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New York Times Magazine: The Economics of Tiger and the PGA Tour

The New York Times magazine has a really interesting story on the economics of the PGA Tour in the Tiger Woods era. I’d say it is mandatory reading for anyone hoping to understand the financial state of the tour — as well as what’s at stake with Woods’ “comeback.”

I’ll add this is important for the Canadian market as well. While there is no indication that RBC isn’t going to re-up and sponsor the Canadian Open after their current deal ends following the 2012 tournament, there are some big questions. Right now RBC isn’t paying a big price for the touranment and the RCGA continues to hemmorage money in turn. The RCGA — or should I say Golf Canada — is making a big bet on generating new members. If that doesn’t happen, how long can it continue to take a loss on the Canadian Open?

RBC, on the other hand, has made a big bet on golf, sponsoring the PGA of America after not finding the right fit in the PGA Tour. Apparently the bank sniffed around a lot of tournaments, but weren’t about to put up the $12-million to pick up the event at Doral, for example. It is no secret the bank would like the date formerly held by the Buick in Michigan and currently in a one-year deal with the Greenbrier. But it would have to pay more and the PGA Tour has apparently been holding fast on the issue.

That’s why this New York Times story is intriguing. This is overly simplified, but here’s a breakdown of the tour in the Tiger era — or at least before he became obssesed with porn actresses:

Before Woods, professional golf was a niche sport watched largely by the same people who played it, its crossover potential limited by the parity among tour members. Sports are driven by stars, and it was impossible to predict who was going to be the big story at any given golf tournament. A leader one day could drop out of contention the next, replaced by someone you never heard of before ” and might never hear about again. Woods changed all of this. He won roughly a third of the time he played, a rate that defied the sports conventional wisdom. Even when he lost, it didnt much matter. Whether Woods was pumping his fist after an important putt, flinging his driver aside after a disappointing tee shot or just applying lip balm, he was the guy viewers wanted to see. The weekly Nielsen ratings underscored the point: the tournaments Woods played routinely drew twice the audience, including many younger fans, of the tournaments he skipped. To maximize his screen time, I.M.G. and ABC created Monday Night Golf, a series of prime-time, made-for-TV, match-play tournaments featuring Woods and his closest thing to a rival at that particular moment.

In turn, golf became more attractive to the corporate sponsors whose names were associated with the various tour events. Prices rose accordingly. Golf-tournament sponsorships are enormously complicated financial transactions. To oversimplify, corporate sponsors typically pay the tour about $8 million to $10 million for a title sponsorship. The tour acts almost like a broker, moving money between the various organizations that host its tournaments and the networks. (Title sponsors are obligated to buy ad space for PGA Tour events, and this guaranteed advertising explains why networks televise so much golf.) Roughly $6 million is spent on the purse of each tour event, with all of the players who make the cut ” about half the field ” being guaranteed some prize money. The winner takes home roughly 20 percent.

Over the course of Woodss career, the tour aggressively raised the price of entry for corporate sponsors. In the process, purses grew by an average of 400 percent. A lot of money found its way into Woodss pocket. Last year alone, he won $10.5 million, bringing his career total to about $93 million. But there was also a powerful trickle-down effect on his fellow golfers. In 1996, only nine players on the tour earned $1 million. In 2009, 91 golfers did. With so much money pouring in, tournaments became increasingly lavish affairs. In 2004, Joe Hardy, the eccentric lumber magnate who hosted the tours 84 Lumber Classic, flew participating players to their next event on a pair of private planes.

 And here’s the current sitution — see the problem?

As far as professional golf is concerned, Woods cannot come back fast enough. The PGA Tour is at a critical juncture. Next year it will begin negotiating new TV contracts with CBS and NBC. In the meantime, the tour is trying to secure sponsors for 10 events in 2011 while economic conditions are not exactly favorable. Two of the hardest-hit industries, financial services and car manufacturing, are responsible for underwriting a third of the PGA Tours sponsored events. More to the point, the entire economic model of a golf tournament is looking a bit suspect. At the moment, the value of a companys flying clients and employees to a sunny locale to drink Grey Goose cocktails and get tips on their short games from professional golfers is most likely to be lost on many of its shareholders. In other words, drumming up new sponsors and increasing ” or just maintaining, really ” the worth of its TV deals would have been hard enough for the tour even if the worlds greatest golfer and most recognizable athlete had not become enmeshed in the biggest tabloid story in years.

Maybe I shouldnt say this, but in the last couple of years the tour has been aware of the fact that the negotiations of TV contracts and sponsorships are coming up, and in advising us on what to do, the one thing theyve said is that we need the superstars to play more and no scandals, no controversies, Harrison Frazar, a veteran of the PGA Tour, told me a couple months ago. Well, its unfortunate that whats happened right now is the ultimate scandal in the history of professional golf, and its happened to the absolute wrong person.

Wondered why we haven’t heard about the venues for the Canadian Open past 2011? That’s because the TV deal ends in 2012 and a new deal should have been presented to tournaments by this point. But a wrench was thrown into that when Tiger smashed up an SUV. No one knows what the golf world looks like going forward. That means TV is probably not going to pay as much as it did last time around — and that complicates everything. Doug Ferguson of the AP has a perspective on the impending television deal here.

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Robert Thompson

A bestselling author and award-winning columnist, Robert Thompson has been writing about business and sports, and particularly golf, for almost two decades. His reporting and commentary on golf has appeared in Golf Magazine, the Globe and Mail, T&L Golf and many other media outlets. Currently Robert is a columnist with Global Golf Post, golf analyst for Global News and Shaw Communications, and Senior Writer to ScoreGolf. The Going for the Green blog was launched in 2004.

3 CommentsLeave a comment

  • RBC CANADIAN OPEN could be big on European Tour! or on its own. The PGATOUR costs too much.
    BTW -the NYT story is excellent, very true.

  • RT, if your facts are right about the tour not giving up the date because RBC didn’t step up enough, something is amiss. I find it hard to believe the bank wouldn’t pony up some more dough to secure a better date. Hell, even the RCGA could have ponied up something. I also gotta believe the RCGA would love to keep RBC long term & happy, but I think they’ll get a good rate increase regardless the next time around (as long as the economy doesn’t fall off over the edge). RBC may have been the only serious player the last time around, but the dynamics have changed. Now that RBC has gone straight to the PGA, the tour might entertain a little side talk with another potential Canuck sponsor.

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