Man of Leisure

If anyone needed a good vacation during the past few years, it was Steve Case. In early 2000, the celebrated founder of America Online engineered AOL's merger with Time Warner, which turned into the dot-com era's most disastrous deal. But whenever Case, who stayed on as chairman, wanted a break from the postmerger bickering and falling stock price, planning a respite seemed only to lead to more stress. Like any bona fide mogul, he owned his share of vacation homes--in Florida, New Mexico and San Francisco. When he took time off, he felt obligated to visit these places, even if he really wanted to explore someplace new. "You feel guilty--you might as well go there because you're paying for it," he says. "It's an odd dynamic." When he did venture further afield, the destinations didn't always live up to their billing--like the Hawaiian villa he rented on the Internet that turned out to be oddly configured, leaving two of his five children to sleep on couches. True, having too many travel options is a nice problem to have, but when it came to vacations, Case says, "I had enough experience to know there had to be a better way."

At about the same moment, Brent Handler was trying to create one. In 2002 Handler, a 33-year-old Denver-based entrepreneur, launched a vacation club called Exclusive Resorts. The start-up offered wealthy folks the chance to forgo buying a vacation home, and instead pay an initiation fee and annual dues for the right to use luxury residences at a wide variety of properties. But luring customers proved challenging: by the spring of 2003, Exclusive Resorts had just 25 members and four homes. Then Handler noticed Case's name on the list of people who'd requested information from his Web site. "I wonder if that's the Steve Case," Handler mused, dialing the number. It was. Case, who had just resigned from AOL Time Warner, was instantly intrigued by Handler's business model. The two met for breakfast. "I agreed on the spot to buy half the company," says Case, who has since invested more in Exclusive Resorts--and has begun selling off his vacation homes. "It was a great concept--it was only a matter of time before it became more mainstream."

Today, Exclusive Resorts is the leading player in the burgeoning "destination club" industry, but it's competing in a marketplace that's experiencing some growing pains. In July, the industry's oldest player, Tanner & Haley, filed for bankruptcy, raising questions about whether the economics of these home-rental clubs may be too good to be true. Case's team won't reveal much about Exclusive Resorts' finances but insists the 2,400 customers are happy and profitability is only a year or two away. The start-up is typical of the ventures Case is investing in at Revolution LLC, his Washington, D.C.-based holding company. "The goal is to find early-stage companies with an idea we think has the potential to be a multibillion-dollar business ... built around the idea that there's a better way," he says.

Outsiders have compared destination clubs to time shares or "fractional ownership" resorts, but in truth they operate much differently. Exclusive Resorts offers three membership plans, with clients paying an upfront fee (ranging from $225,000 to $425,000) and annual dues (from $10,500 to $27,500). Unlike time shares or fractionals, which give owners a limited ownership interest in a specific property, destination-club members don't own anything--instead, they get the right to use the club's 300 vacation homes, located at 35 hot destinations (from Manhattan and Beaver Creek, Colo., to Costa Rica) for up to 45 nights a year. Each member gets an allotment of prime-time weeks, advance reservations and last-minute choices. If an Exclusive Resorts member resigns, they receive a refund of 80 percent of their upfront deposit.

The homes, worth an average of $3 million, include sprawling oceanfront and slope-side residences. Many have four bedrooms (each with private bath), gourmet kitchens (fully stocked with chef-quality cookware, spices and staples like coffee) and private pools. At the Carnegie Abbey golf club just south of Newport, R.I., member-services director Carrianne Shanks drives a golf cart to the front of one of the homes. Inside, its centerpiece is a magnificent stone fireplace that climbs the wall of the two-story living room. Outside, you can see the ocean from the wraparound screen porches. At each resort, a concierge stands ready to arrange tee times, spa treatments or boat outings; hire private chefs; or order groceries. At Carnegie Abbey, recent entertainment options included a cocktail party with Prince Albert of Monaco, who was visiting for the weekend.

The destination-club concept was launched in the late 1990s by Rob McGrath, who founded the company that was later renamed Tanner & Haley. Handler got the idea for Exclusive Resorts by reading about McGrath's outfit in the newspaper. The Helium Report, a Web guide covering the sector, reports that there are roughly two dozen companies offering destination-club plans today, but some have fewer than 100 members. By some estimates, the entire industry has only slightly more than 4,000 members, so with 2,400 members, Exclusive Resorts controls more than half the market (graphic, page E10). "They are so dominant that it's going to be really difficult for anybody else to catch up to them," says Dick Ragatz of Ragatz Associaties, a market-research firm specializing in the resort industry.