Strong Shoulders
The kids’ center would offer childcare, summer camps, and pre- and after-school programs. “We had a very detailed business plan,” attests Bob. “We knew what the interest payments would be, we had new memberships coming in, we were implementing new programs to help cover the debt, and our market research supported this kind of expansion—absolutely.” With $5 million in outstanding loans, FAC hoped to borrow another $3 million to underwrite the expansion. When interest, legal expenses, and associated costs were accounted for, the Shoulders planned to bundle every- thing into a single loan of some $8 million. To make that work, the Shoulders agreed to personally guarantee the loan.
But not long after the Shoulders broke ground in early 2004, Katherine had her first sense of foreboding. “Things got challenging during construction,” she says. “The project went over budget and took far longer than we’d expected.”
were working 24/7. At the time, you couldn’t obtain a hard-bid contract; everything was cost-plus. “In retrospect, of course, these were all red flags warning that the economy was over-heating.” Not recognizing the signs, the Shoulders, Katherine says, believed that “if we could execute our plan, we thought that we could collapse the market. The FAC would be the only club in the area that offered everything a family might want.”
“We had a very detailed business plan. We knew what the interest payments would be, we had new memberships coming in, we were implementing new programs to help cover the debt, and our market research supported this kind of expansion—absolutely.”
UNEXPECTED PROBLEMS Everything looks clearer in hindsight. In 2004, few
people could have anticipated the economic havoc that lay waiting for the U.S. and Europe. And, once contracts have been signed and money has changed hands, projects gather momentum. “Bob and I are different personalities,” Katherine observes. “Bob’s the big-pic- ture guy, totally optimistic. I’m more conservative; I would have been more comfortable proceeding slowly, but I was on board with everything we were doing.” Katherine wonders what might have happened if they’d approached the expansion one project at a time. But then she thinks: “The families that join a tennis club have kids. Where’s mom going to park the kids while she’s playing? Where is the family going to eat after mixed doubles? We needed a tennis center, restaurant, and a kids’ center.” And then there were the economies of scale to consider.
It doesn’t make a lot of sense to subject your members to the disruption and inconvenience of construction only to do it all over again a year later. “Back then, our neck of the woods was one of the fastest-growing metropolitan areas in the country,” Bob recalls. “Thou- sands of people were moving in, and new banks were popping up every month, each one of them lining up to hand you money. Construction companies everywhere
44 Club Business Internat ional | NOVEMBER 2011 |
ihrsa.org
But, as problems mounted, anxieties grew. The Shoulders were expanding at a time when material costs were going through the roof, contractors dictated terms, and their grand plan had little built-in margin for error. Instead of opening in the spring of 2004, the tennis courts made their debut on Thanksgiving. Though the summer season had been lost, the Shoulders held out hope that the indoor season could be salvaged. Unfortu- nately, the double-bubble that was designed to cover both sets of courts was also running behind schedule. Fabricated in Italy, it didn’t arrive until February. No sooner had it been erected than the Shoulders had to deflate it because of the arrival of spring weather. The expansion increased FAC’s footprint by four acres, which the Shoulders also used to expand parking for
members and staff. The kids’ center opened in the fall of 2005, well behind schedule, but it was immediately apparent that it filled an obvious need. “We had four buses collecting children from 15 different schools for our after-school programs and a waiting list for our preschool program,” notes Bob.
FINANCIAL IMPACT
Yet, for every step forward, FAC seemed to be taking a step sideways or backward. “Enthusiasm got the best of us,” Katherine admits. “We did everything first-class. We wanted to have plexi-cushion courts, our tennis bubble was made in Italy, the kid’s center was world-class, and we decided that we wanted to own and operate the ten- nis-center restaurant.” All the while, the delays and cost over-runs were inflating the Shoulders’ loans—by a total of 30%. “Instead of making payments at 6.25%,” Bob explains, “we were looking at an extra $1.5 million of debt and an interest rate of 87
/8 , which meant that we had an additional
$30,000 of monthly debt service.” By 2006, the Shoulders were also struggling with a number of operational challenges. They’d hired a talented team to manage the tennis center, but the staffer they’d put in charge of the kids’ center proved unsuitable, and they could have installed a revolving door for the restaurant’s string of managers.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114