Speculation About Marriott's New Timeshare Structure [merged]

[NWL]

No need to empathize... of all groups represented here, those who purchased from the developer are probably the most protected.

Nice one!

Cheers!

 

[dioxide45]

How do you know the original agreement that was renewed, didn't include the right to terminate at any time? Didn't include a clause that Marriott could make changes to suit changing business needs?

I am sure the ability to terminate at any time has a rather high price tag associated with it. Marriott has no need to terminate their agreement with II, and what the rep said about II was indeed false. Marriott wouldn't have taken the time to renew their contract for many years only to terminate it and pay any penalties associated with termination.

 

[DanCali]

No need to empathize... of all groups represented here, those who purchased from the developer are probably the most protected.

If they do anything to destroy resale value (e.g future resale owners can't join) do they reimburse retail buyers for the loss in equity? I think not... So what protection is there for retail buyers? It may be cheaper to join a yet to be announced new system, but imo the new system is a downgrade from a great existing system (it's hard to make a system any better) so everyone loses when some people will be tempted to join.

 

[timeos2]

The truth may be in the middle

I am sure the ability to terminate at any time has a rather high price tag associated with it. Marriott has no need to terminate their agreement with II, and what the rep said about II was indeed false. Marriott wouldn't have taken the time to renew their contract for many years only to terminate it and pay any penalties associated with termination.

There are no penalties involved in terminating an II contract (unless Marriott has one significantly different than every other affiliate - not likely). Plus they can never really "terminate" the relationship as each & every owner that was sold a unit with II affiliation has the right to remain with II (or RCI) if they desire. What they can end is any exclusive tie or any preference they chose to give II and move it to another group even their own.

So, as usual, the weasel talk may be overstating things but there could very well be an underlying truth. It is extremely likely that Marriott is going on its own and II will no longer be the primary, favored exchange for Marriott as an organization. What the owners want to do individually is up to them. If that can be called terminating II then so be it. It's as close as they can ever come really.

 

[rthib]

This is all so funny.

Marriott is a public company.
If a major change like this was going to happen, who would know about it:
The analysts who watch Marriott for anything that might impact the stock - nope, no word from them.
The day traders who would use something like this to manipulate the stock - nope.
The industry press that covers both time-shares and hospitality - nope.
Executives and others who know that letting someone know about this before it was public would be a material breach - nope.

So of course the people who would most likely to know what is happening with a multi-year, huge financial partnership would be a sales rep at a time-share.
:hysterical:

 

[pspercy]

State or county doesn't like timeshare owners and sock it to us

Yes indeed, I noticed the big rise in the property tax component of the MF this year vs last year

 

[pspercy]

. . they should be selling out (I assume the Napili units), for the most part, by June.

Wow, seem to remember being told (last Fall) that some of those units required two or three week package sales - sales guy said up around $400K.
They are drop dead gorgeous tho'

Amazing in this economy and, just pure nosiness, I wonder what their commission rate is ?

 

[taffy19]

Marriott is a public company.
If a major change like this was going to happen, who would know about it:
The analysts who watch Marriott for anything that might impact the stock - nope, no word from them.
The day traders who would use something like this to manipulate the stock - nope.
The industry press that covers both time-shares and hospitality - nope.
Executives and others who know that letting someone know about this before it was public would be a material breach - nope.

So of course the people who would most likely to know what is happening with a multi-year, huge financial partnership would be a sales rep at a time-share.
:hysterical:

You have a point there but it isn't close to June yet and the Marriott may still be working on the details or scrap the whole idea. We just have to wait and see a little longer. Something is in the air because the rumors do not go away but keep popping up everywhere now.

 

[Fredm]

Guidance

Marriott is a public company.
If a major change like this was going to happen, who would know about it:
The analysts who watch Marriott for anything that might impact the stock - nope, no word from them.
The day traders who would use something like this to manipulate the stock - nope.
The industry press that covers both time-shares and hospitality - nope.
Executives and others who know that letting someone know about this before it was public would be a material breach - nope.

So of course the people who would most likely to know what is happening with a multi-year, huge financial partnership would be a sales rep at a time-share.
:hysterical:

I am with you!

The most recent recurring rumor (from sales execs) is that Marriott is closing down sales 2 weeks in June for sales training on the new points system.

So, I guess that means no marketing tours during those 2 weeks.
Marriott would have had to know that at least six months ago in order to not book tours during this time frame.

It also means that they were in a position to offer "guidance" to the investment community in the last quarterly conference call regarding upcoming developments that would affect their timeshare business.
They did not. Yet, they did announce plans to double Marriott's hotel presence in Europe by 2015, on March 13 this year.

The rumored points program is not a national security issue. It's simply business, if true. There is absolutely no reason for it to be cloaked in secrecy if it is part of a public corporation's business plan.
Just like expanding hotels in Europe by 2015. If it's real, it's reported.

The next quarterly conference call is just around the corner. April 22.
One week from today will be the very last opportunity for Marriott to disclose its plan to the investment community and its stock holders, if any of this is real. My guess is that if it were, they would have already said so.

I know it is more fun to chase ghosts, speculate about the harm to owners, class action lawsuits, violation of the CC&R's, etc, etc.
How about the REAL issue of not reporting material business matters to its shareholders, and the investment community?

 

[PerryM]

A simple test....

If they do anything to destroy resale value (e.g future resale owners can't join) do they reimburse retail buyers for the loss in equity? I think not... So what protection is there for retail buyers? It may be cheaper to join a yet to be announced new system, but imo the new system is a downgrade from a great existing system (it's hard to make a system any better) so everyone loses when some people will be tempted to join.

Marriott is going to take a perfectly good internal exchange system of 24-days at II and foist a radically different reservation Point system and the outcome will be:

• Fewer exchanges (II and Marriott split owners)
• Increased cost - membership fee charge per week
• Decreased choices - can't get super upgrade options anymore with Marriott
• Decrease in resale value - reduce all resales by the nontransferable membership fee
• Scarcity of high demand holiday weeks in II system - Marriott will snap up all holiday weeks for their system

Net net class action lawsuits will plague Marriott and tarnish their reputation for 5+ years at the least. You know the lawsuits are being planned right now and will be filed the day of release.

And for what? So we pay big bucks for a worse exchange system and Marriott gets to super saturate all holidays at all Marriotts as a sales gimmick?

It's going to be easy to measure how "Owner oriented" Marriott is with how much they charge for memberships in their new scheme - the higher the membership fee the more this is for Marriott's benefit and not the owners.

 

[puckmanfl]

Starting to sound like a Perry convert...

Here is what concerns me regarding "points"

Hypothetically let's assume Plat Hawaii, Aruba, ski (add your own favorite) here are worth 1000 pts. As an owner you always have access to your home week and can "book" it as always. The developer can never take this away, BUT they can raise the number of points needed to exchange to other weeks (devalue). In other words the developer can say "great, you have your home week, but if you want to exchange in to any other plat week" it will cost you 1250 points. The developer always says "we just have an obligation to provide home week usage" we don't have to protect exchanges!! It could be 1500 points for a "resale" exchange. The developer says "we would be happy to SELL you some more points" so you can exchange!!!!

 

[PerryM]

Linear Programming - Not!

Starting to sound like a Perry convert...

Here is what concerns me regarding "points"

Hypothetically let's assume Plat Hawaii, Aruba, ski (add your own favorite) here are worth 1000 pts. As an owner you always have access to your home week and can "book" it as always. The developer can never take this away, BUT they can raise the number of points needed to exchange to other weeks (devalue). In other words the developer can say "great, you have your home week, but if you want to exchange in to any other plat week" it will cost you 1250 points. The developer always says "we just have an obligation to provide home week usage" we don't have to protect exchanges!! It could be 1500 points for a "resale" exchange. The developer says "we would be happy to SELL you some more points" so you can exchange!!!!

I'm assuming the Marriott folks have called in Industrial Engineers (IE) to work on their biggest challenge - how to sell more Points to the folks who join. That IE used several simulation tools, one of which is Linear Programming .

Linear Programming is a math tool which is used all the time to solve complex problems like FedExp has every day - what's the best route for our trucks that will save us the most gas/diesel and less driver hours. LP can easily be done on an Excel spreadsheet where you set up the various parameters and it runs thousands of iterations to find the most efficient solution.

Well you can do the opposite just as easily - find the least efficient usage of Points which will result in the maximum shortage of successful exchanges. Basically you will always come up a few Points short in the exchange you desire and Marriott will happily provide a solution - buy more Points from them.

It's like the TV show "Numb3rs" but where the bad guys use math to defeat the good guys.

So get ready to be a few Points short of your goals with the new exchange system and Marriott to "help" you out.

 

[Latravel]

If they do anything to destroy resale value (e.g future resale owners can't join) do they reimburse retail buyers for the loss in equity? I think not... So what protection is there for retail buyers? It may be cheaper to join a yet to be announced new system, but imo the new system is a downgrade from a great existing system (it's hard to make a system any better) so everyone loses when some people will be tempted to join.

I feel like a tape recorder. If you purchased "retail", you signed many documents stating that your timeshare is not an investment, that it is to be used for personal enjoyment, that there is no implied or stated resale value.

The protection doesn't cover resale value (because, in a sense, Marriott doesn't recognize resale value). The protection covers future changes.

 

[Latravel]

I'm assuming the Marriott folks have called in Industrial Engineers (IE) to work on their biggest challenge - how to sell more Points to the folks who join. That IE used several simulation tools, one of which is Linear Programming .

Linear Programming is a math tool which is used all the time to solve complex problems like FedExp has every day - what's the best route for our trucks that will save us the most gas/diesel and less driver hours. LP can easily be done on an Excel spreadsheet where you set up the various parameters and it runs thousands of iterations to find the most efficient solution.

Well you can do the opposite just as easily - find the least efficient usage of Points which will result in the maximum shortage of successful exchanges. Basically you will always come up a few Points short in the exchange you desire and Marriott will happily provide a solution - buy more Points from them.

It's like the TV show "Numb3rs" but where the bad guys use math to defeat the good guys.

So get ready to be a few Points short of your goals with the new exchange system and Marriott to "help" you out.

Hmmm.... Interesting theory but i'm not sure i'd use linear programming here (i'm an industrial engineer). There are too many variables (such as emotion) with respect to sales that can't be captured in an equation.

Usually companies hire Industrial Engineers to maximize efficiency, reduce wait times, simplify processes to improve a customer's experience. Trying to get people to buy more points is usually a marketing/sales issue.

 

[PerryM]

Separation of powers....

Hmmm.... Interesting theory but i'm not sure i'd use linear programming here (i'm an industrial engineer). There are too many variables (such as emotion) with respect to sales that can't be captured in an equation.

Usually companies hire Industrial Engineers to maximize efficiency, reduce wait times, simplify processes to improve a customer's experience. Trying to get people to buy more points is usually a marketing/sales issue.

One thing is going to be for sure - how Marriott comes up with how many Points a reservation and unit are worth will NEVER be disclosed. It will be a secret since it is a marketing gimmick that has but one purpose - to bias the new exchange system as a sales tool.

Initially Marriott will be on their best behavior but give it 6 months and things will start to change and escalate towards the need for owners to buy more Points to make the scheme work for the owner.

This is what you get when you place the power of deciding who gets to make an exchange with the same company that sells them the solution to the problem.

This has never been a problem with II - its still a big secret how things really work but II doesn't sell the solution.

 

[BocaBum99]

I'm assuming the Marriott folks have called in Industrial Engineers (IE) to work on their biggest challenge - how to sell more Points to the folks who join. That IE used several simulation tools, one of which is Linear Programming .

Linear Programming is a math tool which is used all the time to solve complex problems like FedExp has every day - what's the best route for our trucks that will save us the most gas/diesel and less driver hours. LP can easily be done on an Excel spreadsheet where you set up the various parameters and it runs thousands of iterations to find the most efficient solution.

Well you can do the opposite just as easily - find the least efficient usage of Points which will result in the maximum shortage of successful exchanges. Basically you will always come up a few Points short in the exchange you desire and Marriott will happily provide a solution - buy more Points from them.

It's like the TV show "Numb3rs" but where the bad guys use math to defeat the good guys.

So get ready to be a few Points short of your goals with the new exchange system and Marriott to "help" you out.

You have to be kidding me. You must have picked up a journal and just read about Linear Programming. Did you happen to read about Narendra Karmarkar? He worked in my company in the 1980's when I got my Master's Degree in Operations Research.

As an expert in this area, I can tell you that the Flux Capacitor would be a better tool to use than Linear Programming to solve Marriott's Points system problem.

 

[GregT]

I think Perry's got a very valid point about escalation in points for future resorts, and ability of a developer to manipulate it. This is one of the reasons I believe deeds will retain value in the future.

Take HGVC as a points example. They had a standard points requirement of 7,000 for a 2BR. However, the most recent properties built (Kings Land, Grand Waikikian), magically require much more points for a 2BR -- harder to get into those properties for an existing HGVC owner, but if you buy at Kings Land, you can vacation for 10 days at Hilton Hawaiian Village.

Same thing happened at Worldmark -- they had a nice system of good properties that reliably required 10,000 credits for a 2BR -- then they build in Hawaii, and justified 12,000 credits for a 2BR because it was Hawaii.

Well, now everything in Worldmark requires more than 10,000 points for a 2BR in a new property, and they sell the existing system to the prospective buyer (and they build huge properties with lots of credits to sell)

It's going to be very interesting to see what Marriott does -- however I remain confident that this group of smart TUGgers will find the loopholes and arbitrage the system.


One other point, with respect to Marriott's disclosure requirements as a public company -- I do not believe that changing to an internal exchange system/points system (either in lieu of or in conjunction with II) would meet the materiality threshold for filing a Form 8-K. I'm not even sure that the continuation of the II relationship is that important to Marriott -- but definitely material to II, who may have been the ones who drove the press release. I've been the CFO of public companies and I think this is just not at all relevant to the stockholders of Marriott or to its on-going operations. It's just interesting to us.

Good luck to all,

Greg

 

[winger]

...
It's my understanding Marriott assigns hotel values based on a number of things... including the number of free nights redeemed.

Hawaii and Paris hotels did not give away as many "free" nights last year because of the slump of travel (economy). ....

With the recent downgrading of at least four Hawaiian resorts from cat 6 to 5, your point holds.

Unsure about Paris though. It seems none of them went down. If memory serves me up, a couple went from 7 to 8 and stayed there (CE and the other hotel near the Louvre).

 

[puckmanfl]

There is potential for irregularities if sales AND exchanges are controlled by one entity.

The new program will have the standard "rules subject to change without notice" disclaimer.

An example of this was the elimination of BONUS MR points associated with MVCI financed developer purchases. They "broke out" some fine print disclaimer as above!!!!

 

[DanCali]

I see. So your point is that since you signed that you just dont care if the resale values tank due to a new system? And neither should any other retail buyer (who is already down 50+%)?

I feel like a tape recorder. If you purchased "retail", you signed many documents stating that your timeshare is not an investment, that it is to be used for personal enjoyment, that there is no implied or stated resale value.

The protection doesn't cover resale value (because, in a sense, Marriott doesn't recognize resale value). The protection covers future changes.

 

[PerryM]

The island of misfit timeshares...

You have to be kidding me. You must have picked up a journal and just read about Linear Programming. Did you happen to read about Narendra Karmarkar? He worked in my company in the 1980's when I got my Master's Degree in Operations Research.

As an expert in this area, I can tell you that the Flux Capacitor would be a better tool to use than Linear Programming to solve Marriott's Points system problem.

I've not used LP for many years but when I did use it last my Excel cooked for a day to get the optimum result, I don't know why it couldn't be done here since the parameters are simple and so are the data.

But if you've got a bugaboo about LP I'm sure there are a number of tools that will all come up with the optimum Point value for maximum misfits of exchanges.

A simple misfit of a week 52 at MountainSide generating 50,000 Points and a week 52 at Summit Watch generating 49,500 would start it off just fine. Platinum week at MOC generating 46,000 points now means that no MOC Platinum owner can exchange into MountainSide or Summit Watch week 52.

This is what I'm getting at - misfits will be maximum for a sales tool and misfits would be minimum for an actual internal exchange system.

P.S.
This would be like having FedEx inviting Shell Oil Company to design their routing system - the routs would be as long as possible, as many left hand turns as possible, and driving by as many Shell gas stations as possible.

We can expect Marriott do to no less...

P.P.S.
If Marriott really did want an owner friendly system they simply could invite the Presidents of all the HOAs involved to a meeting where the Presidents could render an opinion on how the new exchange system would impact their resort and take a vote - if 51% vote in favor of the new system it would go forward, else it would be revamped.

I doubt Marriott would invite anyone but the sales managers of all the resorts.

 

[James1975NY]

One thing is going to be for sure - how Marriott comes up with how many Points a reservation and unit are worth will NEVER be disclosed. It will be a secret since it is a marketing gimmick that has but one purpose - to bias the new exchange system as a sales tool.

- How do they come up with the pricing for their units for sale?

 

[James1975NY]

A simple misfit of a week 52 at MountainSide generating 50,000 Points and a week 52 at Summit Watch generating 49,500 would start it off just fine. Platinum week at MOC generating 46,000 points now means that no MOC Platinum owner can exchange into MountainSide or Summit Watch week 52.

This is what I'm getting at - misfits will be maximum for a sales tool and misfits would be minimum for an actual internal exchange system.

There will certainly be some "misfits" in the new points program. For the most part it will be because it is new. There will be changes made along the way as there has been in other points programs based on supply and demand. Certainly, the "misfit" situation allows for more sales opportunities; however, at the same time, Marriott (if they are smart) will very much be focused on offering a program that for the most part works. The last thing they want to do is introduce a new points program that has too many "misfits". If they did not have a focus on offering/maintaining the program so that it is whole, it will die quickly.

 

[PerryM]

- How do they come up with the pricing for their units for sale?

They consult the timeshare fairy.

My past analysis of Marriott concluded that whatever the cost to acquire a condo the sales must be 4 times as much. E.g. 200 2-bedroom condos in a project that cost $80 M to build means each condo cost $400k and thus $1.6 M in sales are needed.

That was before real estate tanked out in 2007.

 

[PerryM]

Marriott's thinking...

Here is a chart that Marriott must stare at each night and decided now was the time to strike:

For the life of me it makes no sense to stop selling timeshares and start selling Points in an exchange club.