SBJ/Jan. 17-23, 2011/In-Depth

Teeing up PGA Tour TV talks



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?
The PGA Tour is preparing to negotiate a new TV contract in a difficult environment that saw viewership decline by 30 percent, while its most bankable star, Tiger Woods, tries to escape the residue of his scandal-plagued 2010 season.

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.”

NBC golf camerman
An NBC cameraman follows the action at The Players Championship.
Title sponsors of tour events that are televised by CBS or NBC typically pay about $8 million a year. Half of that goes toward the media buy with the network that carries the tournament and the other half goes directly to the tournament and contributes significantly to the purse.

“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.

Some consider $4 million to be an expensive ad buy for simply units within golf programming, but it also comes with branding on several in-broadcast elements for the title sponsor, such as graphics and the leaderboard, as well as the obligatory “message from the CEO,” the staged interview the network does with the title sponsor’s chief executive. The contracts guarantee a certain number of mentions for the title sponsor on air, and the networks typically surpass those, the tour said.

“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.”

ATT National
The PGA Tour requires marketing partners and tournament title sponsors to buy advertising units on event broadcasts.
The PGA Tour is banking on Tiger’s return this year to a typical schedule of 16 to 17 events and a lift from the “new breed” of players to bring viewers back and enhance the sport’s value. The new breed is the group of 20-something golfers featured in tour branding ads, including Rickie Fowler, Dustin Johnson and Anthony Kim.

“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                 1.4

Source: 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.”

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