Commentary

PGA Tour in 'wait and see' mode given current economic climate

Originally Published: October 2, 2008
By Bob Harig | ESPN.com

The staging of a PGA Tour event is about so much more than birdies and bogeys. The players compete on an immaculate golf course and spectators arrive to see the best in the world at what they do. But before the first tee shot is struck, months of planning is needed before a single ball can be launched into the air.

And piles of money, too.

[+] EnlargeAnthony Kim
AP Photo/Chuck BurtonThe name of the PGA Tour's Wachovia Championship could potentially change after CitiGroup agreed to buy the banking giant. Anthony Kim, above, won the 2008 event in May.

No event can exist without the backing of a title sponsor, which is typically on the hook for between $6 million and $7 million a year, costs that cover the purse, television commitments and operations.

"And that's just the beginning," said Suzanne Hamm, chief marketing officer for the Stanford Financial Group, which sponsors the Stanford St. Jude Championship in Memphis, Tenn. "It's not just the cost of the sponsorship. You have to look at hospitality, the [corporate] client experience, the media perspective. There are significant costs involved.

"But we also know what we're getting from it, and it makes it very easy to say, 'Yes, this is worth it.' The PGA Tour, and golf in general, is so aligned with our demographic. It's good for us. We can track the return on investment and it definitely shows a payoff. … Golf is hands down a solid winner for us in terms of return. But it'll be interesting to see how the other financial-service providers react."

Given the current state of the American economy, the folks in charge at PGA Tour headquarters in Ponte Vedra Beach, Fla., are no doubt buoyed by comments such as Hamm's. And they hope the majority of their sponsors across three tours feel the same way.

But reality suggests this is going to be an uncomfortable time for the PGA Tour, which has 13 events supported by banks, investment firms and credit card companies. That doesn't include the Royal Bank of Scotland, which has sponsorship ties to three of the four major championships.

It doesn't help that television ratings -- one of several criteria used by sponsors to see if they are getting a good return -- are down, and that the game's No. 1 draw, Tiger Woods, has been out since June following knee surgery.

The good news for the PGA Tour is that every tournament on the main portion of its schedule has a title sponsor locked up through the 2010 season, with some through 2012 and beyond, according to Tom Wade, the tour's executive vice president and chief marketing officer.

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"Even some of the companies you read about as having challenges are sticking with us," Wade said. "But I don't want to get smug about it. I think, like any other enterprise in this business world, we obviously are concerned and keeping a very close eye on what is happening and just unsure of where all of this is going. For the short term, we're actually in pretty good shape. In the longer term, if this persists, we just don't know.

"It's just the uncertainty. There is no question that the selling environment is getting more difficult. There are companies out there who are not so bad, but they have a wait-and-see attitude because nobody knows what the future holds. We're not exempt from that. We're going to run into the same situation."

When it was announced Monday that Citigroup was taking over banking giant Wachovia, it set off alarm bells in Charlotte, N.C., where the highly popular and successful Wachovia Championship is held at Quail Hollow Club. (A subsequent bid for Wachovia came in from Wells Fargo.)

But this spring, the company signed a six-year extension with the PGA Tour to sponsor the tournament through 2014, and Wade expects that any new owner would honor the contract, although it remains uncertain whether the name of the tournament would change.

"With rare exceptions, we've not had anyone asking to get out," Wade said. "Or even asking for relief. We haven't had those requests, other than one or two minor ones. Not any more than we would have had in a good year."

There have been recent examples of companies getting out of contracts, such as 84 Lumber, which abruptly canceled its sponsorship of a tournament in Pennsylvania following the 2006 event; the tour quickly stepped in and replaced it with the Travelers Championship in Hartford, Conn. PODS opted out of its deal in Tampa after only two years, but tour officials were able to secure Transitions Inc., a lens company, to begin a four-year deal in 2009.

The annual Atlanta tour stop was not so fortunate. The AT&T Classic was played for the final time in May, and in June the tournament announced it would be ceasing operations. AT&T has sponsorships at Pebble Beach, Calif., and Washington, D.C., and the local nonprofit company that runs the Atlanta tournament was unable to secure another title sponsor.

We are impacted by the economy and the economic challenges like everybody else. We have a lot of customers and sponsors in economic sectors that are impacted negatively by the volatility in the economy. Thus far, we have not suffered any major damage. But clearly, if the instability were to continue for a sustained period of time, we will have real challenges.

--PGA Tour commissioner Tim Finchem

But there will be no hole in the schedule because of the absence of the Atlanta event. The Valero Texas Open will, after playing next week, quickly turn around and be staged again next May. The tour is seeking a replacement in the Fall Series and has been in discussions with a group interested in securing an event in Sea Island, Ga.

"We are impacted by the economy and the economic challenges like everybody else," PGA Tour commissioner Tim Finchem said at the Tour Championship. "We have a lot of customers and sponsors in economic sectors that are impacted negatively by the volatility in the economy. Thus far, we have not suffered any major damage. But clearly, if the instability were to continue for a sustained period of time, we will have real challenges."

If issues do come up, they might be found at the lower levels of sponsorship.

"There's definitely been some downsizing," said Gary Planos, tournament chairman for the season-opening Mercedes-Benz Championship in Hawaii at the Kapalua Resort on Maui. "I don't think a lot of company budgets can command it right now with the economy the way it's going. We have to find a reason for them to be out here. We're lucky we live in one of the more beautiful places in the world. When we have our event [starting Jan. 8], it's not very nice on the mainland. The destination has some degree of pull, but the economy is definitely affecting everything.

"We're in the hospitality business year-round. And we're lucky we can lead off the PGA Tour season in that mode. But we aren't blind to the fact that the airlines are struggling and you have to fly to get here. It trickles down. We've seen some drop in occupancy and spending. We just have to weather through it."

Nearly every tournament on the PGA Tour is set up as a 501c-3, a nonprofit company that gives all of its proceeds to charity. The purse and television advertising commitments are taken care of by the PGA Tour and the title sponsor, but other than a modest entitlement fee, the local organizers are on their own.

That means tournament officials must raise their annual operating budget on their own, which might be in the neighborhood of $2 million to $3 million. They do it with a staff that sells sponsorship programs, pro-am spots and ticket packages. The money raised pays the bills, including renting courses, paying for signage and scoreboards, as well as meals for players and volunteers and numerous other things that go into running a tournament.

Money left over after expenses goes to charity, and many PGA Tour events donate hefty amounts. The EDS Byron Nelson Championship in Dallas, for example, has raised more than $100 million for charity since its inception in 1968, including $6.4 million from the 2007 tournament alone. In a related development Thursday, the PGA Tour announced that HP would become the new title sponsor of the Byron Nelson Championship after its recent purchase of EDS.

But being able to generate significant contributions during difficult economic times makes the task all the more challenging.

"Every tournament is different," said Tom Pulchinski, tournament director for the Northern Trust Open near Los Angeles, played in February. "They come at different times of the year, and sometimes that can be a concern regarding budgets. Are [potential sponsors'] pockets full at the beginning of the year? Or when you get around to them, are their budgets tighter? There are so many different variables with each tournament. Everyone has a unique situation.

"I've not experienced anything that is out of the normal, so far. Our renewal packages are going very well. We just started getting into new sales, really at the beginning of that phase. That will really tell us [what] our economic impact will be."

Bob Harig covers golf for ESPN.com. He can be reached at BobHarig@gmail.com.

Bob Harig | email

Golf Writer, ESPN.com