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7:18:00 PM ET. 04/24/2014




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VIRGINIA WATER, England – Nakheel representatives visiting the United Kingdom this week are in for a reality check if they’re hoping golf projects instigated by Leisurecorp are going to offer respite from the company’s financial struggles.

Nakheel is the construction arm of the government in Dubai, United Arab Emirates. The company is responsible for the giant palm islands off the Dubai coastline. Nakheel has taken over from Leisurecorp after chief executive David Spencer recently was relieved of his duties. Nakheel representatives are at Turnberry this week to review the refurbishment of the hotel.

I hope Nakheel executives have been keeping abreast of Leisurecorp’s spend on golf. If not, then they might be in for a surprise.

The first question the Nakheel people might want to ask is how they are going to recoup the projected £85 million ($130 million) spend on Turnberry (pictured), site of this year’s Open Championship. Leisurecorp purchased the luxury hotel for £55 million and budgeted another £30 million on refurbishment.

Turnberry turned over £15 million in 2003. However, various sources in the business say the five-star hotel struggled to get anywhere near that figure in subsequent years.

Let’s be generous and work with the £15 million ($23 million) figure. We’ll also be charitable and call the profit from that as £5 million. That wouldn’t be a bad return, but you don’t have to be a rocket scientist to figure out it’ll take 17 years just to break even on the investment.

Normally Nakheel wouldn’t blink at such figures. These aren’t normal times.

Nakheel has about $80 billion invested in construction projects in Dubai. The company has suspended many developments because of the economic downturn. It has borrowed heavily from the government to continue operations. A $3.5 billion government bond is due later this year, according to a recent report in The Wall Street Journal.

Nakheel also is trying to renegotiate outstanding debt. According to a story in The Daily Telegraph, British businesses have lobbied Lord Mandelson, the British government’s business secretary, in the hope he can get Nakheel to honor its debts. Nakheel reportedly is trying to renegotiate to pay 65 cents on the dollar.

Needless to say, the last thing Nakheel wants is for a huge white elephant such as Turnberry hanging around its neck.

A source in Ayrshire had been surprised by the amount of accommodation the R&A had booked for this year’s Open. I hear the governing body has booked the accommodation in case the hotel isn’t ready.

I don’t doubt the Turnberry Hotel will be ready for the Open Championship. The extent of the refurbishment will be another matter.

At least Turnberry is an asset Nakheel can sell off, even if it might not recoup its investment. My hunch is that the hotel will be put up for sale after the Open Championship. As for the five-year, $170 million deal with the European Tour, it seems Nakheel is saddled with this contract.

The $170 million comprises $10 million per year for the season-ending Dubai World Championship, a further $10 million in bonus money for the top 15 players on the “Race to Dubai” (the European money list) and a $70 million treasure chest for the Tour to dip into.

George O’Grady, the European Tour’s chief executive, is adamant that the sponsorship deal is secure. Aaron Richardson, a senior media-relations manager with Leisurecorp, said the money to back the Race to Dubai already is in the bank.

The question Nakheel executives will be asking: Why is the deal worth $170 million?

You can bet that the European Tour would have jumped for joy had Leisurecorp offered, say, $75 million.

There are three reasons why the sponsorship money probably is secure.

1) Dubai has a reputation for attracting big sporting events. The emirate hardly is going to continue that trend if it starts reneging on contracts.

2) Dubai has to come out of this recession, like everywhere else. Nakheel has a huge investment in Jumeirah Estates, the venue for the Dubai World Championship, and has to try to recoup the money spent.

3) Perhaps the most important reason is the issue of saving face. No way would Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s prime minister and supreme ruler of Dubai, want his country to get a reputation for agreeing to deals that it can’t honor.

Spencer, the ousted CEO, is on medical leave, suffering from glandular fever. He is scheduled to continuing working for the company in a consultancy role through the Open Championship and the Dubai World Championship.

Spencer can’t be blamed for getting caught up in the culture of excess that typifies Dubai. Any trip to the emirate will tell you that parsimony isn’t part of the emirate’s DNA. The clubhouse at Jumeirah Estates, which probably won’t be ready for the Dubai World Championship, will take up 135,000 square feet and include 17 restaurants! Think the size of a small shopping mall and you get the idea.

I hope Spencer doesn’t become the fall guy in this saga. I also hope Nakheel honors the deal with the European Tour.

One thing’s sure, though: Nakheel executives are in for a reality check.

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