By David Lund, The Hotel Financial Coach
I had a chance meeting with Roger Penske in the parking lot behind the paddock in October 1994 at the Indy Car Grand Prix of Monterey in Laguna Seca, California. It was the end of qualifying on Saturday and his pilot and fellow Canadian, Paul Tracy had just won the pole position. For you hoteliers who are not motorsports fans, pole means he was the quickest in qualifying and that means he starts in the first position on Sunday. This is a story about hospitality financial leadership in the face of a challenge and adversity.
Before I get into the hotel story and the connection to Roger, a bit more about him and the race. The race at Laguna that weekend was the 16th and final race of the 1994 season and it was the first time I attended a major motorsports event. Paul Tracy led from flag to flag in the 84-lap event that lasted exactly 2 hours. Fellow Canadians Scott Goodyear and Jacques Villeneuve were also racing. Jacques was 3rd in the race which was a bit of foreshadowing as he would go on in 1995 to win the Indianapolis 500 and the Indy Car series championship. It was also a notable race because it was the final race for Mario Andretti’s incredible career and the last CART race for Nigel Mansell.
A bit about Roger Penske aka “The Captain.” He has been a juggernaut of the auto racing world for over 50 years as a driver in his young career and as a team owner. His teams have won the Indianapolis 500 – 17 times. He has won numerous championships in both CART and NASCAR. There is no other team owner on the world stage that has had more success than “the captain.” He is also no slouch when it comes to business. His Penske Corporation is very successful and his own net worth is estimated at $2 billion, that’s B. But he also failed along the way and big time.
My story starts nearly a year earlier when I accepted a transfer from the mother ship hotel in my region to a “managed property.” In those days inside my company, you avoided managed properties in favor of the security of the “owned hotels.” Our company was almost exclusively an owner-operator only having a small and largely unhealthy stable of managed hotels. Little did I know at the time just how much things would change over the next couple of decades relating to owner-operator vs management companies in our industry. Nevertheless, I followed my boss’s advice when I was given the opportunity to take my first job as the department head, the controller. He said, “Why wouldn’t you grab it?” I remember thinking he would not steer me wrong and I was hungry for the opportunity to get out of the comfort so to speak of the owned hotel and spread my wings.
When I got there, it didn’t take too long to find out just how screwed up things were. The balance sheet was a disaster, accounts had not been reconciled or properly balanced in many months. The office was upside down and everyone was complaining about everyone else. There were few controls in place and even fewer people following them. The other thing that became very apparent was the computer system they were using – the property management system was a complete DOG. Not to mention the back office general ledger was just as bad. Both systems were on an IBM System 36 mainframe running Logistics which was better used as a boat anchor than a system to help run the hotel. You could not get any data in or out of either system. It was like I went backward 10 years. The other thing I quickly learned was the hotel had no money. It was a limited partnership of timeshare owners and they were all under water on their investments and not putting any money into the business.
I got to know the general partner quite well in a short amount of time. He was an interesting guy – an insurance executive who had created a relationship with one of the principles of the development company. That’s how he secured his gig as the general partner. Kind of the same as a modern-day version of the asset manager. We would meet with him monthly and review the financial results and the forecasts. Right away I saw how eager he was to help us get out of the money hole we were in. We needed money for operating equipment and there was none. We needed money for minor operating capital and there was none to be had. Some months in the first winter I had a drawer full of accounts payable checks and a system to use so I knew which vendor had called 1, 2 and 3 times before we would mail the payment. Some weeks making payroll was a real nail-biter.
We desperately needed to replace the property operating system and the back office GL, AP, and AR system. A solution was close by for the back office. My food and beverage controller was a bit of a geek and he told me with a small expense he could buy the “cards” and convert a 486 PC into a file server. He and a friend did the wiring one weekend and we now had a LAN. I purchased some ACC/PAC software and we had our own PC based network system and man did that speed things up in my accounting office! I was feeling good about the progress, but the real rhinoceros on the table for our business was the property management system.
We had no interface to anything to take reservations or manage any inventory. Everything was manual; even the room attendants had to phone their room status updates to the housekeeping office. The end of day would take 2-4 hours and crapped out so often we would spend more than two days a week on the same day. Checking someone in let alone changing a room was a time consuming task. Interfaces to the point of sale system and telephone system were chaotic at best. All of this was costing us money every day in lost business and productivity. It became the number one challenge our executive team faced -how to run the hotel with this albatross of a system. The “owned hotels” all had much newer systems and had moved away several years earlier from the mainframe environment. If we were back at an owned hotel we could pick up the phone and the capital for such a critical element would be found. But not here, there was no knight in shining armor to call. No parachute.
I remember one meeting with the general partner in late spring when business was actually looking strong for the approaching summer months. We presented our YTD numbers and the forecast for the end of the year and he was pleased. We then presented an ROI for a new property management system. I remember getting very creative with the math in regard to the lost revenues and additional labor costs because of the archaic PMS. We easily justified the $75k investment needed for the new file server, software and the PCs. We also presented our needs for operating equipment and some other minor operating capital items that we desperately needed for the coming season. I vividly remember the general partner telling us he had our backs with the money we needed for capital and it was our decision how the limited amount would be spent. It was clear what was the most pressing and what our priorities would be. We can’t operate a hotel without glassware, sheets and towels. On the flip side, as ugly as the prospects were, we could limp along with our PMS boat anchor.
After the meeting my GM, a few other managers and I met for some drinks in the hotel bar to lick our wounds so to speak. It was clear we were getting better but it was also evident we would not get a replacement PMS anytime soon – especially given the other needs we had. I especially remember my GM telling me to forget about a new PMS and focus instead on making what we had work. I said to him that living in the past was not something I was fond of and as a one up I said to him out of the blue and maybe the beer, “I bet I can get the owner to approve the purchase of a new PMS.” “How?” he said. “I don’t know, but if I can get the money will you send my systems manager and me on a trip?” What trip? I thought for a split second and said, “The Indy Car race in Monterey in October.” Why did this pop onto my radar? We had just watched the Indy 500 the weekend before and I had remembered the segment that spoke about Mario Andretti’s last season and what would be his final race at Laguna Seca. He smiled and looked around the table and said, “Absolutely, I will do that if you can find the money and get the owner to approve it and get it here before October.” “Deal!” I said.
Waking up the next day I felt kind of foolish for having put myself into such a corner with my GM and the other members of our team. Who was I to say I can get the money and on top of that the owner’s approval and have the system installed before October; it was already the first week of June!
Working in this hotel was challenging for many reasons and one was that I lived in a town about 40 miles away. Commuting to work with my wife at home with 3 young children meant I had to be creative with my rides. Car sharing mid 90’s style. One of my most popular ride share buddies was the director of sales. Both she and her husband commuted to the same resort, only he worked at the golf course which was a separate business. The following day on our way home he was telling us about the new golf carts that the course had obtained for summer. Interesting I thought, “So how did you guys buy them I asked?” He replied, “We never buy anything, the owners always lease.” “Lease?” I asked. “Yes,” he said. With that my little brain went into overdrive.
The following day my friend obtained the name of the leasing company and a phone number. I called them and inquired about a lease for some computer equipment. I had a call back the same day and a request for our financial statements. With this, I needed the owner’s approval, so I called him. I told him a bit about the leasing idea and he was OK with my sharing of the resort’s financials. He also wished me luck. The next day I sent the statements via fax and before I went home I had a call and a commitment for a piece of the financing. The lady on the phone explained that our financial situation was not stellar, but she would be willing to finance $12k of the $75k I needed. So, I asked her where she thought I might be able to get the rest. Why not, I thought. She replied that there were several other finance companies she competed with and sometimes did consortia deals with. With that, she faxed me a one-page list of finance companies in the nearby city. I may need to remind you that this is the mid 90’s and there is the internet but nothing resembling Google or the search capabilities we have today.
In less than a week I had 6 companies that would provide the financing and contracts to sign. My GM was just a little bit uneasy with the new-found responsibility we would have. I told him as long as the general partner approves we’re good to go. With that behind me, I made an appointment to go see the general partner and have him sign the leasing documents. We could have signed them on behalf of the resort, but this was uncharted territory for us. Obtaining financing was unheard of in my company in those days. He was more than happy to sign the contracts and I remember driving home that night feeling just a little proud of my deal making.
In the following weeks, we had additional challenges from corporate systems and their “schedule” for the resources we would need to build out the system to properly tie it into the central reservations system. I had to twist more than a few arms to get everyone to come together but the last week of August we were live with our new system. We missed most of the summer, but the deed was done.
In those days our company had a hotel in Monterey and I booked one room for my systems manager and me to share. We booked airline and race tickets and flew to San Francisco. Rented a car and there we were on Friday morning of race weekend. Being in Monterey was magical. “Arrivederci Mario” was in full swing – the town, the restaurants and bars were crazy busy with the race weekend festivities. I ran into the late Carl Hass in the hotel elevator. He was partners with Paul Newman and their team had Mario and Nigel as drivers. The whole weekend was a huge deal and running into Roger was the highlight. My friend the systems manager was just a little surprised at how many people I knew.
I recognized Roger immediately, tall and distinguished wearing his white Hugo Boss Penske polo shirt, a white cap and black pants. The Captain – unbelievable. He was with one other man; I believe he was a race engineer. He made eye contact and smiled as we met walking through the parking lot. I said, “Congratulations on the pole and having a Canadian driver,” as he approached. He stopped and said, “Where are you guys from?” I told him and he thought it was quite a distance to travel for just a race. He told us to have fun and wished us safe travels. I wished him good luck in tomorrow’s race. The whole thing lasted but a few seconds. My friend asked me, “Who was that”. I said, “That my friend is the most important person in the entire racing universe.” “Who is he?” “That’s The Captain,” I said. “Who?” he said.
The moral of this story is twofold. Keep your eyes open at the racetrack because you never know who you’re going to meet. Number two – Taking on a challenge is good for your growth and another great way to help propel your career forward. Don’t be shy – step up
The Hotel Financial Coach