Membership Loyalty Erodes Amidst Ultimate Escapes Crisis

By: Destination Club News
Date: September 16, 2010

It has been a chaotic week for the world's second largest destination club, Ultimate Escapes. Last Thursday, CEO and President Jim Tousignant hosted a webinar where he outlined the club's bleak financial position and today they verge on bankruptcy.

"The club finds itself with very little cash and operating under a forbearance agreement with our primary secured lender CapitalSource, as a result of being in default of our loan agreement," said Tousignant during last week's presentation. "CapitalSource is currently providing the club with a very limited funding and time to restructure and recapitalize our business, either on a standalone basis or as part of a merger with another Club or merger with a real estate firm or hospitality company, or through a sale of the club's assets to an acquirer. As no such plan has yet to materialize, it is now increasingly likely that any of these options will be done in a process under bankruptcy protection."

During the presentation, Tousignant detailed a plan that he said "made the most sense" for their struggling destination club: converting it into a partially member-owned structure. Members would be required to pay a one-time "Equity Club Conversion Fee" of between $15,000 and $50,000, allowing them the ability to convert their membership into shares of the club.

Ultimate Escapes asked members to vote on the proposal, needing an estimated 750 members to support such a plan to move forward. With the vote still active, we got contacted by several Ultimate Escapes members looking to voice their opinion on the proposed member-owned option, management, and the club itself.

"The Ultimate Escapes management is attempting, for the third time in two years, to access the membership for capital while maintaining control of a company that it has mismanaged. This plan, as the past ones, keeps the management in power while giving the membership nothing," one member told us, concluding with, "A ridiculous proposal."

Others spoke about how they had reservations canceled just days prior to departure and an inability to contact their travel planners or any of the club's leadership team to discuss future club travel or the health of the firm.

Combining the negative perception of the club's proposed model with widespread trip cancelations and a lack of communication with members and the vote came back overwhelmingly negative by a two to one margin against.

"We are aware of the frustrations many of you have experienced in the last couple of days in attempting to communicate with the Company and also with regard to timely Member communications and we are working hard to rectify this within the constraints of our current situation," wrote Tousignant and Chief Restructuring Officer Sheon Karol when disclosing the results of the vote. "Thanks for your continued support and patience."

Sales have been anemic for the destination club throughout 2009 and 2010. Even with the slow sales over much of the past two years, roughly half of the new membership growth the club did see came through membership referrals. If Ultimate Escapes is able to somehow remain in operation, it will be unlikely that they will be able to enjoy such a high referral percentage moving forward.

Despite the issues that many members have with the club, nearly all that we have spoken with are still supporters of the destination club concept. A collection of Ultimate Escapes members have even created a member-only group to discuss everything from transitioning the club to a completely member-owned, debt free, equity club to potential offers that might become available from other clubs in the sector.

The next several days should paint a more thorough picture of what the future holds for Ultimate Escapes and its members. Please check back frequently for all of the latest news coming out of the club.