth, 81, and Ferris, 82, have installed one of their children on the company’s board of directors.
For now, and potentially for another generation to come, Pebble Beach is not for sale.
– Kosaku Narioka contributed to this article.
Write to Brian Costa at [email protected]
