Can Pebble Beach's new owners bathe in the glory of their new acquisition? Or are they about to take a bath?

When contemplating ownership of Pebble Beach, the intangibles of ego must blur the bottom line of return on investment.

How else can one explain the $820 million paid by actor/director Clint Eastwood, golfer Arnold Palmer, former Major League Baseball Commissioner and 1984 Los Angeles Olympics Chairman Peter Ueberroth and former United Air Lines CEO Richard Ferris and a slew of limited partners--including top execs of GE, stockbroker Charles Schwab and lender Bank of America?

Much like when Minoru Isutani''s Cosmo World Inc. bought Pebble Beach in September 1990 for $841 million, the new owners apparently haven''t thought about return on investment as much as they''ve inflated their egos.

In the nine years following the burst of Japan''s economic bubble, the Japanese buyers of stakes in Rockefeller Center, Tiffany, MCA and trophy properties much like Pebble Beach not only had their egos deflated but their pockets picked as they eventually sold at prices 40 to 60 percent off.

Isutani retreated from Pebble Beach with a bruised ego seven years ago after seeing his plan to sell high-priced memberships shot down by opponents waving the American flag and even refighting Pearl Harbor. It wasn''t a pretty battle, and it sank Isutani''s only short-term strategy to raise money to pay his short-term loans. The annual revenues at Pebble Beach at the time were not enough to pay off conventional financing.

Now, seven years later, the revenues still don''t appear to provide enough to pay off conventional financing.

Based on Pebble Beach Co.''s hotel room tax paid to Monterey County, sales tax, estimated greens fees from its four golf courses, gate fees to its 17 Mile Drive and licensing and trademark fees, the company has been generating an annual revenue of about $150 million.

Assuming a generous profit margin of 30 percent, or $45 million, the net revenue is far below the funds needed to pay conventional loans on the $820 million. It depends on how much the investors are initially putting into the company and their expectations of return on their investment.

Eastwood himself said in a KSBW television interview that he and his partners didn''t buy Pebble Beach to make a profit. Even so, one wonders just how philanthropic actuaries and loan analysts at GE Pension Trust and Bank of America--which are participating in the purchase and financing--will remain. Aren''t their investors expecting a return on the loan or investment in Pebble Beach?

Although planned projects--including the Casa Palmero spa next to The Lodge at Pebble Beach, a proposed new golf course and the sale of 300 lots and condos if approved--will help increase the company''s annual cash flow to about $180 million, it''s still not enough to justify an $820 million price tag.

The key question is what will the new owners do to satisfy their investors'' and lenders'' wishes. Will Corporate America fare any better than Japan, Inc., did seven years ago?

Without seeing the loan documents, it must be assumed that the general and limited partners are guaranteeing to their lender/investment bankers more than the annual revenues of the company to pay their debt.

Unable to meet his loan commitments, Isutani was forced to sell to Sumitomo Bank-backed Taiheiyo Club Inc., one of Japan''s largest golf course operators, and Sumitomo Credit Services for approximately $500 million in 1992. Sumitomo bankers were dispatched to Pebble Beach to wipe away the black clouds of the short-lived (17 months) and controversial Isutani ownership and, as they said, "polish the jewel" of Pebble Beach and eventually sell it to local residents. A rainbow literally stretched over Pebble Beach, but where was the pot of gold and when would it be found?

In the seven years of the Sumitomo regime, an estimated $100 million was allocated to capital improvements at Pebble Beach, a U.S. Open was successfully held and preparations were made for this year''s U.S. Amateur and next year''s Open Championship. A residential lot development plan, originated in the 1980s under the American partnership headed by Denver oilman Marvin Davis, was downsized from more than 800 lots to just over 300, a golf course proposal was modified, and the location moved to meet environmental concerns.

In short, the bankers didn''t act like they were merely custodians of REO (real estate owned). Nor did they jump at "fire sale" offers made by, of all people, Davis, and other "Barbarians at the Gate," like takeover giants Kohlberg, Kravis and Roberts.

No, The Lone Cypress Co. bided its time and, finally, found an offer it couldn''t refuse.

As a Japanese business professor at a prestigious Tokyo university said when told of the sale price, "Unbelievable.but apparently Sumitomo wants to focus on its core banking business.and develop Internet banking."

The $820 million returned to Japan gives Sumitomo and its subsidiaries the opportunity to concentrate on other ventures.

But what about the new ownership group, operating under Ueberroth''s Contrarian holding company? What will they do?

Under the title of "limited partners," the Big Four of Eastwood, Ueberroth, Palmer and Ferris has already sold its memberships and the accompanying, still-unknown perks--quite the opposite of Isutani''s ill-fated plan. Thus, the debt service has been whittled down to about $600 million. With annual revenues probably now in the $150 million range, the mortgage can be paid to Bank of America and GE Pension Trust, but other than "privileges" the limited partners may not see any return on investment for a long, long time. The Billionaire Guys Club (and I do mean guys; have any women been approached or named as investors?) are likely to get little more than inflated egos out of this and more chances to bounce Titleists off the rocks at Pebble. Don''t count on inflated greens fees (though price resistance is not an issue at Pebble, just look above for that evidence).

New sources of revenue could include corporate sponsorships at the Open next year, an increase of such partnerships as American Express, Cadillac (they provide the Pebble Beach limousines) and maybe a new tournament in addition to the AT&T Pebble Beach National Pro-Am.

Eastwood is already chairman of the foundation that runs the annual AT&T tournament (formerly Bing Crosby''s Clambake) and his limited partners all play roles in the AT&T. I would speculate some changes in the AT&T, too. Maybe more corporate "limited partners" will play in the annual tournament each winter in Pebble Beach.

Maybe Eastwood will film Golf in the Kingdom, based on Michael Murphy''s book, at Pebble Beach, thus increasing visitorship. Eastwood bought the book''s film rights a couple of years ago.

And the new owners still have county and state approval battles on a new golf course and residential lots, considered by the Japanese ownership as worth about $150 million in asset valuation. There are no guarantees that development will be approved in a forest already congested by development and a county starved for water supply. Ultimately, it may be as tough for the new owners to prevail over environmentalists as it was for Isutani to refight a war resolved long ago.

One can only wonder what Marvin Davis thinks of the deal. He gained Pebble Beach Co. in the early 1980s in a movie company spin-off for practically nothing and sold it for $841 million. Or what about longtime Palmer friendly rival Jack Nicklaus, who redesigned Pebble Beach for Isutani and the new fifth hole for the Sumitomo group? Nicklaus had a chance to buy Pebble Beach Co. for less than $80 million in the 1970s. Even adjusted for inflation, it was truly a diamond in the rough. Now, it''s the crown jewel of the golf kingdom under new custodianship.

Or maybe it''s just a very expensive pet rock for those who can afford to buy a piece of the pebble.

Alex Hulanicki is a professor of English at Nanao Junior College in western Japan. He does economic and tourism marketing analysis in Japan. He covered the Pebble Beach Co. and the business of golf for The Monterey County Herald until August 1997. He can be reached by e-mail at hulanicki@yahoo.com

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