Economics of the PGA Tour

Compared to the “Big Four” professional sports in America, golf has a decidedly smaller fan base, and tournament venues lack the infrastructure that can be found at stadiums and arenas.  Consequently, the Professional Golfers Association (PGA) Tour is especially reliant on volunteers and title sponsors to make tournaments operational.

In a typical tournament, golfers will share a $6-8 million purse based on their performance that week, with a title sponsor contributing 40% of the purse.  Additionally, the sponsor will pay $4-5 million to cover a television advertising commitment and fees to both the PGA Tour and the local tournament organizing committee.  The PGA Tour is also unique in that these tournament committees are structured as nonprofit entities, whose primary mission is to charitably contribute to the local region.  Despite its much smaller scale compared to the major professional sports, PGA tournaments raise over $100 million annually for charity.

Tiger Woods’ dominance from 1997 through 2009 drove significant excitement in professional golf, and prize money astoundingly increased five-fold since Tim Finchem became commissioner in 1994.  The Great Recession of 2008-09 was very problematic for recreational and professional golf, however.  The golf industry – primarily consisting of golf courses and equipment manufacturers – was devastated from shrinking disposable income, and remains years from regaining its vitality from the mid-2000s.  In 2009, the PGA Tour found itself at a crossroads because many title sponsorships were up for renewal in 2010.  Unfortunately, many sponsors were automobile and financial services companies that experienced major economic and public relations difficulties during the crisis.

Another low point came in November 2009 when Tiger Woods crashed his Cadillac Escalade into a fire hydrant.  The severe reputational hit to the game’s iconic player, coupled with his months-long absence from competition in early 2010, generated uncertainty as to whether Woods could ever recover the form and likeability that helped drive tremendous growth in the sport’s popularity and television revenue.

Overall, the PGA Tour did an excellent job confronting these challenges and building an even stronger brand.  Remarkably, the tournament schedule was not cut back, as Finchem and his team attracted new sponsors to the Tour’s value proposition.  The Tour occasionally needed to provide financial assistance to events held in smaller markets such as Tampa and Hilton Head Island, but their negotiating position generally remained strong.

Source:  http://www.pgatour.com

In the aftermath of the Tiger Woods scandal, the Tour recognized that its marketing campaigns were insufficient in developing enough fan interest in other players.  Through advertising and social media, golfers including Rory McIlroy, Dustin Johnson, Adam Scott, Keegan Bradley, Luke Donald, and Bubba Watson gained more attention among sports fans besides diehard golfers.  Even controlling for Woods’ play, television ratings in 2011 and 2012 were up significantly from corresponding 2010 levels.

With a record long-term television contract in place, the Tour is strongly positioned going forward, thanks to diversifying its sponsorship base and better promoting its players.  Tiger Woods’ ascendancy to #1 will only magnify the effectiveness of these initiatives.