Supporting Document No. 2 - Detail of What is Being Proposed: Governance Arrangements, Golf Provision (including Golf Access Rights) and General Issues

This paper provides a more detailed explanation of what CGLMC, and their investor partners are proposing for how Carnoustie Golf Links will be operated and managed until 2033 or until such earlier time as a longer-term agreement can be reached and entered into.

Section 1 - Governance Arrangements

A) New and Revised Legal Agreements

The new arrangements being proposed for the operation and management of Carnoustie Golf Links, and which are the subject of this consultation are as follows: -

• Angus Council enters into an updated Management Agreement with CGLMC – an update is required because the existing Agreement is out of date in some places, lacks clarity in some instances and needs amended to take into account that the courses will no longer be run by CGLMC directly for charitable purposes but by CGHH as a private company. The updated Management Agreement would have the same end date as now (March 2033).

• Golf Access Rights Agreement – known as the GARA, this will be part of the updated Management Agreement the Council would enter into with CGLMC. Section 4 below provides more detail on the GARA and how it is proposed to operate.

• CGLMC and Angus Council enter into what is called a Sub-Contract Agreement with CGHH which passes most of CGLMC’s obligations in the updated Management Agreement with the Council on to CGHH. This Sub-Contract Agreement will mean CGHH managing and operating all aspects of golf provision on behalf of CGLMC and ultimately Angus Council. Angus Council is a party to the Sub-Contract Agreement because it needs to have, in certain situations, a direct right to compel CGHH to correct any failings under the Agreement. The Sub-Contract Agreement includes milestones for CGHH to bring forward their long term investment plans and proposals.

• Angus Council enters into a separate “Governance Provisions Agreement” with CGLMC – this covers points of governance some of which sit in the current Management Agreement, but which are best covered now in a separate agreement. This Agreement provides certain safeguards if the proposed new arrangements with CGHH were to run into difficulties.

• CGLMC and CGHH enter into an Asset Purchase Agreement (APA) whereby all of CGLMC’s assets (including their Intellectual Property Rights – IPRs) and staff transfer to CGHH. Angus Council is not a party to this agreement but the Council’s approval to what it proposes is required.

• Angus Council enters into a Brand Agreement with CGHH which covers the Intellectual Property Rights (IPRs) which CGLMC will sell to CGHH through the APA. The Brand Agreement passes ownership of the IPRs to Angus Council until such time as a long term agreement is put in place at which point ownership of the IPRs will pass back to CGHH.

None of the above legal agreements have been finalised or entered into at this stage. The public consultation on the proposed changes will help to inform Angus Councillors on whether to proceed to enter into those legal agreements and to implement the changes being proposed by CGLMC.

B) CGLMC Staff & Assets

CGLMC propose to appoint CGHH to operate and manage the golf courses on their behalf and as part of this arrangement all of the staff employed by CGLMC will transfer to CGHH. This will provide continuity and minimise potential disruption. CGLMC also propose to sell all of the assets they own to CGHH (except trophies) – this includes Links House and other CGLMC owned buildings, equipment and Intellectual Property such as Trademarks. The sale proceeds which CGLMC will receive will be a seven figure sum which was determined by an independent valuation. CGLMC does not own the land on which the golf courses sit – this is owned by Angus Council and isn’t being sold.

C) CGLMC future role

CGLMC will (as is the case just now) be responsible to Angus Council for meeting the obligations set out in the Management Agreement. CGLMC will also need to manage the Sub-Contract Agreement it will have with CGHH and for representing the interests of local golfers including Season Ticket Holders.

The CGLMC Board has advised the Council that the company will continue to pursue the same charitable objectives as it has now. CGLMC intend to use the proceeds from the sale of their assets to CGHH to further those objectives.

The CGLMC Board have stated explicitly that ensuring the Golf Access Rights Agreement (GARA) is adhered to and the community benefits programme is maintained is fundamental to their role under the proposed new arrangements.

The CGLMC Board are to further consider their staffing needs if the proposals go ahead – they are expected to need some administrative support and a community benefits officer but final decisions in that regard have still to be made by the Board. The Board expect to have a 12 month transition period to allow the new arrangements to bed in.

D) CGLMC future governance

The CGLMC Board are currently undertaking a review of their existing governance arrangements which may lead to changes in how the Board operates. This is a matter for the Directors not Angus Council, albeit Angus Council has representatives who sit on the Board and will have a say in any proposed changes.

The Council currently has three allocated places out of the fifteen on the Board of CGLMC (although only one currently taking up a place) and this allocation of 3 places is expected to continue unless and until any changes are approved by the Directors. All Directors on the Board must act in the best interests of the Company regardless of which organisation appointed them to the Board.

CGLMC governance arrangements on issues like membership and use of funds, although important, will be separate to how golf provision is managed on a day to day basis through the Sub-Contract arrangements with CGHH.

CGLMC will need to consider the management of the funds received through the sale of their assets to CGHH and have indicated an expectation that professional fund managers will be brought in to do this.

E) Angus Council role

Angus Council’s role will not change significantly under the proposals. As is the case just now the Council will be responsible for ensuring CGLMC meet their obligations in the Management Agreement including seeking to ensure fair access and pricing for local golfers. The Council could also have a role in enforcing aspects of the Sub-Contract Agreement if and when required if for any reason CGLMC fails to act.

The Council’s role in relation to golf access and the charges for Season Tickets and visitor rounds is proposed to change under the terms of the Golf Access Rights Agreement (see further detail in Section 4 below).

F) Operational Arrangements

CGHH will take on all of the day-to-day running of Carnoustie Golf Links currently undertaken by CGLMC including course maintenance, access, administration, promotion and the running of tournaments. Since it is proposed that CGHH will acquire all the staff and assets of CGLMC there should be no disruption to operational arrangements. CGHH may wish over time to make some administrative changes to improve how the courses and hotel work together. Major changes to the golf courses or buildings on Council land require to be agreed with the Council in advance.

Section 2 – Golf Provision

A) Access and Pricing – A New Golf Access Rights Agreement (GARA)

It is proposed to replace the two clauses in the current Management Agreement between CGLMC and Angus Council which cover charges for playing (Clause 10) and access to the courses (Clause 11) with a new Golf Access Rights Agreement (GARA). This is necessary to bring more clarity and transparency to these arrangements and to take into account that CGHH will be operating the courses on a commercial basis.

The Council knows that access and pricing will be of significant interest to local golfers and especially Season Ticket Holders and is therefore asking for views on the proposed Golf Access Rights Agreement as a specific part of the consultation. Although local golfers already largely consume golf as set out in the GARA and the CGLMC Board has already approved the GARA in principle, this consultation provides an opportunity for valuable feedback from all stakeholders.

Section 4 below provides more detail on the GARA and how it is proposed to operate.

B) Provision for Visiting Golfers

Access to the courses and the costs charged to visiting golfers are covered in the GARA referred to above. The key change to current arrangements is that CGHH will be able to set pricing for visitors based on its own commercial judgement and market forces. The current link (ratio) between visitor prices and season ticket prices will no longer apply. As explained in A) above season ticket pricing would be governed by new arrangements and controls. On this basis CGHH will be able to control pricing for both the hotel and visitor golf access and offer integrated packages.

C) Provision For Angus Residents Who Are Not Season Ticket Holders

At present Angus residents who are not season ticket holders can play at Carnoustie at 50% of the cost of a visitor round. The GARA proposes that this same approach to pricing be maintained, i.e. 50% of the cost of a visitor round. Access for Angus residents will operate as it does now and depend on tee time availability.

D) Improving Golf Participation

One of CGLMC’s charitable objectives is to “encourage and promote public participation in the sport of golf in the area of Angus”. It is therefore anticipated that CGLMC will work with CGHH and other partners in Angus to deliver this objective.

E) Major Tournaments including The Open Championship

Carnoustie would continue to be available to host major tournaments and the management of those would be the responsibility of CGHH on behalf of CGLMC and Angus Council. Angus Council would as now provide logistical and other support where required.

The proposed changes covered by this consultation are not expected to secure the return of The Open Championship to Carnoustie directly, but they provide a foundation for the changes and investment needed for that to happen. CGHH intend to move swiftly on developing their long-term investment plan in a timescale which will allow Carnoustie to be chosen as an Open host venue.

F) Course Maintenance/Development

No changes to how the courses are maintained are anticipated under the proposed new arrangements. A requirement to maintain the Championship course to the standard needed for major championships remains in place in the proposed revised legal agreements and investment in the courses and course infrastructure by CGHH will be required as part of this.

One of CGLMC’s charitable objectives is to “promote the advancement of environmental protection or improvement”. It is therefore anticipated that CGLMC will work with CGHH and other partners in Angus to deliver this objective.

Should CGHH propose any significant changes to the golf courses these would require the prior agreement of Angus Council.

Section 3 – General Issues

A) Financial Arrangements

The financial arrangements which arise from the proposals set out in this consultation are summarised below: -

• CGHH – all costs arising from the operation of the golf courses at Carnoustie Links under the Sub-Contract Agreement will be met by CGHH and all incomes earned under the Agreement will flow to CGHH. CGHH will therefore carry the risk of financial losses and benefit from any financial profits from the operation of the courses.

• Angus Council – no change, the Council does not receive any income from CGLMC under the current Management Agreement and that will continue to be the case. The Council receives rental income from its lease of the Carnoustie Golf Hotel which is covered by separate legal agreements and will continue to do so.

• CGLMC – will no longer be responsible for the costs of running Carnoustie Links and will receive no income from this source – all of the risks and rewards from operating the courses will sit with CGHH. It is anticipated that CGLMC will continue to deliver their charitable purposes from income earned on the investment of the proceeds they will receive from the sale of their assets to CGHH under the Asset Purchase Agreement.

B) Land Issues

No changes to existing arrangements regarding land use at Carnoustie Links are being proposed as part of Phase 1. The Council continues to own the land for the courses and golf hotel. It is possible that additional areas of Council land may be sought by CGHH as part of their Phase 2 proposals, but this is uncertain, has not been discussed and would, if relevant, be covered in the Phase 2 public consultation.

C) Phase 2 Plan & Timeline

The Phase 1 proposals covered in this consultation are intended as a stepping stone towards delivery of a much bigger investment plan. The intention of CGHH is to develop the long-term investment plan and submit a planning application within a two year period and to achieve the necessary planning approvals within a further two year period. If this is achieved and ultimately agreed by the Council following a further public consultation it would mean new long term legal agreements being put in place. Such long-term agreements would replace or update the revised legal agreements set out in Section 1A) above.

D) Carnoustie Golf Hotel

Since acquiring the hotel in late September 2023, CGHH has committed to spend in excess of £1.4 million on what they term a “sparkle” refurbishment of common areas within the ground floor of the hotel. These works were completed in early July. The R&A, in particular, was keen to see immediate improvements under new ownership prior to the 2024 Senior Open in late July. CGHH intends to spend a further c.£1 million in Q4 2024 to improve the club and spa area. While CGHH regard these steps as insignificant in the context of their long-term ambitions, they consider that they illustrate their commitment and show tangible results while providing locals and visitors alike with a transformed hospitality experience during the first year of their ownership.

Section 4 – Golf Access Rights Agreement (GARA)

A) Introduction/Summary

The current arrangements through the existing Management Agreement between Angus Council and CGLMC do not define golf access clearly enough and apply a pricing policy which is inappropriate for future operation by a commercial operator. As part of the changes being proposed a Golf Access Rights Agreement (the GARA) would replace clauses Tenth and Eleventh of the existing Management Agreement.

The GARA seeks to ensure that Season Ticket Holder (STH) playing privileges over Carnoustie Golf Links and the cost to play are clearly defined so that public access to golf at Carnoustie is assured – this is an absolute priority for both CGLMC and Angus Council. The GARA is structured so that it can flex and adapt in the future to reflect changes in golfing habits which may arise.

The GARA has two main functions:

1) To better define golf access (tee-times)

2) To ensure an appropriate and transparent pricing structure

Access

In relation to golf access the GARA is intended to provide a better defined, more appropriate, and transparent understanding on how golf is consumed at Carnoustie and to respond to changes in demand so that the golf courses are utilised to best effect.

Angus Council and CGLMC have obligations to maximise the use of a public asset and where possible, increase participation in golf. The GARA will have a formal review mechanism built in to ensure that the tee time allocation is best suited to how golf is consumed in the future. Any changes to this allocation will need to be approved by Angus Council and CGLMC as part of a 5 yearly review process (see below). CGHH as manager of the golf courses will be entitled to add ticket types but can only remove them with the Council and CGLMC's consent.

Price

The current arrangements for season ticket prices are linked to a ratio that would allow large increases to Season Ticket Holder prices to be applied so long as a similar % increase is applied to visitor prices. The GARA proposes to discontinue this link between season ticket pricing and visitor pricing and to set the prices for these groups independently.

CGLMC and Angus Council will remain custodians of golf access at Carnoustie and will ensure that CGHH fulfils their duties as set out in the GARA through regular reviews.

B) Golf Access – More Detail

The GARA is intended to more clearly define:

• What constitutes a Season Ticket Holder tee-time
• What constitutes a Visitor tee-time
• Allowances for club priorities, competitions, and organised groups
• How and when tee-times can be booked
• Arrangements for the creation and removal of ticket types

Timetable of Tee-Times

The tee times at Carnoustie were never intended to be exclusive, rather each group would have priority. The table below which will be included in the GARA sets out the priority times for each user group with the intention of creating greater transparency as well as increased flexibility to allow the courses to be better used when spaces are available.

The GARA also requires that any proposed changes to the allocation of tee times must be approved by the Council, CGLMC and CGHH taking into account usage patterns.

Season Ticket Holders will be entitled to book tee times allocated to visitors (that are available) within 60 days of the date of play. This is an improvement on the current arrangement, under which STH can book these tee times 30 days in advance.

Visitors will be entitled to book tee times allocated to STH (that are available) within three days of the date of play, subject to a cap of no more than 25% of available STH tee times being allocated to be used by visitors each day (to ensure STH can still get last minute tee times).

5 Yearly Review of Usage Patterns & Adjustments to Tee-time Availability

The golf courses are a hugely important asset for the public and the local economy so making best use of the courses now and into the future is a vital consideration in the GARA. Predicting how usage patterns may change over time is very difficult so the GARA proposes a 5 yearly review mechanism which will look at how available tee times are being used by Season Ticket Holders and visitors. The GARA envisages that the first 5 yearly review will take place for the 2029/2030 season.

The GARA will set out current usage patterns across the 3 golf courses at Carnoustie by Season Ticket Holders and Visitors to provide a baseline (starting position). Actual usage by STH and visitors in the 5 years prior to the review will then be analysed and compared to see whether any significant changes in usage have occurred. If this analysis shows that there has been a reduction in the base consumption of golf (i.e. a reduction compared to current usage) by STH or visitors, and in addition there is an increase in STH or visitors bookings which exceeds 75% of their currently allocated tee times then available tee times may be adjusted using a formula so that more tee times are available for the group of users where demand is highest.

If for example Visitor usage fell over the 5 year review period and Season Ticket Holder usage increased to such an extent that more than 75% of Season Ticket tee times were being taken up then a downward revision to Visitor available tee times and an increase in Season Ticket tee times could be made. In this example demand by Season Ticket Holders has increased and demand by Visitors has reduced so changes in tee time allocations make sense to ensure the best use of the courses. The same would be true in reverse if usage by Season Ticket Holders declined and Visitor usage increased – in that scenario more tee times could be made available for Visitors.

The assessment of usage/demand and any changes to that following the 5 yearly reviews would be undertaken for each course individually and any changes to tee times would be made in a sensible way by adjusting current start and/or finish times.

C) Golf Pricing for Visitors – More Detail

Under the GARA the cost to play for visitors will be entirely at the discretion of CGHH as the manager of the golf courses. As a commercial operator CGHH need to have the freedom to set visitor pricing as they see fit taking into account their operating costs and market forces. Visiting golfers will continue to be crucial financially for the operation of Carnoustie Links and the subsidisation of play by Season Ticket Holders which is possible thanks to visitor income.

D) Golf Pricing for Season Ticket Holders – More Detail

At present income from Season Ticket Holders covers approximately 56% of the cost of provision for that group of players based on an analysis and apportionment of existing running costs. This means a 44% subsidy currently applies. The GARA will include details of the basis of this calculation at its inception to provide clarity on what is included and a baseline position for the 5 yearly reviews (see below) which will take place.

Pricing for Season Ticket Holders will use the current pricing structure and adjust this annually using the well-recognised Consumer Prices Index (CPI). Linking future price rises to CPI will create more transparency and should provide greater comfort over the short to medium term pricing structure at Carnoustie Links. The CPI adjustment will be applied to the annual cost of each ticket type and will be based on CPI as at 1 January each year. CGLMC have already committed to a price structure through to March 2026. The CPI linked pricing approach would therefore come into effect from April 2026 if the changes proposed in this consultation are ultimately approved by Angus Council. The current pricing structure for Season Tickets is shown below:-

The GARA also proposes two additional measures which could impact on the pricing for Season Ticket Holders in future as follows:-

1) Discretionary Adjustment

While CPI is a widely used and well recognised measure of the effects of inflation it is possible that in any given year CPI won’t adequately reflect how the cost of providing golf facilities has changed in the previous 12 months. The impacts of climate change could, for example, increase costs for operating the golf courses at a rate above CPI.

For this reason and to provide transparency at the outset the GARA proposes that in addition to applying a CPI adjustment, CGHH (as the manager of the courses) will have the option to apply a discretionary adjustment of plus or minus up to 2%. Application of the discretionary adjustment will be covered by a pricing review process for season tickets (see Section F below).

2) 5 Yearly Review

While it is anticipated that CPI together with the possible use of the Discretionary Adjustment should ensure that the income generated from Season Ticket Holders keeps pace with changes in costs it is possible over time for the ratio of income to costs and therefore the level of subsidy to change from the current circa 56% cost and 44% subsidy position. Managing the level of subsidy is important in ensuring golf is affordable to local people, doesn’t create unfair competition with other Angus courses and also to ensuring that the Carnoustie courses can be run in a financially sustainable manner.

For this reason, the GARA proposes that every 5 years, there will be an open-book review (conducted by independent auditors jointly appointed by the Council, CGLMC and CGHH) where the parties review the cost of delivery against the income generated from each group of users (Season Ticket Holders and separately Visitors).

If the 5 yearly review identifies a significant movement in the level of subsidy for Season Ticket Holders compared to now CGHH, as the manager of the courses, will have the option to adjust Season Ticket Holder prices to take account of that movement. This could be upwards or downwards. In order to ensure that Season Ticket Holder pricing remains subsidised the GARA includes a price cap of 75% of the cost of provision, i.e. a minimum 25% subsidy level is guaranteed to apply on an ongoing basis.

The GARA will also include an interim price cap of 65% (35% subsidy) for the first 5 yearly review. This means that changes to the prices paid by Season Ticket Holders as a result of the 5 yearly review process could not reach the 75% cap for at least a 10 year period and may not do so at all depending on the impact of CPI and Discretionary Adjustments applied each year.

Comparison of season ticket prices to the percentage caps of 65%/75% referred to above will take place at the 5 yearly review points not annually. If applying the annual CPI and Discretionary (if applied) adjustments results in season prices exceeding the percentage caps once the 5 yearly review calculations have been done prices will be adjusted to bring them back within the caps. If the 5 yearly review process shows actual or planned prices exceeding the cap the following will apply:-

If the excess over the cap is below 2% prices will be frozen until the cap is reached

If the excess over the cap is above 2% prices will be reduced to the cap level.

In summary under the GARA as currently proposed Season Ticket Holder prices in future will be influenced by three variables:-

1. An annual CPI Adjustment – this will apply annually
2. An annual Discretionary Adjustment – this may be applied annually
3. A 5 Yearly Review Adjustment – this will only be considered for applying once every 5 years and is subject to a cap

E) Golf Pricing for Other Users

The GARA also covers pricing for other users as follows:-

• A 50% Angus Resident rate for non-season ticket holders will be maintained (50% of the visitor price)
• Guests and upgrade prices will also be linked to the CPI formula
• Discounts will be offered to Season Ticket Holder groups where appropriate, which may change from time to time
• Junior/Juvenile STH prices will remain subsidised at current levels (being under 18s play for free and there is a sliding scale of subsidy from 18 through to 27) to continue to encourage participation.

F) Pricing Review Process

Under the current Management Agreement Angus Council can reject proposals from CGLMC for changes in visitor and season ticket pricing and this is proposed to change. Given that Visitor and Season Ticket Holder pricing in the future would no longer be linked, if the proposals in the consultation are approved the GARA will include a new review process for discussing and agreeing season ticket pricing which will involve the Council, CGLMC and CGHH. Visitor pricing will be set by CGHH alone.

The GARA pricing review process will provide the Council with a right to reject changes in Season Ticket holder pricing if there is evidence that the cost and participation in golf at Carnoustie by Angus residents is or would suffer as a consequence. Protecting availability and achieving fair pricing for local golfers remains a priority for the Council – the GARA developed by CGLMC is intended to provide a clear and transparent basis for achieving that aim.

G) Long Term Review of the GARA

Every ten years, the Council, CGLMC and CGHH will conduct a review to assess if the GARA arrangement remains fit for purpose and STH/visitor access and prices remain fair. The intention of this review process is not to re-open the GARA in its entirety but to consider any changes which are necessary to ensure that the GARA principles are being achieved.