SBJ/October 1-7, 2012/Leagues and Governing Bodies

Tourneys open books to get PGA Tour’s help

The PGA Tour is conducting in-depth financial reviews of its tournaments for the first time, with the primary goal being to help each of them increase revenue.

The reviews are voluntary, though not a single tournament declined. Twenty-six tournaments are undergoing a review this year, and the remaining 18 are expected to go through the process next year.

Andy Pazder, the tour’s executive vice president and chief of operations, said the tour has never done such a deep dive into the financials of each tournament.

“We’re basically asking the tournaments to open their books to us and see if we can help,” Pazder said. “It’s been one of the biggest successes of the year and something we hope will pay dividends two to three years down the road, and longer.”

Pazder said PGA Tour events are, for the most part, much healthier than they were a few years ago. Gross revenue still isn’t where it was before the recession, but net revenue is moving closer to where it used to be. Based on tax filings, gross revenue from tournaments ranges from $7 million on the low end to more than $20 million for the best-performing events in the biggest markets, such as the Waste Management Phoenix Open or the HP Byron Nelson Championship in Dallas.

“We had some rough years around 2008, 2009, 2010,” Pazder said. “We began to see a little lift in attendance in 2010, a little more in 2011 and a big pickup this year. … With things moving in a good direction, we’re working with tournaments to take a hard look at what’s being sold, pricing and whether any of that needs to be refined. Are we undercharging, overcharging? How can we make our profits stronger?”

With most of the tour’s title sponsors signed to long-term deals and a TV contract that now stretches out to 2021, the tour decided that now is the right time to dig into the financials of each tournament to see what growth potential exists. In the past, the tournament business affairs division — the liaison between the tournaments and the tour — had done some information sharing, including a website that highlighted best practices at events, but nothing to this extent.

Each sit-down the tour has with tournaments lasts at least two days and goes over every revenue and expense line. Peter Kent, vice president of championship management, typically heads up a team of three sales executives from the tour who meet with a tournament director and sales staff.

“The reality is that our tournaments have small staffs compared to an NBA team or an MLB team in the same market,” said Kent, a former Nike executive who has been with the tour for four years. “We’ve got to be as effective and efficient as possible to compete and make sure that we’re leveraging every asset we have.”

The tour’s focus has been to improve each event’s profit margin, increase prize money, expand charitable giving and build reserve funds. PGA Tour events are part of nonprofit entities, so their profit margins are essentially the money left over each year that events give to charity. Some give as much as $6 million, while others give close to $1 million.

The Travelers was the first event the tour reached out to last year.
Photo by: GETTY IMAGES
Tournaments try to keep enough money in reserve to make it at least two years without a title sponsor — or about $8 million to $10 million, depending on the event. Some currently have it, some don’t.

“The tour has been very aggressive in creating resources for the tournaments on the revenue side,” said Nathan Grube, executive director of the Travelers Championship.

The Travelers was the first tournament the PGA Tour reached out to last year. The tour used Travelers as a test run to see what could be gained by such a review. Both sides saw benefits and the tour privately announced the program to tournament directors last December. Pazder thought a handful might express interest, so he was surprised when more than 20 signed up for a review by the end of that day.

“The big thing was the tone,” said Clair Peterson, a 10-year veteran of running the John Deere Classic and chairman of the Tournament Advisory Council, a group of tournament directors. “It’s completely an opt-in for the tournaments. We’re not being forced to do anything. … In 10 years, I’ve been through a few iterations of how they provide help and this is one of the best things they’ve done. It’s not a cookie-cutter approach. It’s a very individualized look at your market, your price points, your products, and how we promote ourselves, relative to the economic environment in the market.”

Added Kent: “We’re not trying to homogenize the tournaments. We’re looking for the nuances in each market so that we can work with tournaments to customize their plan. In the end, they create the plan, so it feels right to them and it’s easier for them to execute.”

The tour’s tournament business affairs has a representative working with each event and they follow up every few weeks to see how the events are doing with their plan. The process is being handled entirely in-house.

Part of the plan at the Honda Classic, tournament director Ed McEnroe said, has been to re-examine its sales approach. The sales team at the Honda had a renewal rate of 90 percent for primary and secondary sponsors, but the problem was that 60 percent of those were finalized within two months of the event, leaving brands and the tournament without the kind of planning necessary to get the most out of the deal.

As the Honda goes forward, the sales team will seek multiyear deals, even if it requires a slight price reduction, to secure greater stability and better planning.

Peterson said the John Deere is looking into a new shared hospitality product that the tournament has never offered before. The tent structure would have a sports-bar feel to it and would require a separate ticket for access. Food and beverages would be sold inside the tent and it would be an alternative to the giant double-decker tents that line the 18th fairway.

The tour made that suggestion, Peterson said, because it has worked at other tournaments.

Some events have discovered that their hospitality pricing is out of line with tournaments in similar-sized markets, and often the tournaments that are out of line are underpriced rather than overpriced.

Greg McLaughlin, president and CEO of the Tiger Woods Foundation, runs the AT&T National. His review isn’t until later this month and he’s curious to see what types of sales tactics the tour will bring.

“The big challenge is how to creatively grow your revenue,” McLaughlin said. “Growth is not coming from adding another bank of skyboxes or tents. That market is already heavily mined and pretty saturated at most events. So, how do you create something innovative that attracts a nontraditional golf sponsor? How do you offer either an existing or new sponsor something that is appealing over and above what they traditionally do? Sponsorship in golf is a finite market. It’s all about finding ways to expand that.”
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