by Bob Cullen

Pebble Beach could be worth even more than the astronomical-sounding sum recently paid for it by a celebrity-led group, but it's potentially stratospheric green fees won't become the national norm

This is the way things are in northern California these days:

A woman who works in Silicon Valley is playing golf. Between holes, she talks about her oldest child, a girl named Alex. In school, she says, Alex was bright enough to do well. But there were months, years even, when studying was not high on Alex's agenda, to be kind about it. She barely graduated from high school. The only institution of higher learning that would take her was the local community college.

Alex wanted some independence. So she got a part-time, menial job for $8 an hour with the new U.S. affiliate of a Norwegian software company. Alex answered phones, did a little bookkeeping. She was cheerful, helpful. Her employers liked her. They didn't raise her hourly wage, but they did reward her with some stock options.

A few months ago, the company went public.

Alex, 20 years old, now has a net worth of $1.6 million.

The woman hits an iron toward a par-3 green, misses it, and watches her ball curl into a bunker. She's happy for her daughter, she says. And she can handle the abrupt transition from advising the child to study more to advising the child to diversify her portfolio. The one thing she can't figure out is what to tell her younger children, both boys still in school.

“How can I tell them any more that they have to study and get As to get ahead?” she asks.

It is in such an economy, amid such stories, that the sale of Pebble Beach Company last summer for $820,000,000 starts to make sense. At that price, Pebble Beach, the site of this year's U.S. Open, may well have been a bargain.

But what does it mean for a golf course when it becomes the centerpiece of a property valued at nearly a billion dollars? And what does it mean for golf?

BIG MONEY ALWAYS TALKED
From its inception, of course, Pebble Beach has been as tightly linked to big money as Rolls Royces and Lear jets. The original developers of the property were four of the wealthiest men of the Gilded Age, Chester Crocker, Leland Stanford, Collis Huntington and Mark Hopkins - men whose names adorn hotels, banks and universities in the San Francisco area. They built a resort hotel on the outskirts of Monterey, the Hotel Del Monte. To entertain the guests, they carved a 17-mile excursion road through the adjoining Del Monte Forest. The halfway point was a rocky beach near Stillwater Cove, and there they built a modest lodge of logs and offered lots for vacation homes. Despite their efforts, land sales went poorly.

By 1915, the partners were ready to cut their losses and get rid of their holdings on the Monterey Peninsula. They hired a young Yale graduate named Samuel F.B. Morse to supervise the liquidation. Morse took a look at the property and had other ideas. One of them was that, with the addition of the right amenities, lots in the Stillwater Cove area might still find buyers. Among the amenities he had in mind was a new golf course, to be laid out along the cliffs overlooking the ocean and that rock-strewn beach.

Morse was not a golfer himself. But he knew that the two premier golf architects of the day were Charles B. Macdonald and Donald Ross. Macdonald had done the National Golf Links of America on Long Island and Ross was the architect at a resort Morse intended to emulate, Pinehurst, in North Carolina. Morse evidently made an offer to Macdonald to come West and lay out a course, but Macdonald declined. Morse assumed, erroneously, that the Scottish-born Ross would be serving in the British Army during World War I.

So, Morse seemed stuck. But among his real estate salesmen at the time was Jack Neville. Neville was one of the best players in the West, having won the inaugural California State Amateur at Del Monte in 1912. Morse decided to entrust his new course to Neville and another amateur, Douglas Grant, who had played extensively in Britain. Neither had designed a golf course before.

It was a decision that might not have worked, had it not been for the land they were given to work with. Robert Louis Stevenson did not, contrary to generations of Pebble Beach calendars and brochures, call this property “the most felicitous meeting of land and sea in creation.” But he should have. There may not be a finer natural site for a golf course in the world.

The Pebble Beach Golf Links were built at a spot where a forest of Monterey pine yields gradually to a narrow band of what naturalists call coastal terrace prairie, a place of hardy grasses and rich, black soil. The prairie strip ends abruptly in a jagged stretch of rocky cliffs that loom over a beach. Beyond that lies the Pacific, gleaming blue in the sun. Waves break against rocks, sending dazzling fountains of white foam soaring against the sky. Abundant rain, interspersed with brilliant sunshine, nourishes the trees. Ocean winds bend them into the sorts of tortured shapes normally found only in Japanese bonsai gardens. Neville recognized the land for what it was. “Years before it was built, I could see this place as a golf course,” he once said. “Nature intended it to be nothing else.”

Neville, in fact, deserves credit for enhancing Nature by employing solid, traditional architectural values in his layout. On the seaside holes, for instance, bunkers and trees generally guard the inland side of the fairway. A player is nudged into flirting with the cliff. Like other architects of the classic period, Neville felt that the ability to play an accurate long-iron was a critical test of a golfer's skill and nerve. So he designed the course with small greens, requiring many such shots. Over 18 holes at Pebble Beach, a player must display both strength and finesse. He should draw the ball and fade it. He needs length on some holes, precise short-irons on others. As the last two U.S. Opens at Pebble demonstrated, he must chip well because hes not going to hit all of those small greens. And he must think well.

He must think even when the scenery beguiles or intimidates him. He must think especially well when the weather is a problem, which it generally is. Without wind and rain, Pebble Beach is like a lot of the great oceanside courses - vulnerable. Under favorable conditions, with gentle winds, Gil Morgan played the first 43 holes of the 1992 Open 12 strokes under par. The wind shifted and grew stronger. He played the remaining 29 holes 17 strokes over par.

“It's a golf course that's not particularly difficult under benign conditions and one of the most difficult in the world under ocean conditions,” says Jack Nicklaus. “But I think that's what makes it a good golf course - that, under the right conditions, it will yield to good play. If it didn't yield to good play, I think it would be a bad golf course. And when the conditions are difficult, it's still playable.”

Neville's golf course almost immediately became one of the most highly rated in the United States and the world. Over the years, every golfer of importance, from Bobby Jones to Nicklaus to Tiger Woods, has tested himself at Pebble Beach. The course, in three previous U.S. Opens, a PGA Championship, several national amateur championships, and the annual winter pro-am founded by Bing Crosby, has more often than not helped the great players of their day distinguish themselves from the not-quite-great. At the same time, it functions as a public golf course, open to anyone who wants to pay for a room in the Lodge and a $275 green fee, as well as to walk-ons who pay $305. It hosts an average of 50,000 rounds of golf per year. Of the world's great courses, perhaps only St. Andrews can match Pebble Beach's combination of seaside beauty, golfing challenge, tradition and accessibility.

DEAL INCLUDES LARGE UNDEVELOPED ACREAGE
As an investment, Pebble Beach proved almost as spectacular as its golf course. Morse bought the property for $1.3 million from the San Francisco financiers in 1919. For that, he got the Hotel Del Monte, Pebble Beach and its lodge, two golf courses and 18,000 acres of land. Some sixty years later, Twentieth Century-Fox, using profits from Star Wars, bought the property, now with only 3,800 undeveloped acres, for $81.5 million. But appreciation was just getting started. In 1990, a Japanese investor named Minuro Isutani bought it for $840 million. Isutani, using profits from Japan's then-robust economy, was in search of a trophy, and he overpaid. A few years later, as interest rates were rising in Japan, Isutani was facing bankruptcy and forced to sell. A group of his Japanese creditors bought the company in 1992 for $500 million. They held it till the summer of 1999, when they sold it to a group of Americans led by Peter Ueberroth, Richard Ferris, Clint Eastwood and Arnold Palmer, for $820 million.

The property by that time included four golf courses - Pebble Beach, Spyglass Hill, the Links at Spanish Bay and the old Del Monte hotel course - plus two hotels and several hundred acres of undeveloped property. The value of the Pebble Beach Golf Links itself can only be approximated. The Monterey County tax assessor's office puts it at about 15 percent of the Pebble Beach Company's total property value. So, when the assessment is changed to reflect the 1999 sale, the golf course will probably be assessed at well over $100 million. But the prestige and publicity attached to the course undoubtedly enhance the value of all the holdings associated with it, from the Lodge to the other golf courses. The true value of the course is probably much more than $100 million, though how much more is anyone's guess.

However it's carved up, $820 million is a sum more often associated with government budgets than with golf courses. And the property's sale raised some interesting questions about the future of Pebble Beach and the American golf industry. What will happen to the cost and accessibility of golf at Pebble Beach under the new ownership? What will happen to the course? And will the changes at Pebble ripple through the golf business, eventually affecting all American golfers?

To take the simplest question first, very little is likely to happen to the course itself. With the completion of Jack Nicklaus' new fifth hole, Pebble now looks very much as Samuel Morse and Jack Neville probably envisioned it back in 1919. The new owners, golfers all, are no more likely to change it than an art connoisseur would be inclined to touch up his new Van Gogh.

They might, however, try to improve the logistics of a round at Pebble Beach. Playing at Pebble quite frequently is like driving through Yellowstone Park on a Saturday afternoon in July. The scenery is great, yeah. But the traffic ...

Walk around Pebble Beach on a typical day and you're likely to see a foursome having its picture made on the seventh tee. Every member has his own camera, of course, and each one has to be snapped. Over by the 16th green, a woman is preparing to blast from a deep bunker; it will be her sixth shot in this particular hazard. And, all around the course, golfers are standing with their hands on their hips, waiting. Rounds of five hours or more are common.

It detracts not a little from the Pebble experience to know that, even though you're paying ten times what they are up the coast at the Harding Park muni in San Francisco, you're standing around waiting for a bunch of hackers just like they are.

Paul Spengler, the vice president for golf at Pebble Beach, has given a lot of thought to the pace-of-play question at Pebble. He and his colleagues have considered setting a minimal handicap requirement the way St. Andrews does for the Old Course. (Amazingly enough, some people play the first rounds of golf in their lives on Pebble Beach.) But that won't do. The resort wants to accommodate the guest who comes out, takes a luxurious room at the Lodge, and would like to go around with a spouse, even if the spouse isn't much of a player. There's been some consideration of setting aside the choicest block of early tee times each day for low handicappers. But that would conflict with the programs of the corporations that are some of the resort's best customers. They like to bring groups in for business-related schmoozing, and some of the schmoozees may be high handicappers.

Spengler does hope that, in the near future, Pebble Beach will rip up its cart paths and become, again, a course only for walking players and their caddies. That's a reform that might keep a few dilettantes off the course and pick up the pace of play. But it's not likely that Pebble will ever be a four-hour course. It's too hard. And people paying $305 for a round of golf have a tendency to think that, if they want to stop and admire the view from the seventh tee, they are damn well going to stop and admire the view.

At that, it could be worse. If people had to pay a true market price for a round of golf at Pebble, they might want to bring tents and spend the night gazing at the moonbeams on the cove by the eighth green. “We could charge $1,500 per round and keep the course filled,” says Neal Hotelling, the company's director of corporate affairs. “As it is, we have to be very careful about the integrity of the people that work in the pro shop and as starters, because people are always offering them 'tips' in addition to the green fee to get them on the course.”

Pebble Beach doesn't charge $1,500, nor is it likely to, because it considers the cost of a round on the course to be a bit of a loss leader, an attraction to make certain that its hotel rooms and restaurants are filled. Those rooms trend toward the opulent. The Lodge's newest quarters are at Casa Palmero, a renovated mansion near Pebble Beach's first fairway. Rooms in Casa Palmero come with amenities like stone fireplaces, complete with a chambermaid who lays in wood, paper and kindling. Some have a private patio with a Jacuzzi spa big enough to swim laps in, heated 24 hours a day to a very precise 101 degrees. Prices edge toward the if-you-have-to-ask-you-can't-afford-it level, but, in today's economy, there are apparently plenty of people who don't have to ask. That's one reason that Pebble Beach may have been a real value at $820 million.

Another is that, while the economy keeps minting new multi-millionaires (the local realtors call them IPOCEO's), Nature is not making any more land like the Monterey Peninsula for them to play in. Demand for housing in Pebble Beach is such these days that it's not uncommon for people to buy $3-million houses along the golf course's fairways, tear them down, and build $10-million houses on the lots. They look like European castles, somehow airlifted out of their natural manorial setting and dropped on the edge of a cliff in California, where they bear silent testimony to both the wealth and taste of their owners.

The Pebble Beach Company is one of the few purveyors in a position to sell the sort of land the IPOCEO wants to buy, thanks to those last undeveloped acres whose potential Sam Morse recognized 85 years ago. This land lies a half mile or so east of the golf course, largely covered by Monterey pine, manzanita and huckleberry bushes. The company has plans to build a compact (6,500 yards, par 70) Tom Fazio course on the property and then sell 316 housing lots around it.

While the company was under foreign ownership, those plans were stymied by California's politically muscular environmental movement, which objected to the traffic the new development would generate, the water it would use, and the wildlife habitat it would destroy. Now that the company is in the hands of well-connected American icons like Palmer, Eastwood and Ueberroth, environmentalists still oppose the development. But the company's chances of getting approval for at least part of its proposal seem greatly enhanced.

Pebble Beach also has plans to do what the new CEO, Bill Perocchi, calls “leveraging the brand.”

“Pebble Beach is arguably the most recognizable name in golf. We feel that there are opportunities to expand in areas such as resort management, sponsorship and retail,” Perocchi said recently. “For instance, we have a Web site where we sell Pebble Beach items. It was doing about $5,000 a year. Over the last Christmas holidays, we allied with Fogdog.com. In December, we did about $100,000 online. So we think there's more that can be done with the brand. We're not ready to talk in detail about it, but we're looking at a lot of things.”

The business precedent that probably best explains what Perocchi has in mind is the way Ueberroth handled another prestigious brand, the Olympic Games. When Ueberroth took over the Los Angeles Olympic Organizing Committee in 1979, the Games were a white elephant. Hosting them had nearly bankrupted Montreal in 1976. There were lots of people predicting they’d do the same to Los Angeles.

Those people didn't understand the concept of leveraging the brand; Ueberroth did. Over the next five years, he found ways to squeeze money from the Olympic franchise that Baron de Coubertin had never envisioned. He recruited corporate sponsors and persuaded them to donate millions of dollars to be associated with the Games. He cut record deals for television rights. He even made the relay of the Olympic torch a revenue generator, selling the rights to run each kilometer of the way from New York to Los Angeles. When he was done, the Los Angeles Olympics had a surplus of $215 million.

Applied to Pebble Beach, that business plan will likely yield some new products - maybe the Pebble Beach sedan by Cadillac or the Pebble Beach Rolex. It's likely to lead to more days when a Wall Street firm or a software company takes the course over and puts on a little tournament for its best employees and customers, filling the Lodge and its restaurants as well as the links.

Pebble Beach, all in all, may not have been overpriced at $820 million. In a year or two, if things go as planned, it may well be worth more than that.

“Most of our investors have a long relationship with Pebble Beach, a great love for golf, the resorts, Monterey,” Perocchi says. “But I can tell you they're also very savvy investors, and they and we are comfortable that the returns justify the price.”

In today's economy, he's no doubt right.

THE WAVE OF THE FUTURE?
Is this the wave of the future in American golf? Are corporate partnerships and leveraging brands coming to the daily-fee course near you? Is the hundred-dollar green fee destined to become a fond memory, rather than an extravagance?

Probably not, in the opinion of Rick Norton, an economist and consultant to the National Golf Foundation. “Pebble Beach is pretty rarefied air. It's unique. There's nothing comparable to it. People will pay whatever they have to to play it because it may be a once-in-a-lifetime opportunity. But that has a negligible impact on the golf industry as a whole. A few elite resorts - places like Pinehurst and Blackwolf Run - may be influenced by what Pebble Beach does. But they're in a small category.”

The average American green fee rose about five percent in the last year, according to the NGF, but it's still only $39.30. Should someone accustomed to paying that get a chance to play Pebble Beach, the tariff will seem fairly steep. But he or she might keep in mind a golf industry rule of thumb: a course, to be profitable, needs to charge $8-$10 in green fees for every million dollars it cost. Thus, a $5-million golf course needs to charge $40-$50 to make a profit.

Based on that standard, a $305 round on a $100,000,000 golf course starts to sound cheap.