Act two for the Yellowstone Club began with origami. In a cavernous ski lodge and before a yawning fireplace in southwest Montana, members of 'the world's only private ski and golf community' stated their hopes for the most embattled club in America, aired their grievances, and tossed a folded scrap of paper into the fire. Listed on the paper were the club's accounts payable, millions in recently paid debt—money that local businesspeople feared they would never see when the club underwent a seismic bankruptcy in late 2008.
Burt Sugarman, the Hollywood producer best known for The Gong Show and for his marriage to Mary Hart (Entertainment Tonight), stood up and cited the quality of the people at the club and in the community. Then he flicked his tiny piece of paper into the flames. Another member cautioned everyone to respect the natural beauty of Montana, because without that the club would just be Disneyland. A club PR woman stood up and spoke of 'the haters,' people who had heaped scorn on the club even as it suffocated under the divorce of its founders and a disastrous loan.
It had been a bluebird September day, and the golfers had enjoyed the remnants of their 90-day season. The hikers had hiked. An evening storm had scuttled the group's plan to ride up a lift and watch the sun set. Only one member sitting around the fire wore slacks; the rest wore jeans or some other Western-wear. The origami didn't always cooperate and sometimes ended up short of the flames, unharmed, forcing members to scurry after it. The scene was ripe for a Dilbert strip.
For its wealth, for appropriating the name of the national park just 20 miles south, for its ambition to bend nature to its will, the Yellowstone Club is a target that's as exposed as neighboring Lone Peak, elevation 11,166 feet. But not everyone is a hater, because members aren't the only ones with a stake in this nutty, multimillion-dollar adventure.
'When that place went down it was a major hit,' says Tom Garnsey, a concert promoter from Bozeman, an hour north of the club. 'People had gotten used to the fact that there was a lot of work up there, and a lot of services to provide. In Bozeman, or within a 100-mile radius, if you don't work directly with them, someone you work with does.'
But there was still plenty of schadenfreude to go around after timber baron and club founder Tim Blixseth took out a $375 million Credit Suisse loan in 2005. According to the bankruptcy filings, Blixseth secured the loan to franchise the club into a vacation time-share concept known as Yellowstone Club World. His timing couldn't have been worse. Blixseth bought a moated chateau in France, a resort in Mexico, property in Scotland, a Caribbean island—and the economy tanked. For one of the few times in his life, he couldn't lure enough cash to his idea, and the club began to drown in debt.
'Tim popped his own bubble,' says member Gary Rieschel, a Shanghai-based venture capitalist. 'From 2000 to 2005 the club was successful and making money. But he couldn't help himself and tried to leverage the club in a way that didn't make any sense.' Creditors and members would allege that the loan was wasted on not just exotic vacation properties—for the scarcity of YC World members—but also luxury cars and two private jets for Tim and wife Edra. (According to Tim Blixseth's lawyer, Mike Flynn, a combination of factors, not just the loan, led to the bankruptcy. He adds that the club has injected $4 billion into the Montana economy.)
By all accounts Blixseth is the kind of larger-than-life personality who could sell elk jerky at a PETA convention. At around age 15, he bought three donkeys for $25 apiece, rebranded them as 'pack mules' and sold them for $75 apiece. Perhaps not suprisingly, then, the millionaires and billionaires were initially happy to follow when Blixseth began to turn 13,600 acres in the Madison Mountains into a getaway famed for its 'private powder.' Warren Miller, whose films poke fun at well-heeled skiers with more money than sense, built a home and attached his name to the 110,000-square-foot ski lodge. Bill Gates joined, as did Cablevision's James Dolan, former Vice President Dan Quayle and three-time Tour de France winner Greg LeMond.
Annika Sorenstam and the Golf Channel's Jim Gray are honorary members, as is Tom Weiskopf, who built the golf course, where the first tee sits majestically at 8,000 feet. The downhill par-4 affords even middling players the ego boost of crushing a 350-yard drive. Says member Jim Davidson, founder of Silver Lake Partners, an investment firm in Menlo Park, Calif., 'Isn't that a great way to start your day?' It is. And the end of the day comes with a mango-scented wet washcloth, which golfers pick off a tray held by a club employee behind the 18th green.
The ski area, with 2,700 vertical feet, boasts more than 60 runs, some with names like Lear Jet Glades and Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortization).
The first hint of trouble came in May 2006, when LeMond, part of a group with a minority investment in the club, sued Blixseth. The cyclist's claim: He wasn't in on the Credit Suisse loan, and Blixseth had tried to buy him out at below market value. Blixseth called the former pedal-pusher 'an aging athlete whose income-producing ability has been usurped by Lance Armstrong,' and he tried to kick LeMond out of the club. A judge reinstated LeMond, however, and the cyclist and his partners eventually settled for a reported $39.5 million.
That alone would have warranted a mere note in the tabloids. But the spat existed within a cyclone of bad news—the recession, the collapse of high-end real estate and ultimately Blixseth's nightmare divorce from wife Edra. 'You could maybe survive one of those,' says club member Loren Bough, 'but not all of them.'
Tim and Edra went to the Beverly Hills Hotel to settle amicably over a bottle of wine, but the niceties didn't last. According to published reports, Edra began to say publicly that the club was on the verge of financial ruin. Tim, believing she was trying to lessen the club's value so she could afford to buy out his half, retaliated. He accused Edra of drinking 'six or more vodkas in an evening.' She denied it but made light of the accusation with a vodka-themed Halloween costume. She had voodoo dolls made of her ex. One Yellowstone insider says that each side held a lavish party to celebrate winning the club.
Edra finally wrested control in August 2008, but with lot sales stalled she couldn't pay down the debt. The club filed for Chapter 11 bankruptcy in November, and all 600 employees briefly went without pay. Potholes went unrepaired, the lodge suffered a sewage backup, and construction came to a halt. The golf maintenance facility—two log buildings with no roofs or windows—said it all.
But a trump card remained: member Sam Byrne, an avid skier, a developer of townhouses at the club, and the founder of private equity firm CrossHarbor Capital Partners in Boston. Byrne battled hard to save the club. At the fireside origami session, he told of one phone call that he took while driving that grew so heated that his son, sitting in the backseat, burst into tears and asked, 'Does this mean we can't go to Montana anymore?' Many of the other members at this family-first, kid-friendly club have some version of the same story.
Amid the avalanche of litigation (some 27 lawyers attended one of the hearings) Byrne's firm helped put together a 'dip' (debtor-in-possession) loan to keep the club running, and then bought it at auction for $115 million early this year. CrossHarbor took ownership in July.
Discovery Land Company is a minority partner and operates the club, bringing some sizzle in the form of Mike Meldman. The Discovery major domo and bon vivant is a friend to Entourage creators Doug Ellin and Mark Wahlberg, among other celebs. His company's signature 'comfort stations' dot the Yellowstone course, offering everything from carrot sticks to frozen daiquiris mid-round.
It's all settled but the 'envisioning,' and so the members gathered by the fire to catch up and figure out what's next, wrung out but strangely fortified by the experience, if not the whole origami thing. 'We all felt like we were getting screwed and had to solve the problem,' says member Dave Dollinger, a Bay Area real estate developer. 'It's brought the membership together. Two years ago you'd go to a club barbecue and there would be two or three people there with their guests. I went to one this year with 300 people.'
Huge mountainside homes, workers scurrying around pushing dirt—the club's bustle is a welcome sight after its long period of suspended animation. When development came to a halt it was felt far and wide. Western Golf, which supplied the club's YC logo golf flags, is based in Palm Springs, Calif. The club's PR firm is based in Scottsdale, Ariz.
But mostly it was the livelihoods of the Montana non-millionaires that hung in the balance. Logan Knight, a 12-handicap to whom the club had outsourced its caddie program, fell nearly $28,000 in debt as he paid his loops out of pocket. 'I got a loan from my dad,' says Knight, 28, who was reimbursed in September and remains fiercely loyal to the club. 'And I took on roommates.'
Bill Lerch, a fly-fishing guide whose six-man staff worked at the Yellowstone Club, made three trips to the federal courthouse in Butte, 130 miles each way, to fill out paperwork to try to collect back pay.
'It was just frustrating,' says Lerch, who wondered whether the club would ever work when he started working there as a ski patrolman in the late '90s. 'My guides really needed the money. One is divorced and had to pay alimony and got stuck for a couple thousand. I loaned a few guides a few hundred dollars to help them get their licenses and other stuff.'
But he's not bitter. 'The new owners came through,' Lerch says. 'We've gotten paid 100 percent, which is something that's unprecedented in bankruptcy proceedings.'
The club helped, too. A Montana native, member Bough was acutely sensitive to the need. He started Big Sky LIFT, a 501(c)(3) fund that attracted 40 percent participation from the members and collected $265,000 for locals adversely affected by the bankruptcy. 'We could see that longtime employees were suffering,' Bough says. 'My concern was that I was going to be in the parking lot handing out $100 bills, which wasn't going to be particularly effective.'
Caddiemaster Knight pocketed $1,000 of LIFT's money, while others got the full $2,500 maximum allowance. Some of them sent back what they didn't use.
Others simply went on faith. 'I decided there were enough good people up there at its core,' says event promoter Garnsey, who booked acts for the club. 'It took a year, but I got paid, people here got paid—$5 million to $7 million dollars were redeposited into the Bozeman economy in the last month. That's rare. Most bankruptcies go from Chapter 11 to Chapter 7 and everybody gets 10 cents on the dollar.'
Garnsey, Lerch, Knight and others remain on good terms with the club. Their future income depends on it, yes, but that's not the only reason. 'It's a Montana thing,' says Chris Lohss, an area resident since 1989 whose construction company has built more than a dozen homes at the club. 'This is a red-and-blue state, full of free-thinkers who are very open-minded and easy-going. You can put your car in a ditch when it's snowing outside and have 18 people throwing you ropes, trying to get you out.'
Lear Jet? Club members decided that it might be a good idea to come up with new names for the ski runs in September, because the club has endured enough scorn; no reason to invite even more. Meantime, a club-community detente has begun. Ressler Chevrolet, which services the club's fleet of trucks and was owed close to $30,000 at the start of 2009, has been paid off and still services YC rigs. But now the dealer is paid up front, by credit card.
'It's been a mixed bag,' Luke Stratford, the 37-year-old director of mountain operations, says of the reaction from Yellowstone's 140-plus contractors and vendors. 'Some of them have been amazingly patient, and some are still very leery of doing business with us.'
Hans Williamson, the club's general manager, has hand-delivered many late checks with a letter of apology and appreciation. It's the first step, he hopes, toward the club regaining some of the community's goodwill. The new Lone Peak High, the first high school in Big Sky and a pet project of benefactor Tim Blixseth, will celebrate its first graduating class in the spring. Restaurants and bars have begun to spring up along the route to the club.
History will show that Yellowstone was one of a handful of high-end developments that were crippled by questionable loans, a list that includes Ginn Resorts, which has ended its title-sponsorship of LPGA and Champions tour events, and Idaho's Tamarack Resort, which suspended operations this year.
A judge who's overseeing the Yellowstone bankruptcy sided with creditors in calling the Credit Suisse loan 'predatory,' and during the proceedings the loan was reduced from the $310 million the club still owed to $80 million. Tim Blixseth is expected to learn early next year if he'll be forced to pay back some of that debt. Edra Blixseth has declared personal bankruptcy.
Someday soon at their old club, local tradesmen will check in at the gate and get busy completing the golf maintenance facility. Others will landscape over the dirt and rocks around the Miller Lodge. It will all look better under a blanket of snow, and new owner Byrne planned to get in the best shape of his life to blaze down the mountain with the club's newest big-name hire, extreme-skiing pioneer Scot Schmidt.
Knight plans to caddie in Arizona this winter, and hopes to return to the Yellowstone Club next summer. He's young, and so is the club.