Kituwah, LLC will be investing more than $300 million over the next four years in a deal that will see them become part owners and operators of Sports Illustrated Resorts. (Renderings courtesy of Kituwah, LLC)
By JONAH LOSSIAH
One Feather Reporter
CHEROKEE, N.C. – Kituwah, LLC will be investing more than $300 million over the next four years in a deal that will see them become part owners and operators of Sports Illustrated Resorts.
The deal will see Kituwah, LLC invest $75 million per year for the next four years, with each of those installments going toward an individual new resort that will be built from the ground-up. The enterprise will also be investing $7 million in initial equity, giving them 37.4 percent in effective equity partnership and 50 percent control of Sports Illustrated (SI) Resorts. That percentage makes Kituwah, LLC the largest equity holder in SI Resorts.
The final part of the deal are two loans that Kituwah, LLC is offering to the business to assist with the launch of the brand. One is a $5 million loan that has a two-year grace period and a 12 percent interest rate. The other is $4 million and an 8 percent interest rate but has no grace period.
Mark Hubble, chief executive officer of Kituwah, LLC, said that this could be a watershed moment for the company and the Eastern Band of Cherokee Indians (EBCI).
“Since another tribe obtained a worldwide brand, which was the Hard Rock with the Seminole Tribe, this tribe has actively looked for a brand that they could develop. It’s taken a lot of connections and a lot of time, but I think this is their Hard Rock moment. I think our brand is at least as strong a brand as the other major brands that are out there, including Hard Rock. It is the most trusted name in sports…so, the brand name is Sports Illustrated Resorts,” said Hubble.
The primary partner in operation is Experiential Ventures. They describe themselves as ‘a team of hospitality, food and beverage, branding , retail, design, entertainment and real estate leaders who have worked with some of the most iconic brands in the world’. Those brands include Condé Nast, Emmitt Smith, and The GARAGE.
Another major player in the deal is Authentic Brands Group (Authentic), a multi-billion-dollar brand management company that owns the branding rights to Sports Illustrated. They are licensing the brand name but are not operating partners in the deal.
The company will operate on two main levels: rebranding of existing resorts and building new ones.
Rebranding
The first stage of business will be rebranding efforts. This will include going through a shortlist of resorts across the country and the world and picking prime candidates to rebrand under the Sports Illustrated name. According to Hubble, this greatly assists the short term book of business by immediately generating revenue and building out the foundation of the business.
“The first landmark date will be the rebranding in the Dominican Republic. You literally could not build that now. It is its own village. That whole place is getting redone as a Sports Illustrated,” said Hubble.
The resort is currently Ancora Cap Cana, a resort in Punta Cana, Dominican Republic. He said that rebrand will be happening right away. Once it is complete, SI Resorts will then turn its attention to the next project.
Hubble said that it is important to understand that Kituwah, LLC is not putting equity investment into these rebrands. Their role in these projects will be license fee collection.
“We pay Authentic Brands Group a license fee. We then charge a higher license fee to the property. The spread is what we earn on everything that an SI Resort touches. So, if you’re at Ancora Cap Cana once it becomes a Sports Illustrated Resort and you pay 500 bucks for that night. If we charge them a 6 percent fee, that $30 is coming to our partnership. Half of that is going to Authentic Brands Group, because that’s their brand fee, and the other half would go to us,” said Hubble.
He said that these license fees typically average around 6 percent. Larger resorts might get a slightly lower fee, smaller ones might have a higher one. That will be negotiated for each rebrand. He also said that a key distinction in their licensing agreement is that that fee goes to every dollar spent.
“We get it on everything. For example, Marriot. They get it on room fees. They don’t get it on your food and beverage. We get it on everything.”
There is some investment going into design. SI Resorts itself will be handling these costs in the future, but the partners will be supplementing those costs while the company gains its footing.
“It’ll take about two years to get the brand level to profitability, is our estimate. Up to a million dollars a year. So, we are agreeing that we’ll fund up to a million dollars a year for two years. Because it takes a lot of meetings and lawyers and stuff to get these sites under control.”
SI Resorts will break ground on new resorts soon, and while those are under construction there will be multiple rebrands done.
“You will probably see five to 10 rebrands in the next 24 months. With five to 10 rebrands, the brand is profitable…there is almost no doubt we’ll be in a double-digit number of resorts in some stage of development within 24 months,” said Hubble.
Building Resorts
The eye-grabbing number is $300 million. That money is what will be invested in new resorts. $75 million each year will go to establishing a new business. This is completely different from the rebranding efforts, because with these deals Kituwah, LLC will be an equity partner in the individual resort. How much stake it will own is dependent on other investors.
Hubble explained that SI Resorts is one company, and each of the resorts will be another. Kituwah, LLC is not required to put additional money into rebranding efforts, but there is an option to. As part of the deal, though, that $75 million must be invested in new property each year. The way the equity stake will work is that Kituwah, LLC will own as much of the individual business as $75 million gets them. That could make them a majority owner or be one of multiple partners on the deal. It will all depend on the cost of the resort and the amount of investment from other partners in the business.
He said that first ground-up build is set for Orlando, Fla. The exact location cannot yet be confirmed, as there are still dealings being sorted. However, Hubble says that they are hoping to announce that project very soon. He estimates a build time around 36 months after the groundbreaking, though he said that is a conservative mark. He is hopeful it could be faster.
The model for these major investments is 20 percent return on investment (ROI) annually. Hubble said that Kituwah, LLC is trying to be as safe as possible when dealing with this scale of investment. Given that, they are looking for as many assurances as possible. This will include consulting.
“We’re using a third-party institutional consulting firm. I’ll tell you…it’s going to be one of the very big accounting and consulting advisory services. Top 10 in the world. We will pay them a flat fee. If you pay people on success fees, then they’re going to tell you what you want to hear. They have to independently, without seeing our stuff, say, ‘yes we believe this is a reasonable proforma’. That costs us a little bit more money. It costs about 100 grand every time we do that. But if you’re going to spend $75 million, and these are $300 million resorts, we really want to be right.”
Hubble said that they are already looking at a list of at least 10 potential properties. Their job now is to find the three to five best options for major build projects and decide on one for each year.
End Goals
Sports Illustrated Resorts looks to build their brand as fast as possible. According to Hubble, the goal is to establish a significant base over the next three to five years. This is evidenced by the strategy of continuing to build and rebrand new resorts while other projects are under construction.
He said that one of the most unique aspects of this deal is the ability to go public. He said that even if Authentic doesn’t decide to go public with Sports Illustrated, SI Resorts will have the option. Hubble said that is quite unusual for a deal like this.
“We could take that public. If we do, that’s a multi-billion-dollar transaction. That’s probably going to happen within the first 10 years. I don’t like to use those forward-looking statements, but that brand will have so much value.”
Authentic will have the ability of exercising a warrant option in the case that SI Resorts does go public, and that would result in a 2 percent dilution. That number was reduced down from 5 percent in the final agreements. Authentic accepted 5 percent equity upfront as part of the deal to reduce their claim to warrants.
This deal greatly increases Kituwah, LLC’s footprint. In a report to Tribal leadership, the company stated that they will be making their first dividend distribution to the EBCI in the first quarter of 2023. That same report claims that those dividends are expected to grow to $5 million annually during this year.
SI Resorts will be looking to build every year and will likely be rebranding other resorts at a similar frequency. Hubble said that he is excited to announce each of these deals as they cross the line and will continue to offer updates as the company grows.
