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SBJ/Jan. 17-23, 2011/In-Depth
What will next TV deal mean for purses?
Published January 17, 2011, Page 17
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.
"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."