THE AGP LONG-TERM LEASE NEGOTIATIONS: WHAT WENT WRONG?

On July 14 Advance Golf Partners Two LLC terminated its 20-year lease agreement with OVA just months into the lease. In response, OVA announced that it would quickly negotiate a new long-term lease with CourseCo or Billy Casper Golf.

To use the framework advanced by Roger Fisher and William Ury in their popular book Getting to Yes, we negotiate to satisfy our interests.  Interests are our needs and wants. They underlie our hopes and fears and protect our core principles.

Counter-intuitively, our objective in negotiation is to determine whether we can satisfy our interests better by implementing our alternatives rather than by reaching an agreement with another party. Alternatives are the actions wecan take and choices we can make on our own that satisfy our interests without the agreement or participation of the other party. Therefore, identifying and developing our alternatives to agreement is an essential element of successful pre-negotiation preparation.

Identifying and developing alternatives is a time-consuming task. In addition, assessing our alternatives accurately is difficult because we human beings naturally tend both to exaggerate the righteousness of our own interests and to over-estimate our actual, real-world alternatives. These difficulties notwithstanding, our ability to measure the acceptability and value of any proposed agreement requires determining what Fisher and Ury term our own Best Alternative To a Negotiated Agreement, our BATNA. Our BATNA is that best set of actions we can take and choices we can make to satisfy our interests, alone, without the assent or cooperation of the other party.

Here then is what is crucially important about determining our BATNA as preparation for negotiation:

• If the terms of a proposed agreement do not satisfy our interests better than executing our BATNA would do, then we should walk away. Otherwise we will be agreeing to a less than optimal deal. 
• Conversely, if the terms of a proposed agreement satisfy our interests better than executing our BATNA would do, then we should agree.

Since our BATNA is the measure of our ability to walk away from the other party and still satisfy our interests, it is also the measure of our relative bargaining power (or weakness). If we don’t have in hand a practicable, ready-to-execute alternative to reaching agreement with the other party, we have little bargaining power. We will have to accept the best that they are willing to offer because we need them, having no alternative. If we haven’t determined our BATNA before negotiating, we are negotiating blind – and may not even realize it.

AGP INTERESTS AND BATNA

AGP’s interests were relatively simple and straightforward. It is a business. It wanted to add the Oakmont golf and restaurant + events business to its operations portfolio as a lessee and make a profit with the least possible cost and risk. To satisfy that interest, AGP first needed to engage early and become OVA’s chosen lease partner, thus eliminating any other competitors. It also needed to collaborate with OVA to construct a mutually acceptable long-term plan that would be acceptable to the membership of Oakmont Golf Club, to the OVA membership, and to a bank/finance company.

AGP’s BATNA was also simple and straightforward. If it did not find OVA willing to adopt AGP early as the chosen lease partner and willing to collaborate in developing the long- term vision together, it could just walk away. Similarly, if OVA would not agree to long-term lease terms acceptable to AGP, it could just walk away. It had a strong BATNA.

OVA INTERESTS AND BATNA

OVA’s interests were to protect Oakmont from having its greenbelt core of two golf courses being owned by a developer and to preserve golf, incorporating it as an Oakmont amenity. This was complicated because the track record of the OGC and the trends in the golf industry generally demonstrated that OGC’s golf + restaurant & events business was economically unsustainable. Nevertheless, OVA determined that the best way to achieve control of land was to purchase OGC.

It’s important to note that OVA has never had an interest in owning a restaurant or an events business and certainly not in managing the operation of either or of two golf courses. But buying OGC meant buying those operations. OGC was a failed business, on the edge of bankruptcy, and had been failing for many years. OVA knowingly bought OGC not as a business or investment decision but because it believed that was the best way to guarantee control of the land.

Undoubtably the Board initially considered how it might use OGC’s assets if they could be acquired. But early on, OVA decided that in order to avoid having to operate the golf and restaurant & events businesses and to limit as much of the operational risk as possible it would have to choose and engage with a lease partner to achieve the immediate objective of purchasing OGC.

To buy OGC, OVA had to persuade that member-owned and Oakmont-golf-oriented club to sell to OVA rather than some other prospective buyer. That meant it had to commit to preserving golf as an Oakmont amenity. OVA also had to secure a substantial increase in financial resources to support the operation, which required a membership vote to increase dues.  It had to secure bank financing sufficient to fund the purchase.  And it had to find a way legally, as an HOA, to own revenue-producing assets.

OVA achieved all of these objectives. It was a remarkable achievement. Partnering early and exclusively with AGP was the vehicle that enabled that success. The successful solution to the problem of purchasing OGC was not necessarily the best solution to the problem of deciding the optimal use, in Oakmont’s interests, of the OGC assets. But the AGP-OVA shared vision – linking increased member dues and substantially improving food and beverage revenue to predictable golf operating shortfalls – was baked into the long-term lease negotiations.

THE LEASE NEGOTIATIONS

Ironically, the very success of identifying AGP as the chosen partner and working hand-in-glove with it to develop and commit to a joint vision put OVA at a severe bargaining disadvantage in the lease negotiations. OVA’s bargaining position was weak because it was fundamentally committed to and dependent on the OVA-AGP partnership.  It had no alternative to which it could walk away.  It had a weak BATNA.

AGP was fully aware of that condition – it participated actively and intentionally in its creation. AGP had crafted a position of power and used it first to walk away, then to negotiate a lease deal more favorable to its interests and to which it was very weakly committed, and then finally to take advantage of a bargained lessee termination provision that required only a one-week notice. OVA had no ability to stop any of that from happening. Having no BATNA had left it completely vulnerable.

This is not to suggest that the what went wrong was that the Board or its agents were poor negotiators. Rather, the problem with OVA’s having no BATNA in the negotiations was deeply imbedded in the ostensibly strong AGP-OVA relationship and plan. The die was cast long before the lease negotiations began. OVA had crafted a creative and successful solution to the problem of securing purchase of the land. But that solution also left OVA without a BATNA and therefore in a weak bargaining position in the lease negotiation.

IMPLICATIONS 

Like AGP, both CourseCo and Billy Casper Golf have strictly business interests and an easy walk-away alternative as BATNA. The Board should not enter negotiations for a new long-term lease partner until it takes the time and makes the effort necessary to identify, assess and actually plan out OVA’s BEST ALTERNATIVE for the use of the assets purchased from OGC.

The need to do so suggests that the Board would be wise to construct an intentional interim period during which golf is operational while it undertakes study and development of its BATNA. In addition, the Board also can take the opportunity to do a fresh, thorough re-examination of OVA’s long-term interests as they attach to the purchased OGC assets.

In the AGP-OVA plan, the restaurant & events business determined the economic viability of the golf operation and they were linked.  An interim period with no long-term commitment would allow, for example, consideration of whether the golf and restaurant businesses can and should be decoupled.  It would also allow for a more reliable analysis of how the Covid-19 pandemic will affect the restaurant business and the events business.

To enter negotiations quickly for a long-term lease agreement without a BATNA would leave OVA once again in a weak bargaining position and unable to test the “value” of any proposed agreement. It is imperative that the Board first investigates and develops its Best Alternative to the now defunct AGP-OVA blueprint before deciding whether to go forward with new negotiations.

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Caveat: Most of the details of OVA-AGP interactions, their operating and economic assumptions and projections, and the lease agreement terms exchanged and considered during negotiations are not in the public record and must be deduced from sparse accounts that are in the public record. If there are factual errors in the above accounts, I shall be pleased to stand corrected.