Marriott to Spin Off Timeshare Business [merged]

[SueDonJ]

OP - Based upon a sales scenario at MGV last September, we looked at a one night golf getaway midweek at spinco's NJ resort, Seaview w/2 br villas. This is a 2 hr drive from NY. According to sales, the midweek night requires 175 DC points. ...

Thanks WOF. I was not aware of the increase to 275 points. My calcs will be off, but easy for TUGers to figure out. As far as renting points for 50 cents, I wasn't really following that, could you point me to the specific posts/thread?

Before folks start panicking, there hasn't been an increase to any of the amounts in the DC Points Chart that was released upon rollout. A single night at Fairway Villas costs either 125, 175 or 275 Points depending upon when you visit.

The potential for renting DC Points between owners has been discussed in several threads and that +/-50 cents figure is mentioned most often. I think TUGger GregT has done a few eBay experiments - maybe he'll chime in.

As of today 03/11/2011, DC points cost $10.22/point. So, 175 x $10.22 = $1,788.50. This does not account for the added cost of MFs or annual membership or usage over the lifetime of DC ownership. It's more of first year cost for inception or entry into the program (my words). Considering that DC requires a minimum of 1500 points, the cost of entry is actually considerably higher = $15,330.00

Assuming upfront costs are paid, and MF remains the same (hah), when one calculates the cost of one night midweek based upon MF: $.40 x 175 = $70. That's very attractive for a one night stay, and better than MOD, I think.

For enrolled legacy owners who have not purchased DC points, the cost of 175 points will vary widely depending upon how many DC points your home resort, season and view is worth and your current MF. So let's say my home resort is worth 3,000 points and my current MF is $1400. Each point is worth $2.74 so the cost of one mid-week night at Seaview is 175 x $2.74 = $479.50

In the worst case scenario, excluding the cost of the exchange fee, calculating the cost of one night using a home resort to Seaview exchange based upon 7 night stay would be $1400/7 = $200/night.

In the best case scenario, excluding the cost of the exchange fees, calculating the cost of one night using a home resort to 2 Shortstay exchanges based upon a total of 12 nights would be $1400/12 = $116.60

In the super best case scenario, excluding the cost of the exchange fees, calculating the cost of one night using a home resort to 2 Shortstay exchanges plus a Bonus AC based upon a total of 19 nights would be $1400/19 = $73.68 ...

There's no doubt that purchasing DC Points is an expensive venture, especially if you're looking to use them to stay at the highest-demand resorts during the highest-demand periods. But whew! I am glad to see that you've expanded your analysis somewhat to include costs over the life of the ownership rather than your original single-use equation. I think the only time I've ever seen that done before on TUG was with a super eBay deal and it was something along these lines, "Even if I only own the week for a year, the $700 purchase price will equate to $100/night plus one-time m/f, not a bad deal to begin with but when you expand it to multiple years it's a steal!"

 

[mstoyanov]

TJCNewYork,

You calculation is missing 2 important expenses - opportunity cost and depreciation. Lets run the calculation for summer week at NJ that requires 2725 DC points for the period of 10 years (good horizon for ownership - most home owners change houses more frequently than 10years). Lets also assume that cost of borrowing/opportunity cost for the money is 5% (this is fair assumption even if you pay cash since there are stable bonds that yield better return or you can pay your mortgage and get similar return).
Lets also optimistically assume that MFs stays at $0.40 and increase only at the value of inflation (to simplify net present value calculations). And finally make very generous assumption that after 10 years points that you bought are worth 50% of original purchase price.
The cost to purchase 2725 points will be $27,250 at $10 per point.
So total cost per week for 10 year use will be following:
1. MFs - $1090
2. Opportunity cost on original purchase (5% of $27,250) - $1362
3. Depreciation ($13,625 for 10 years) - $1362

So your total cost per week stay with 10 year horizon is $3814 per week in summer.
How many people are ready to pay $3814 for 2BR in summer Fairway?
Especially if you can buy the same week currently for less than $1000 on secondary market and remove most of depreciation and opportunity cost out of the equation?
No matter how you slice it or dice it buying DC points is crazy for this type of usage. In fact I can not find a single week/resort for me that buying DC points make financial sense.

OP - Based upon a sales scenario at MGV last September, we looked at a one night golf getaway midweek at spinco's NJ resort, Seaview w/2 br villas. This is a 2 hr drive from NY. According to sales, the midweek night requires 175 DC points.

As of today 03/11/2011, DC points cost $10.22/point. So, 175 x $10.22 = $1,788.50. This does not account for the added cost of MFs or annual membership or usage over the lifetime of DC ownership. It's more of first year cost for inception or entry into the program (my words). Considering that DC requires a minimum of 1500 points, the cost of entry is actually considerably higher = $15,330.00

Assuming upfront costs are paid, and MF remains the same (hah), when one calculates the cost of one night midweek based upon MF: $.40 x 175 = $70. That's very attractive for a one night stay, and better than MOD, I think.

For enrolled legacy owners who have not purchased DC points, the cost of 175 points will vary widely depending upon how many DC points your home resort, season and view is worth and your current MF. So let's say my home resort is worth 3,000 points and my current MF is $1400. Each point is worth $2.74 so the cost of one mid-week night at Seaview is 175 x $2.74 = $479.50

In the worst case scenario, excluding the cost of the exchange fee, calculating the cost of one night using a home resort to Seaview exchange based upon 7 night stay would be $1400/7 = $200/night.

In the best case scenario, excluding the cost of the exchange fees, calculating the cost of one night using a home resort to 2 Shortstay exchanges based upon a total of 12 nights would be $1400/12 = $116.60

In the super best case scenario, excluding the cost of the exchange fees, calculating the cost of one night using a home resort to 2 Shortstay exchanges plus a Bonus AC based upon a total of 19 nights would be $1400/19 = $73.68

Aside from the 'breakdown', I'm compelled to add that my wife and I have agreed to decline DC enrollment for now. The economics of legacy ownership is familiar and works for us. But, we are very hopeful that the value in legacy ownership is retained and increased. Based upon comments here and here, we continue to think that spinco is long overdue. Spinco is not a panacea, but a positive step on the road to a solution.

Inspite of many concerns about declining value and the lack of competitive advantage in an industry marred in the media; we also remain very confident that the appointment of the new chairman of spinco's BoD is on-target, because of the knowledge, experience, capabilities, respect, integrity and extensive executive relationships he brings to the table.

 

[mstoyanov]

Fredm,

Timeshareing is fun but raising MFs is definitely not fun.

Folks, why so serious?
Timeshares are supposed to be fun.

 

[mstoyanov]

Fredm,

It is true that Wyndham (Farifield) managed to successfully migrate from weeks to points model but the "skim" is really low for Marriott that doesn't exist in Wyndham points system(i.e the points that I get from my converted fixed week is exactly the same it takes me to reserve it) and even today you can still convert fixed week at Wyndham resort to points for $2495 without points purchase.
Oh, and in Wyndham system once week is converted it stays converted to points when it is resold.
I think very few people expected from Marriott to drop that low - maybe they are trying for "we can be worse/greedy than Wyndham" award.

No. At least not a growth market.
Marriott figured that out several years ago.
Hence, Marriott (via Spinco) is migrating from an asset-based to a fee-for-service business model.
Existing assets remain to be sold. And they will be over time.

I have suggested that one only need look to Wyndham for how this might evolve.
Marriott has taken the first steps with creating a standardized currency (with attendant infrastructure), and is bundling for-fee services.

 

[Fredm]

Fredm,

It is true that Wyndham (Farifield) managed to successfully migrate from weeks to points model but the "skim" is really low for Marriott that doesn't exist in Wyndham points system(i.e the points that I get from my converted fixed week is exactly the same it takes me to reserve it) and even today you can still convert fixed week at Wyndham resort to points for $2495 without points purchase. I think very few people expected from Marriott to drop that low - maybe they are trying for "we can be worse/greedy than Wyndham" award.

I won't touch the "skim" issue. No legacy owner is forced into it.

I was referencing the Cendant strategy (whose name was changed to Wyndham Worldwide).

Cendant bought Fairfield and Worldmark. Then bought RCI.
RCI then introduced RCI Points, and recruited member resorts to affiliate with their newly minted (out of thin air) points currency.
Established separate Weeks and Points exchange pools.
Then grew what is now the largest vacation rental program in the world. Mostly from inventory captured from RCI's exchange inventory, and unused fragmented points (without owning any of it, and maintained by owner maintenance fees).

Wyndham acquires inventory at resorts it acquires in bankruptcy, and/or engages in new Operation Management contracts. All without driving a single nail. Along the way a streamlined sales staff sells available points at retail.

THAT is what I call a fee-for-service money making machine.

So, fast forward.
Marriott has a large weeks-based resort system, including a bunch of unsold standing and pipeline inventory.
It creates a point-based program for current and future sales. A separate weeks based legacy system remains. Access to the points exchange is sold with bundled fees. Integrates travel and hotel components.

Now the speculation.
Spinco acquires I.I.
I.I. introduces Destination Club Points. Recruits member resorts to participate. Sells Club access to resort owners. Maintains separate Weeks and Points exchange pools. Expands its rental business using I.I. inventory and fragmented unused points.
Spinco acquires additional sales inventory by bringing some additional number of quality tier resorts/systems under its umbrella, and expands the Operations Management component of its business. All without driving another nail.
In the process, integrates hotel, cruise, car rental, and other leisure travel services (all of which is currently done in a less encompassing way).

Speculation? Sure. But, not trail blazing.
If Cendant was able to do it by floating corporate bonds (without brand identification), Spinco can do it. Probably better. For all concerned.

I.I. has already acknowledged (in its last quarterly conference call) to be under revenue pressure because of developer affiliates migrating to a fee-for service model.
Specifically credited Marriott's DC program as the reason for its 88% member retention rate. Marriott extracted a hefty fee retention for renewing its affiliation agreement. 3 months later the DC was announced. 6 months later Marriott announces the spin-off. Coincidence? I don't think so.

 

[wvacations]

OP -.

For enrolled legacy owners who have not purchased DC points, the cost of 175 points will vary widely depending upon how many DC points your home resort, season and view is worth and your current MF. So let's say my home resort is worth 3,000 points and my current MF is $1400. Each point is worth $2.74 so the cost of one mid-week night at Seaview is 175 x $2.74 = $479.50

.

This thread has certainly covered a large range of topics. There is a math error in the above calculation however. The OP was comparing cost of MF to a night at a resort without regard to up front cost.

If you get 3000 points for your home resort and your MF are $1400 per year the cost per point is not $2.74 it is $0.47 per point cost per year. This would make mid-week Seaview 175 X $ 0.47 = $82.25 per night not $479.50.

I beleive the math error came by dividing the points by the dollars instead of the correct formula of dollars by points. OP was trying to get $'s per point not Points per $.

Just keeping everthing equal!!!

 

[mstoyanov]

But part of the successful Cendant strategy was buying the successful Fairfield and WorldMark in addition to the RCI. If Fairfield transfer from weeks to points was such fiasco as is current Marriott transition to DC I doubt it would have even being purchased by Cendant. And Cendant needed the units provided by former Fairfield to fuel a good inventory availability in RCI.
Farfield deposits in RCI have always being the backbone of availability in RCI especially during the time when DVC has left it.
Even today a very large part of deposits in RCI comes from Wyndham/Fairfiled.

I was referencing the Cendant strategy (whose name was changed to Wyndham Worldwide).

 

[mstoyanov]

Oh, and one thing that I forgot. In order to to execute their strategy Cendant bought not only exchange company but also bough 2 timeshare developers to fuel the exchange system.
In completely opposite move Marriott is divesting of current timeshare developer that it already has. If that was suppose to be same strategy as Cendant instead of getting rid of developer that they already have Marriott should have bough II and additional developer (DVC or Hilton for example) to fuel their own exchange system.
Now instead they are leaving a cash strapped Spinco to struggle on its own. Nobody will finance large amount of bonds to new Spinco without backing of a corporate giant like Marriott.
To me this looks exactly the opposite of what Cendant did.

I was referencing the Cendant strategy (whose name was changed to Wyndham Worldwide).

 

[Fredm]

Oh, and one thing that I forgot. In order to to execute their strategy Cendant bought not only exchange company but also bough 2 timeshare developers to fuel the exchange system.
In completely opposite move Marriott is divesting of current timeshare developer that it already has. If that was suppose to be same strategy as Cendant instead of getting rid of developer that they already have Marriott should have bough II and additional developer (DVC or Hilton for example) to fuel their own exchange system.
Now instead they are leaving a cash strapped Spinco to struggle on its own. Nobody will finance large amount of bonds to new Spinco without backing of a corporate giant like Marriott.
To me this looks exactly the opposite of what Cendant did.

Nope. Cendant started with nothing as a practical matter. Just Ramada and Avis.
Spinco is starting with the most desired quality-tier resort system in the world, 400,000+ owners, efficient and sophisticated operations management expertise, and enviable profits. Standing inventory has already been written down, and sales/administration structures streamlined. Margins will be healthy. The wind is to its back.
What is does not have is high growth prospects as a developer. Hence, the fee-for service business model.

Who knows what else is in the wind? I don't. But, those who characterize the spin-off as shedding an orphan dog are misreading the deal, IMO. That is the point I wish to make.

 

[wof45]

Oh, and one thing that I forgot. In order to to execute their strategy Cendant bought not only exchange company but also bough 2 timeshare developers to fuel the exchange system.
In completely opposite move Marriott is divesting of current timeshare developer that it already has. If that was suppose to be same strategy as Cendant instead of getting rid of developer that they already have Marriott should have bough II and additional developer (DVC or Hilton for example) to fuel their own exchange system.
Now instead they are leaving a cash strapped Spinco to struggle on its own. Nobody will finance large amount of bonds to new Spinco without backing of a corporate giant like Marriott.
To me this looks exactly the opposite of what Cendant did.

I think there is a bit of a stretch here.

Marriott is not divesting its timeshare developer. It is taking the entire timeshare division, timeshare developer, exchange, fee for service, et al and putting it into a separate company. So this by itself is not a change.

Also, Spinco is not cash strapped. The SEC would never let Marriott spin off a company that is not self sustaining. They are in the position that as they sell inventory, they get cash, and they also get cash from fee for services business.

Regarding bonds -- First, there are already corporate bonds supporting the bonds, and second, the creditors would not let the bonds move from Marriott unless they felt they would get the returns promised.

 

[mstoyanov]

Cendant definitely did not start with nothing - it started in 1997 as a 14 billion merger between HFS and CUC (later is was uncovered that there was a massive fraud in CUC accounting that dropped the market cap 4 times but it recovered a year or 2 later). Just for reference the whole Marriott right now has market cap of ~14B so it is approximately the same size when Cendant was formed:
http://en.wikipedia.org/wiki/Cendant
By year 2000 when it purchased Fairfield for $635 million in cash and stocks Cenant was already a huge corporation bigger than both current Marriott including Spinco and on top of that corporate bond market (especially for real estate developers) was completely different back then.
I doubt even Marriott can get financing now to pull move like Cendant let alone smaller company like Spinco saddled with huge pile of slow to move inventory and quite a big ongoing cash obligations. We will be able to get a glance at Spinco financials when they later file the prospectus.

Nope. Cendant started with nothing as a practical matter. Just Ramada and Avis.
Spinco is starting with the most desired quality resort system in the world, 400,000+ owners, efficient and sophisticated operations management expertise, and enviable profits. The wind is to its back.
What is does not have is high growth prospects as a developer. Hence, the fee-for service business model.
Who knows what else is in the wind? I don't. But, those who characterize the spin-off as shedding an orphan dog are misreading the deal, IMO.

 

[Lawlar]

This Thread is Too Long and Convoluted

It's time to break this thread down into separate topics!!! It's too confusing and longwinded for anyone who wants to learn about this important topic (and, in case you forgot what the topic was, which is likely, it's what is the effect of Marriott spining off the TS business).

I hope the moderators aren't hearding this topic into one thread because of their bias. This subject deserves more space, even if some believe the posts on this topic are negative.

 

[mstoyanov]

wof45,

I do not know specific financial details of the Spinco and will not know them until they file the SEC disclosures but I do not think it is a stretch to say that Spinco will be very weak company on its own. They have a lot of inventory that is very slow to sell and they have to pay maintenance fees on this inventory which is a financial drain in addition to the cost of sales. I fully expect their profit/assets ratio to be horrible compared to Marriott.
That should be reflected as soon as they file disclosures and Spinco shares will be priced accordingly when these start trading on the stock exchanges.
As for the bonds - I was talking about new bonds they will need to issue to finance acquisitions if they want to follow Cendant model.

I think there is a bit of a stretch here.

Marriott is not divesting its timeshare developer. It is taking the entire timeshare division, timeshare developer, exchange, fee for service, et al and putting it into a separate company. So this by itself is not a change.

Also, Spinco is not cash strapped. The SEC would never let Marriott spin off a company that is not self sustaining. They are in the position that as they sell inventory, they get cash, and they also get cash from fee for services business.

Regarding bonds -- First, there are already corporate bonds supporting the bonds, and second, the creditors would not let the bonds move from Marriott unless they felt they would get the returns promised.

 

[Fredm]

The merged 14B market cap was based on paper mache.
The largest financial markets fraud to that point in US history.

Again, my point is that I do not believe Marriott is shedding an orphan dog.
Those that do are misreading the deal, IMO.

Time will tell how they go about it, or, how successful they will be.

 

[OldPantry]

TJCNewYork,

You calculation is missing 2 important expenses - opportunity cost and depreciation.
...
So your total cost per week stay with 10 year horizon is $3814 per week in summer.
How many people are ready to pay $3814 for 2BR in summer Fairway?
...
No matter how you slice it or dice it buying DC points is crazy for this type of usage. In fact I can not find a single week/resort for me that buying DC points make financial sense.

Amen! Emphasizing the "depreciation" aspect of a points purchase is very relevant, although it involves arbitrary assumptions about what that rate will be. Note also that this example addresses an only modestly sought destination (Fairway). When you work with the sometimes spectacular points requirements of the HHI or Hawaii clubs, the picture is even darker.
This is why I really wonder what about Spinco's longer-term prospects. They're offering a product (DC points) that is a distinctly worse "investment" than what it's replacing (traditional timeshares). They were a bad deal; this is absolutely terrible!
Several folks are talking about the huge "fee for service" prospects Spinco faces. To me, this seems like small potatoes compared to the gigantic markups they hope to achieve with points sales. If this model falters, or even collapses, I could see Spinco being in a very bad way. It might not necessitate bankruptcy, but it'll have to switch gears big time. Maybe it will even have to go all the way: offer folks a genuinely good deal instead of something only a clueless mark could love.

 

[mstoyanov]

It is true that after the scandal was discovered the market cap of Cendant dropped almost 4 times but by year 2000 it had recovered back and was >$14B. Also in year 2000 the crisis in high tech industry made investors running for real-estate backed securities as a safe-heaven.
So selling real-estate corporate bonds was a whole different ballgame than it is now.

The merged 14B market cap was based on paper mache.
The largest financial markets fraud to that point in US history.

Again, my point is that I do not believe Marriott is shedding an orphan dog.
Those that do are misreading the deal, IMO.

Time will tell how they go about it, or, how successful they will be.

 

[mstoyanov]

OldPantry,

it is true that retail DC points makes no financial sense to purchase but that is also true for most other timeshares. Most of the timeshare purchasers are people dazzled by the slick salesmen and are not properly researching such large purchases as they should be. So there will always be buyers that do not(or can not) judge correctly the true economic cost of such purchase. The biggest hit for Marriott/Spinco comes from the existing buyers and their referrals - Marriott in the past had one of highest percentage of repeat buyers in the industry (may be only Royal Resorts had higher if I am not mistaken). In the last year they alienated a lot of existing timeshare owners with DC program and later with Spinco. And no it is not just Tuggers that hate all these changes - if you read on Bill Marriott blog (or other financial blogs) - most of the people posting are not Tuggers but they dislike the changes with the same passions as Tuggers. This is the biggest problem for Spinco.

Amen! Emphasizing the "depreciation" aspect of a points purchase is very relevant, although it involves arbitrary assumptions about what that rate will be. Note also that this example addresses an only modestly sought destination (Fairway). When you work with the sometimes spectacular points requirements of the HHI or Hawaii clubs, the picture is even darker.
This is why I really wonder what about Spinco's longer-term prospects. They're offering a product (DC points) that is a distinctly worse "investment" than what it's replacing (traditional timeshares). They were a bad deal; this is absolutely terrible!
Several folks are talking about the huge "fee for service" prospects Spinco faces. To me, this seems like small potatoes compared to the gigantic markups they hope to achieve with points sales. If this model falters, or even collapses, I could see Spinco being in a very bad way. It might not necessitate bankruptcy, but it'll have to switch gears big time. Maybe it will even have to go all the way: offer folks a genuinely good deal instead of something only a clueless mark could love.

 

[mstoyanov]

Fredm,

I decided to delve deeper into this speculation of yours.
Currently Interval is owner by a group called Interval Leisure Group Inc. (Nasdaq: IILG) and has currently market cap of ~$869M. It has 2 divisions - "Membership and Exchange" that in the lat report generated ~$28M earnings and "Management and Rental" that in the same report generated ~$1.7M earnings so almost all value in IILG is generated by "Membership and Exchange" division.
Presuming 50% premium over current stock price (which is normal for acquisitions) that will put the capital needed to acquire IILG ~$1.2B which should not be a small feat even for Marriott (MAR market cap is currently ~$14B) and right down impossible for the Spinco. In fact the only way I see both companies combined is as a voluntary merger between the Spinco and IILG.
Now the question is will IILG shareholders see any value by such merger but to answer this question we need a lot more financial info on Spinco.
There can be some synergy between Spinco and IILG but there is also a danger for IILG of alienating other customers like Starwood and Hyatt.
So for now I will go with a guess that such probability is quite low but future finance disclosures from Spinco may give us a better info to make predictions.

Now the speculation.
Spinco acquires I.I.
I.I. introduces Destination Club Points. Recruits member resorts to participate. Sells Club access to resort owners. Maintains separate Weeks and Points exchange pools. Expands its rental business using I.I. inventory and fragmented unused points.
Spinco acquires additional sales inventory by bringing some additional number of quality tier resorts/systems under its umbrella, and expands the Operations Management component of its business. All without driving another nail.
In the process, integrates hotel, cruise, car rental, and other leisure travel services (all of which is currently done in a less encompassing way).

Speculation? Sure. But, not trail blazing.
If Cendant was able to do it by floating corporate bonds (without brand identification), Spinco can do it. Probably better. For all concerned.

 

[wof45]

I think it is a mistake to say there is less value in the points structure than in the weeks structure. There are a lot of people who are much happier with the points structure, the buy in at a lower level and not having low demand weeks with a high MF.

There is a good chance that when a large enough number of people with bad weeks and high MF stop paying, that you will see higher and higher fees for the remaining people with good weeks. This is not a problem in the DC program.

I think you will find just as many tuggers who are happy with the new system. there are a relative few who are posting who don't like it, and that is fine and they don't need to enroll their weeks.

I can't imagine that anyone bought a TS at developer price and expected it be a long-term investment. It was a life style investment much like buying a vacation property, and many people also lost a lot on vacation properties in this economy.

Think about Christmas Clubs at banks. THey were always a really bad investment, but people always signed up because they knew it was a way they would save for something so that they would have it when they needed it. TS is a way to do the same with vacations. Even when you talk of other uses of cash, you need to remember that most people bought their TS with a mortgage and 15 years of payments, not with cash.

 

[mstoyanov]

wof45, I don't know if this is directed to me but I will reply.
First for the points structure - points are not a bad tool to remove seasonality for a resort since they average MFs but are definitely not a cure for delinquencies (these are driven by other factors mostly personal finances).
In general red weeks owners are better than pure points resort (UDI), for white week owners MFs should be the same while blue weeks are worse compared to the resort that is pure points. As for the Marriott DC points - this is the worst possible points program of ALL systems that I know and I will never purchase pure DC points even resale (lack of home resort priority, high MFs, high resale restrictions, ability to modify point allocation at will and so on) at any price. As for the DC enrolled owners - it benefits prime week owners (so no cure for seasonality) and may work for some or not for the other but still very bad product compared to any other points timeshare system. As for me - I actually like the fact that DC program was implemented so badly - I did not own Marriotts pre DC era since even resale prices were too high for investment purposes but after DC roll-out resale prices dropped to level where resale prices start making sense from ROI perspective so I purchased 2 Marriotts and will purchase probably more as the prices continue to drop. Even if I am offered DC enrollment for free in the future I will probably not take it since it makes no financial sense for me.

As for people buying timeshare from developer into "life style" investment it never made financial sense. You could always rent the exactly same "life style" (i.e. the same units) even before for much less than true cost of purchase from owners and there were always promotions from developers for even less.
As for people loosing money on vacation properties - yes a lot of people lost money too but buying vacation property was always big financial decision that should be seriously analyzed (and led to financial loss in many cases even before current crisis).

As for Christmas Clubs - I am actually not aware what these are but if this is something like this:
http://en.wikipedia.org/wiki/Christmas_club
it is not such a bad deal if there are no fees - looks like forced savings with minimal interest.

And finally for the people paying for timeshares with 10-15 year credit (usually at 12%+ APR) - that is downright financially irresponsible and is a lot worse than comparing it with 5% opportunity cost on the money you are looking to invest.
If you can not afford to pay for any timeshare in cash then you can not afford it period. Paying ridiculous interest rates for something that is not a liquid asset and no bank will touch is simply compounding one financial mistake with another.

I think it is a mistake to say there is less value in the points structure than in the weeks structure. There are a lot of people who are much happier with the points structure, the buy in at a lower level and not having low demand weeks with a high MF.

There is a good chance that when a large enough number of people with bad weeks and high MF stop paying, that you will see higher and higher fees for the remaining people with good weeks. This is not a problem in the DC program.

I think you will find just as many tuggers who are happy with the new system. there are a relative few who are posting who don't like it, and that is fine and they don't need to enroll their weeks.

I can't imagine that anyone bought a TS at developer price and expected it be a long-term investment. It was a life style investment much like buying a vacation property, and many people also lost a lot on vacation properties in this economy.

Think about Christmas Clubs at banks. THey were always a really bad investment, but people always signed up because they knew it was a way they would save for something so that they would have it when they needed it. TS is a way to do the same with vacations. Even when you talk of other uses of cash, you need to remember that most people bought their TS with a mortgage and 15 years of payments, not with cash.

 

[windje2000]

I think there is a bit of a stretch here.

Marriott is not divesting its timeshare developer. It is taking the entire timeshare division, timeshare developer, exchange, fee for service, et al and putting it into a separate company. So this by itself is not a change.

Also, Spinco is not cash strapped. The SEC would never let Marriott spin off a company that is not self sustaining. They are in the position that as they sell inventory, they get cash, and they also get cash from fee for services business.

Regarding bonds -- First, there are already corporate bonds supporting the bonds, and second, the creditors would not let the bonds move from Marriott unless they felt they would get the returns promised.

Marriott is most certainly divesting itself of timeshare. From wiki:

In finance and economics, divestment or divestiture is the reduction of some kind of asset for either financial or ethical objectives or sale of an existing business by a firm. A divestment is the opposite of an investment.

Divestment for financial goals

Often the term is used as a means to grow financially in which a company sells off a business unit in order to focus their resources on a market it judges to be more profitable, or promising. Sometimes, such an action can be a spin-off.

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[OldPantry]

I can't imagine that anyone bought a TS at developer price and expected it be a long-term investment. It was a life style investment much like buying a vacation property, and many people also lost a lot on vacation properties in this economy.

Hmm, I'd call that a huge lack of imagination. I think, rather, that a large majority of buyers expected exactly that: a long-term investment that would maintain value and be a lovely thing to pass onto children and grandchildren. Calling it a "life style investment" sounds like Monday morning quarterbacking. Now that it's been revealed as a horrible investment, well it was really a "life style" choice, like a blazer perhaps. That's OK, if it makes you feel better. But it rings hollow to insist you never expected to get the money back, ever. Would you really have bought if they had said, "you're buying into the best vacation clubs in the world, but your $35,00 to $50,000 is gone when you walk out the door"? Wouldn't you have asked whether you really wanted to toss that money away?

 

[dioxide45]

Hmm, I'd call that a huge lack of imagination. I think, rather, that a large majority of buyers expected exactly that: a long-term investment that would maintain value and be a lovely thing to pass onto children and grandchildren. Calling it a "life style investment" sounds like Monday morning quarterbacking. Now that it's been revealed as a horrible investment, well it was really a "life style" choice, like a blazer perhaps. That's OK, if it makes you feel better. But it rings hollow to insist you never expected to get the money back, ever. Would you really have bought if they had said, "you're buying into the best vacation clubs in the world, but your $35,00 to $50,000 is gone when you walk out the door"? Wouldn't you have asked whether you really wanted to toss that money away?

I would have to agree. Back in 2003 when we attended our first sales presentation the sell was to buy a prepaid vacation. Back then when you ran the numbers, it actually was somewhat of a deal compared to renting the same unit with cash. After running the numbers you could see where you could come out ahead. I spent hours doing this, forecasting it out over 20-25 years and with MFs going up. It was a slight savings, but savings none the less.

Today that tactic is gone. Now it is all scare, scare, scare. The reason they can't use that old tactic is because the numbers no longer make sense.

I would agree that if they sold this as a "lifestyle investment" and told people all they were buying was a lifestyle. Indicating that when they want/need to sell, they will only get back 10%. They would have next to zero sales and the company would be in receivership very quickly.

 

[wof45]

Hmm, I'd call that a huge lack of imagination. I think, rather, that a large majority of buyers expected exactly that: a long-term investment that would maintain value and be a lovely thing to pass onto children and grandchildren. Calling it a "life style investment" sounds like Monday morning quarterbacking. Now that it's been revealed as a horrible investment, well it was really a "life style" choice, like a blazer perhaps. That's OK, if it makes you feel better. But it rings hollow to insist you never expected to get the money back, ever. Would you really have bought if they had said, "you're buying into the best vacation clubs in the world, but your $35,00 to $50,000 is gone when you walk out the door"? Wouldn't you have asked whether you really wanted to toss that money away?

I'm surprised if this was important to you that you would not have looked at the documents.

we first bought from MORI in 87-88, with the same idea that we would pass it on to our children, and that is what we will do, so it does not ring hollow. I remember reading through the documents and the part that said the timeshare would be reviewed and re-voted by the owners in 40 years and wondering if I would still be around. And that we would still own a share of the property when that happened.

you bought a share of a property in perpetuity, and that is what you have. Even then, there were disclosures that there was no guarantee of value in the future.

 

[wof45]

I would have to agree. Back in 2003 when we attended our first sales presentation the sell was to buy a prepaid vacation. Back then when you ran the numbers, it actually was somewhat of a deal compared to renting the same unit with cash. After running the numbers you could see where you could come out ahead. I spent hours doing this, forecasting it out over 20-25 years and with MFs going up. It was a slight savings, but savings none the less.

Today that tactic is gone. Now it is all scare, scare, scare. The reason they can't use that old tactic is because the numbers no longer make sense.

I would agree that if they sold this as a "lifestyle investment" and told people all they were buying was a lifestyle. Indicating that when they want/need to sell, they will only get back 10%. They would have next to zero sales and the company would be in receivership very quickly.

nothing is ever as it seems.
we bought our second unit at Sabal Palms around Y2K. We did a tour at grande vista, and told the sales person that we really wanted a second unit at Sabal Palms. She had one for us, at about the original price, which was about half the price of a MGV unit.

We preferred the small resort, with use of the hotel facilities and location by Disney -- and half the price locked it. We couldn't really understand why someone would rather pay the MGV price.

this was also about having an additional week of vacation, and not as an investment and not to trade for something else. everyone has their own dream.