Locker room cameras still lacking fans Forty Under 40: John Shea Forty Under 40: Pete Vlastelica Forty Under 40: Damani Leech 15 rounds with ‘Rocky’ musical NFL warms up to variable pricing Forty Under 40: Andrew Lustgarten Forty Under 40: Nate Appleman People: Executive transactions Forty Under 40: Bess Barnes
SBJ/Jan. 17-23, 2011/In-DepthPrint All
Golf’s popularity continues to be challenged by sagging numbers of recreational rounds played. The most recent numbers from the PGA of America indicate that rounds played in 2010 were down about 2.2 percent from 2009. Rounds played at private and public courses slipped, while resort courses showed modest growth. Driving those numbers back up is a challenge.
The LPGA is taking a big gamble by having its players compete in a tournament for free this season. At the first domestic event in Phoenix on March 18-20, the players will donate their prize money to the LPGA Foundation, which supports a variety of charitable causes. It will be interesting to see if the tour’s stakeholders support the uniquely altruistic idea or if it’s brushed aside as a cheesy publicity move.
Lost in all of the talk about the PGA Tour’s next TV deal is that the tour’s online rights are up as well. Turner has held those rights to PGATour.com as part of a current six-year deal, but there’s significant speculation that the tour might take those rights in-house and run the whole operation themselves.
The PGA Tour is emphasizing its hot group of 20-somethings in its promotions. In “New Breed vs. The Establishment,” the tour positions Rickie Fowler, Dustin Johnson, Camilo Villegas and Anthony Kim as the young lions threatening Tiger Woods, Phil Mickelson and other veterans. Now those rising stars have to back it up on the course.
The USGA will replace executive director David Fay this year. Fay, who spent the last 21 years as executive director and 32 years at the USGA total, announced his retirement the day before Christmas. Under his leadership, the ultra-conservative body sold its first sponsorships and also moved the U.S. Open to public courses for the first time.
Twelve of the world’s top 25 players come from Europe and there are fewer tournaments week to week that feature most or all of the game’s best. U.S. Open champ Graeme McDowell of Ireland and British Open champ Louis Oosthuizen of South Africa will play on the PGA Tour, while others like England’s Lee Westwood, the world’s No. 1, PGA champ Martin Kaymer from Germany and up-and-coming Irishman Rory McIlroy will play on the European Tour. They’ll come together for a handful of events, like the majors and WGC tournaments, but the fragmentation is leading to more talk about the need for a truly global tour.
Tiger Woods and TV go hand in hand. No singular figure in sports has the impact on ratings that Woods has in golf, and his absence from the scene in 2010 as a dominant figure contributed greatly to more than 30 percent in viewership losses. Anyone who has a financial stake in the game is pulling for Tiger to win this spring before TV negotiations begin.
As the PGA Tour approaches pivotal rights talks, skeptics question if it can maintain par. Does its unique business model guarantee at least a save?
Yet tour executives remain confident that their next TV deal will bring increases from their current six-year, $2.95 billion contract, thanks to a business model that the tour’s network partners call the best in sports.
“Everyone looks at the ratings, but because of our business model, a decline in ratings doesn’t impact the bottom line like people think,” said Ty Votaw, the tour’s executive vice president of communications and international affairs.
“We make money for our TV partners. You can’t just look at ratings and say the sport has a problem. People who say that don’t know what they’re talking about.”
Still, the tour is starting negotiations at a time when its TV ratings dropped more than any other major sports property. Much of the problem involved the absence of Woods, who played in just eight of the tour’s events on CBS and NBC and failed to finish in the top 10 in any of them.
For PGA Tour events in 2010, CBS averaged a 1.4 rating on the weekends, down 26.3 percent from 2009, and NBC’s numbers averaged a 1.6, down 33 percent. Average viewership was down 31 percent to 32 percent on the two networks as well.
Those numbers and the uncertainty swirling around Woods led several industry executives to position the tour at an economic crossroads this year, with the TV talks at the center. Many just hope the tour can keep its right fees where they are, much less get a raise.
“The tour has done a pretty amazing job with the last couple of TV negotiations. They’re going to have their hands full on the next one,” said Mark Steinberg, IMG Golf’s global managing director. “It’s up to the tour to provide as much value as possible.”
Network executives say the tour routinely does a good job of showing that value because of the structure of its media and sponsorship deals, which call for the majority of network advertising to come from title sponsors and official marketing partners.
When Votaw says the tour’s business model protects the bottom line, it’s because the tour delivers 65 percent to 75 percent of the advertisers to its network partners over the course of a season.
Nearly all of those title sponsorships and official partnerships are multiyear deals, many running through 2014 or 2016, which provides stability and predictability to the model.
“It’s unique in the sense that we’re taking a lot of the risk off the table for our network partners,” said Rick Anderson, the tour’s executive vice president and chief legal counsel who has been involved with the tour’s TV talks since the mid-1990s. “When you look at the ad inventory a network has to sell for any property, you won’t find another example where 75 percent to 80 percent of the money has already been secured.”
About 30 percent of the advertising units are sold to title sponsors as part of their deals, while the tour’s official marketing partners account for up to 45 percent of the ad inventory.
That leaves the networks with 25 percent to 35 percent of scattered advertising to sell. The PGA Tour’s office in New York assists in selling those ad units to ensure that the networks come out on top financially.
“The tour contributes significantly,” said Seth Winter, NBC’s senior vice president, sports and Olympic sales and marketing. “They really are the archetype for the league and media relationship and they show it by really understanding the needs of the network. They are the best.”
An NBC cameraman follows the action at The Players Championship.
“The tour has done an excellent job with their title sponsors and laying a strong base of media support for the property,” said John Bogusz, executive vice president of sales and marketing for CBS Sports.
For $4 million, the title sponsor gets 32 to 36 network ad units (on either CBS or NBC) and another 32 to 36 units on Golf Channel, which carries the first and second rounds on Thursdays and Fridays. A three-hour broadcast on CBS or NBC includes 54 units, or 108 units for the two weekend broadcasts, meaning that the title sponsor takes about 30 percent of the ad units.
Most sponsors don’t want all of the advertising spent on one weekend, so they “spin” their units into golf programming on other weekends. That flexibility on when to use the advertising units is the result of an agreement between the tour and the networks.
By spinning the units into other tournament broadcasts, the title sponsor maintains a yearlong presence through its advertising. Sponsors are able to use up to half of their units on other broadcasts, but it has to be a PGA Tour event on the same network.
“We think the value of the in-program exposure is significant,” Anderson said. “There’s several mentions by the on-air talent and usually a preproduced piece that runs about the sponsor’s charitable efforts. That’s all part of the package of benefits.
“So the sponsor is getting the rights to the tournament and all of the advertising, flexibility to spin those units over the course of the year, and no confusion. It’s abundantly clear who the title sponsor is each week.”
Even though the tour presents such an accommodating model, IMG’s Steinberg and others have said the tour will do well to keep rights fees where they are because of the declines in viewership.
Time for a new approach?
If there’s been a criticism of the tour’s model, it’s that it’s antiquated, according to some agency buyers who represent clients in golf. The model was great in the 1990s, but it doesn’t offer enough diversified marketing solutions for the clients. The title sponsorships are essentially a giant media buy.
That’s OK for some sponsors, like Farmers Insurance, which signed a four-year deal to title sponsor the Torrey Pines event in San Diego last year. In the ultra-competitive insurance category, Farmers has been spending more in sports, close to $200 million a year, sources indicate. Its “University of Farmers” campaign has been central to that spending.
That’s still far short of the blanket advertising by its competitors Geico and Progressive, but the PGA Tour title sponsorship gives Farmers a weekend it can own on CBS with at least 16 to 18 ad units a day and in-program exposure.
“We’re very bullish on what sports can do for us, and our audience likes golf,” said Mark Toohey, a senior vice president at Farmers, which is represented by golf agency MG Sports Marketing, Jacksonville. “We’re an 83-year-old Southern California company, so what we’re able to do with hospitality and the charitable component carries a lot of value for us.”
The PGA Tour requires marketing partners and tournament title sponsors to buy advertising units on event broadcasts.
“The tour is trying to be creative with things like having the players make more appearances and miking the players, things that create more value for sponsors and broadcasters,” Steinberg said.
“We really are in more of a menu-ed market now and clients want the flexibility to choose how they spend their dollars,” said GMR Marketing’s Ed Kiernan, a senior vice president and the agency’s golf lead. “It requires a lot more leniency from the property on spending and we have seen the tour respond in some areas.”
NBC and CBS executives both expressed optimism about sales against golf, despite the ratings setbacks that forced them to offer make-goods to advertisers last year. Networks offer make-goods (additional units at no extra cost) to advertisers when ratings are not what were promised.
“The market for golf last year wasn’t bad,” Bogusz said. “We just had a hard time holding on to the money because of the ratings.”
The auto category came back in 2010 and Cadillac’s title sponsorship of the WGC event at Doral, a deal worth more than $10 million a year, further legitimized the recovery.
There also were gains in the financial sector, and golf equipment companies continue to spend, all of which helped offset the ratings malaise last year.
“You’re looking at a marketplace that’s reasonably healthy,” NBC’S Winter said. “Most of the advertisers that golf really counts on were back.”PGA Tour ratings land in the rough
2008 2009 2010
NBC 1.9 2.4 1.6
CBS 1.6 1.9 1.4Source: The Nielsen Co.
All eyes on early numbers
Even with a business model that delivers so much advertising, the tour understands that the spring of 2011 will set the table for the TV negotiations later this year.
There is not an exclusive negotiating window in the contract for talks to begin, nor is there a right of first refusal built in for the network partners.
Essentially, they’ll start talking when they start talking. Typically, that would be late spring to early summer, but Anderson said it could be delayed if the tour doesn’t get off to a better start with its ratings in the spring.
The tour wants to go to the table with as much momentum as possible.
“We’d certainly like to see a first quarter that doesn’t have a lot of the issues we had in 2010,” Anderson said of Tiger’s absence and ratings declines. “The first quarter of 2010 was not real pretty.
“But we think there’s potential to come out of the gates strong with a lot of great story lines. If things are tracking like we expect, we’ll be in discussions in the normal time frame. We’ll push it later if not.”
Tournament executives expect the PGA Tour to approve the use of cell phones by fans on the course this season.
The tour experimented with the use of cell phones during competition last year at Greensboro during the Wyndham Championship and there were few issues. Other tests were performed at the Frys.com Open and the Chevron World Challenge, the tour said. Two more tests are planned at the Farmers Insurance Open in San Diego later this month and the AT&T Pebble Beach on Feb. 10-13.
“We’re preparing for the policy to be in effect when everybody gets here,” said Steve Timms, director of the Shell Houston Open, which begins March 31. Timms also serves as chairman of the Tournament Advisory Council, which represents the coalition of tournaments.
“We have two more tests, but barring some unforeseen circumstances, this is where we’re headed,” Timms added. “Right now, we’re working on the operational aspects, such as how to allow the devices in without disruption to the competition.”
Cell phones have been allowed on the course during practice rounds in the past, but barred during the competition rounds Thursday through Sunday because of the chance of phone sounds disturbing play.
A new policy allowing fans to carry their cell phones throughout the tournament would be a technological game-changer for the tour. Many of the technological advances that have enhanced fan experiences in other sports haven’t been available to golf fans on the course because of the need for quiet when players are in competition.
If fans are allowed to bring their smartphones to the course, it could open up a whole new line of fan-friendly services, especially for smartphone users.
Fans make calls in a designated cell phone area at last year's Wyndham Championship in Greensboro.
Tournament executives have tossed around the idea of providing pairings sheets, leaderboards, parking and weather updates, news, video, concession specials and other information via a fan app.
Tournament directors also hope that the tour’s ShotLink, which keeps track of just about every stat on the course, can be incorporated. With each of those digital elements comes the potential for sponsorship, which would give the tour’s sales and marketing staff more digital options to pitch.
There’s also the potential to greatly extend the tour’s presence through social media, something that’s lacking now because fans cannot post to Twitter or Facebook live from the course.
“We’re still working on how the tournaments will work with the tour on delivering that content,” Timms said.
The broader use of cell phones might also help the tour attract a younger demographic that’s tech-savvy, said Kym Hougham, executive director of the Wells Fargo Championship. Hougham was chairman of the Tournament Advisory Council two years ago when the body first went to the tour asking for relief on the cell phone restrictions.
“You’re talking about doctors that can’t come to the tournament because they can’t be out of touch,” Hougham said. “We’ve had CEOs who couldn’t come. Mothers who have baby sitters at home, they can’t be out of touch.”
If the new policy goes through, phones will be permitted during competition as long as they are kept silent, which will allow fans to e-mail and text on the course. Tournaments also will create specific areas away from the competition where fans can talk on phones without disturbing play.
The PGA Tour remains receptive to the idea, but isn’t as committed to the policy, at least not yet.
“We’ll evaluate the pros and cons and decide after that,” said Ty Votaw, the tour’s executive vice president for communications and international affairs. “How much broader the policy gets will depend on what the overall feedback is. We’ll look at it all, but I wouldn’t make any predictions.
“We don’t want there to be any barriers to our events. And once they’re there, we want to enhance the experience for them.”
If cell phones are approved, it will come at some cost to the tournaments. Tournament directors are anticipating the need to overwhelm fans with the dos and don’ts of a new policy. Volunteers will be posted at entrances to verbally announce the new cell phone policy, while videos and signage will be posted on transportation vehicles. Other media will be used, such as tournament websites and flyers that are mailed to ticket buyers.
One of the few drawbacks to allowing phones on the course has been the use of the camera on the phone. Photos are allowed during the rounds preceding competition, but not on the days of competition.
Throughout the decade of the 2000s, PGA Tour tournament organizers stretched their budgets to keep purses on the rise. Flush with cash and eager to stay in the tour's good graces, tournaments increased their purses from an average of $2.142 million in 1998 to $6 million last year, while also growing their charitable giving.
Photo by:GETTY IMAGES
If the PGA Tour can't keep TV rights fees at their current levels, tournaments might have to find more revenue to maintain the size of their purses.
That's why the tournaments have such a close eye on the tour's upcoming TV negotiations. If the tour isn't able to keep rights fees at their current levels, the tournaments might have to find more revenue to keep the purses where they are.
"We're doing everything we can as individual tournaments to provide as much value as we can," said Steve Timms, director of the Shell Houston Open and chairman of the Tournament Advisory Council. "It's very important financially for the underpinning of the purses that we keep those revenue numbers where they are or growing. We're really hoping for a ratings rebound in 2011 to help us when the tour sits down with the networks."
The tour's model calls for the title sponsor to pay two fees, one to the networks for media and one to the tournament's local organizing body (host organizations are 501c(3) nonprofits) for rights to the event.
Title sponsorship fees for tournaments that appear on CBS or NBC typically run about $8 million a year, in total. The $4 million that goes to the local tournament is put into a pot of revenue that includes secondary sponsorships, hospitality sales and ticket sales.
That money from the title sponsor is typically the No. 1 source of revenue for a tournament, with hospitality sales second, ticket sales third and secondary sponsorships (sold locally) fourth.
It's uncommon, but some events like the Hyundai Tournament of Champions don't charge an admission fee for the ticket, in which case they'll often try to generate more in local sponsorship.
That tournament revenue pays for a portion of the purse, operational expenses (everything from security to hospitality tents and transportation), staff, and advertising and marketing expenses.
The tournament is typically responsible for 38 percent of the purse, while the tour provides 62 percent of the funding, money that comes from the TV contracts.
Once the tournament pays its expenses, the profit is shared between charitable giving and a reserve account. A tournament's reserves are necessary in case a tournament must go a year or two without a title sponsorship.
This year, the Heritage in Hilton Head and the Bob Hope near Palm Springs are without a title sponsor, but they're able to continue running their events from their reserve accounts. This is the second year that the Bob Hope could be played without a title sponsor and most think it's unlikely the tournament could survive after this year if a sponsor isn't found. The same applies to the Heritage.
Photo by:GETTY IMAGES
Turnkey Sports Poll The following are results of the Turnkey Sports Poll taken in December. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports. » Which golfer will be most attractive to sponsors in 2011? Phil Mickelson 42% Tiger Woods 17% Lee Westwood 12% Dustin Johnson 10% Matt Kuchar 2% Other 8% Not sure / No response 9% » How will Tiger Woods play in 2011? Win one or two tournaments 49% Win multiple tournaments 45% No tournament wins 3% Not sure / No response 3% Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.
"Most tournaments try to be prepared to make it a year or two if they don't have a title sponsor," Timms said. "From a long-term perspective, you've got to be responsible fiscally, but you also have a mission to be responsible to your charities. Recently, I'd say there has been more of an emphasis on reserves because of the volatility in the sponsorship world, but there's no real cut-and-dry formula."
Each tournament uses its own discretion on decisions like how much money to donate to charity, how much to hold in reserve, and how much to spend on gifts and other expenses.
The Wells Fargo Championship in Charlotte has developed a reputation for treating players and their wives exceptionally well, from the food served in the clubhouse, to Mercedes-Benz courtesy cars, to the gifts and activities scheduled for the players' wives.
It also invests significantly back into the tournament, which has resulted in more shaded seating areas for fans, an increased number of buses along the transportation routes and free parking.
"We give a nice amount to charity and the rest we put back into the tournament," said Kym Hougham, the tournament's executive director.
The event in 2010 donated $1.2 million to the tournament's charities, a substantial amount, but by comparison it was far short of the $4 million-plus that the John Deere Classic donated.
"Are there tournaments that give more to charity? Yes," Hougham said. "But we've taken the approach that we want the fans with the general tickets to have just as good an experience as the fans with the hospitality tickets. We want them to feel just as valued. It's part of the brand of the tournament."
Whether tournaments will be able to continue operating at those same levels and offer such rich purses will depend greatly on the next media deal.
"We're dealing with a lot of unknowns right now," Timms said. "Purses have leveled off and I suspect that might be the trend going forward, but we won't really know until we see what the TV rights fees look like. Certainly, you'd have to say that the tour's track record has been very good."
Just listening to LPGA Commissioner Mike Whan talk, it would be easy to imagine the fast-talking Midwesterner as the guy who reads the fine print at the end of pharmaceutical commercials. The Naperville, Ill., native admits to coming across as “heavily caffeinated,” but it took his full reserve of energy to hit every tournament and reach out to every LPGA stakeholder during his first year on the job in 2010. But there’s another side to the job that requires extreme patience, something Whan discussed recently with SportsBusiness Journal staff writer Michael Smith.
Whan reflected on his first year as commissioner and what the LPGA has in store.
WHAN: My gut answer is patience. I was blessed with a few skills, but patience wasn’t one of them. This job requires patience. I used to think patience was a bad word, but this is a job where you have to really listen because every decision you make affects a lot of constituents. I’ve got this handwritten note under my computer that says “Patience” just to remind me. It’s on the back of a business card.
• How are you measuring success at the LPGA?
WHAN: The best way to measure success is through the business partners that sign up with us. If we’re not succeeding for them, we’re not succeeding. We always talk to the players that if it weren’t for the people paying the bill, we wouldn’t be playing this weekend. We’ve got to make sure we’re delivering return on objective for the business partners. And they’re all different. Don’t assume you know what they want to achieve in their event.
• How did the LPGA perform financially in 2010?
WHAN: Anybody close to the business will tell you we significantly surpassed expectations. But when I first got here, I asked for a lot of the normal things like an income statement. I wanted to see margin, I wanted to see EBITDA. But I was reminded that the LPGA is not for profit, it’s a membership organization. When you look at the income statement, you’d be surprised to know that the best performing years financially are not necessarily the best years related to the brand of the LPGA. … It’s taken a while to change gears because my original mind-set was “How much money can you make.” But I’m shifting. Now what’s most important is that we’re a great value and that we don’t need to saturate the income statement. When we make money, we put it right back into the business. We’ve helped seven or eight tournaments, we’ve made price concessions to create better values. At the end of the day, we don’t need to make millions. My job is to empower and inspire women from around the world to play golf by showcasing the best players in the world. It might sound crazy and reckless, but it’s not. You’ve got to focus on the impact of your brand. If you focus on the money made, you miss the big picture.
• You list 16 marketing partners. What’s the goal for that program?
WHAN: We talk a lot about role reversal. You don’t talk about the tournament until you talk about who’s paying for the tournament. What’s keeping the CEO of that company up at night? If they just cut us a check, that’s going to be a short-term relationship. … I came in as the guy who used to write the check and justify the return. I know what it feels like, so I spend time with the staff and players so that everyone knows we want to make it easy to be a partner of the LPGA.
• Instead of having one or two dominant performers, the LPGA now has many very good golfers. Does that dynamic impact how you market the sport?
WHAN: We’re golf’s global tour. What struck me in my first year is that the best women don’t play together every seven or eight tournaments, they play together every week. The best players aspire to one tour: the LPGA. We’re delivering in golf what most are not. We’re putting the best in the world, representing 30 countries, in the same event. It’s like an Olympic event; it’s truly creating a global entity. If you jump forward 10 years, this is going to be the model. … It’s hard to sit in front of a CEO today and ask about five most important things and global isn’t one of them. We do cross-cultural training with our rookies so that they understand the difference in signing autographs in Thailand and Malaysia. Twenty-five years ago, I was sitting in the same meeting at Procter & Gamble. It’s a 2010 business thing now and we’re learning how to be better worldwide.
Whan said the LPGA delivers the best players in the world tournament after tournament. Here, Na Yeon Choi of Korea plays a shot at last year’s LPGA Tour Championship.
WHAN: If your goal is to inspire and empower, golf is borderless. Teeing it up in India is not a lot different than teeing it up in Indiana. You show up and be the role model, you do the local interviews.
• Will the LPGA break away from its current tournament model of finishing on Sundays?
WHAN: Not in 2011. Will we ever? Probably. It won’t be the norm, but if a title partner said, “We’ve got a West Coast tournament and we want to finish in prime time on Monday night.” Could we make that work? You bet. There’s nothing like that on the 2011 schedule, but there has been some dialogue on “What if.” I’m not standing in anybody’s way.
• Golf Channel has a short-term extension with DirecTV to keep the channel on there, but do you have long-term concerns about your product on Golf Channel?
WHAN: At the LPGA, we want partners that have skin in the game and want to grow the LPGA. Golf Channel has skin in the game — a 10-year contract — and they’ve got to grow it. “What can we do together to make it more exciting, to create more role models?” We want that a lot more than we want to buy air time with somebody else.
• What else would you like to see from Golf Channel in terms of LPGA coverage?
WHAN: Oh yeah, we meet monthly, brainstorming. We tell them that we’re a great test model. We enjoy tournament coverage that’s just as interesting outside the ropes as it is inside the ropes. We love it when camera crews follow a player on a Tuesday night and go to clinics. I’m not sure all of the players love how accessible I want it to be, but what separates us is our incredible personalities. And showcasing that is as important as what yardage somebody had for a 7-iron.