Board president sheds light on golf club’s financial demise
An 11th-hour phone call to Gov. Craig Benson. A $2 million loan program that fell short by a few hundred thousand dollars. More than $4 million in cost overruns. And members voting by a 2-1 margin against kicking in another $3,000 each — a decision that finally sent the Golf Club of New England — hopelessly in debt to one of its founders and its only secured creditor, the governor – into Chapter 11 bankruptcy protection.
These were some of the events described in detail by the club’s board president, Thomas Burkardt – a former Benson employee and protégé — during his March 24 testimony in front of skeptical attorneys representing creditors, members and the bankruptcy trustee.
“What I am trying to understand is how you spend $25 million for a golf course and end up with a $11 million market value,” said Brian Tierney, a bankruptcy analyst for the trustee.
“The members have a lot of questions about what happened to the money,” chimed in Jennifer Rood, an attorney representing some of the members.
Burkardt didn’t really have answers, but for more than two hours he sat in the hot seat to tell, for the first time, his side of the story.
Burkardt wasn’t around when the founding group of Seacoast executives, led by John Kehoe Jr. of General Chemical Group, bought the 220-acre parcel straddling Stratham and Greenland from Paul Montrone and Michael Dingman. He had nothing to do with the original $12 million advanced by Benson’s investment firm Soft Draw Investments – $3.3 million for the land and the rest to build the golf course.
Benson and another former Cabletron executive, Jeff Churchill, approached Burkardt about joining in June 2000, so he plunked down his $50,000 membership fee (which would later be raised to $65,000 for subsequent members). Several years later, Churchill and golf course general manager James Brennan, citing vague financial concerns, urged Burkardt to join the board. Burkardt, who had just sold off a high-tech company at a handsome profit, had some time to kill, but he never dreamed he would be putting in more than 40 hours a week trying to save the club.
In July 2003, Burkardt said, Kehoe notified him he was now president of the board. It wasn’t until he got back from a two-week vacation later that month when he began to become aware of the financial mess the club was in.
For one, a second loan from Benson — an additional 4.6 million – was yet to be finalized, and without that money, Burkardt learned, “we were going to be out of money in August.”
After scrambling to get the loan in place, the board, said Burkardt, seemed less confident of Brennan’s reassuring budget figures. They also were not particular receptive to Brennan’s demands to increase his compensation from $10,000 a month to $12,500 a month plus benefits, he said. So Brennan left, Burkardt testified, with a trail of unexpected bills in his wake.
“The invoices were showing up that were not in the budget we were presented,” Burkardt said.
He also noticed other things. There were special deals that allowed founding members to get $25,000 paybacks for sponsoring other members, deals that the general membership knew nothing about. And there were special discounts that founding members got at the clubhouse, an arrangement the new board ended, said Burkardt.
On Oct. 28, 2003, Burkardt called a membership meeting — the first in the club’s history and the first time the membership at large was able to learn anything about the club’s finances.
Burkardt offered a proposal to increase members’ equity. It was voted down. Some members went to Soft Draw, pleading for the governor to take the course over but guarantee that it would remain a private golf club. Soft Draw declined, said Burkardt, “because if they owned the property they should be able to do what they wanted to do as they went forward.”
A financial committee drew up long-term plan and estimated that the club would need a $2.1 million loan to make the club viable. A call went out for loans, but members were only lending half that much when Burkardt was prompted to plead with Benson personally to use $750,000 that was about to be sent to Soft Draw toward the loan. Even with that maneuver, the golf club remained $220,000 short.
Finally, Burkardt asked that each member simply chip in another $3,000. The vote was 60-30 against.
“We were left with no choice,” he said. “We had no money.”
Since the bankruptcy filing, things haven’t gotten any better. Many members have resigned the club, leaving 140 who paid – or promised to pay – the full $65,000 membership fee. Attorneys representing creditors and members at first opposed a proposal for Soft Draw to lend another $600,000, charging that Soft Draw appeared to be more interested in getting first dibs on all assets rather than helping out the golf course.
The bankruptcy judge reduced the loan to $110,000. Another hearing was scheduled April 2 to hear any objections to that loan, and possibly find another way for Soft Draw to pump another $500,000 into the club.
These funds are crucial because they would allow the course to open, so it can be sold.
“The course has to be open to play. It would lose significant value if we let it go to seed,” said Dan Sklar, an attorney for the golf course.
Sklar said the club would conduct a forensic audit to look into how the golf course reached its current financial point, though it was unclear whether the Golf Club was going to engage an outside firm to do it. Thus far, there hasn’t been an audit of any kind, Sklar said.
One key area of focus will be the overruns. It cost some $9.5 million to construct the course and another $5.5 million to build the golf course. That’s a cost overrun of close to $4 million, Burkardt said. Most of the change orders were approved by Brennan, the former general manager, whose 1991 bank fraud conviction – and subsequent 3-1/2-year federal prison sentence – were discussed at the hearing as well.
Joseph Foster, the attorney for Channel Building Company – a contractor with a $675,000 lien on the property — focused on Benson’s second loan, which lowered the interest rate to the prime rate – currently 4 percent.
Foster, who also is a Democratic state senator from Nashua, was surprised to learn that the principal of the first loan actually went up by more than a $1 million before the second loan finalized. Benson was apparently advancing the club money without securing it.
In his objection to the latest proposed loan, Foster argued that these were no ordinary loans, since Benson, as the club’s incorporator and former board vice president and former employer of its president, was not a disinterested party. And in that case, all or part of the $17 million mortgage – and especially any subsequent loan — should not necessarily be paid off before Channel’s lien.
Nonetheless, Sklar said, Soft Draw would be the “most likely candidate for some kind of sales transition,” adding that the club has been negotiating with the governor’s firm, which has been “very flexible.” If the parcel remains a private golf club, Sklar sees some kind deal where the current members can “buy back into” the new club on a discount basis. Whether members who refused to spend an extra $3,000 to save the club from bankruptcy will spend money to buy back into a new club remains to be seen.
Whatever the future of the club, members want to have a say in it, and at deadline were meeting at the clubhouse to reach agreement on who should represent them in front of bankruptcy court.