😵 The PGA Knows They Fumbled the Bag

Professional golf continues to show how topsy-turvy it really is.

After an incredibly chaotic and high-scoring weekend at Valhalla Golf Club in Louisville, KY (wow, second time mentioning a sporting event in Louisville in 2 weeks, that’s gotta be a record 😉), the PGA Championship wrapped up with Xander Schauffele breaking the tie with a birdie on the 18th hole to secure his first ever Major Championship win 👏. But today isn’t about giving out flowers and love to a player who fully deserves that. No, we’ll leave that for the fan club accounts. Today, we’ll be reviewing the $12B business of the Professional Golfers’ Association (PGA) and how they’ve become complacent throughout the years. What’s the history of the PGA Tour? How do they make money? What are the ways they’ve been conducting business the last few years? What effects has this had on their “star employees” (i.e. the professional golfers)?

Let’s get after it…

What’s the history of the PGA?

• On January 17, 1916, department store owner, Rodman Wanamaker, hosted a luncheon for New York City-area professional and amateur golfers.

  • The point of the meeting: to discuss forming a national association of golfers similar to the, then, British PGA.

  • On April 10, the PGA of America was founded with 35 charter members.

• English Seed merchant, Samuel Ryder, formulated the Ryder Cup as a prize for the inaugural international competition between American and British professional golfers.

  • In 1979, the event changed completely, when players from Europe were allowed to compete for the former UK & Ireland Team.

  • It was a move that was desperately needed in order to increase the level of competition, as the U.S. won 18 straight Ryder Cups beginning in 1957.

• In 1961, the “Caucasian-only” membership clause, introduced in 1934 into the PGA bylaws, was eradicated from the PGA Constitution.

• With an increase of revenue in the late 1960s due to more TV coverage, a dispute arose between the golfers and the PGA of America on how to pay their players. The tour players wanted larger winnings (a.k.a. purses), where the PGA believed the money should go to a general fund to help grow the game at the local level.

  • In 1968, tournament players within the PGA of America form their own organization called the American Professional Golfers (APG).

• After a short negotiation process, APG became the “PGA Tour” in 1975…until they found themselves disputing over a marketing quarrel in 1981 with PGA of America where they changed their name to the TPA Tour (Tournament Players Association).

  • But don’t fret, because in 1982, they switched back to the “PGA Tour”, and have kept that branding ever since 😂.

• So what’s the difference between the separate organizations of PGA of America and the PGA Tour?

  • PGA of America: primarily an association of club professionals/instructors with control over the PGA Championship and the Ryder Cup; PGA of America is run by CEO Seth Waugh.

  • PGA Tour: meant to be an organization for professional tour golfers + they are the main organizer of pro tours such as: The Players Championship, the FedEx Cup, and the Presidents Cup; PGA Tour is run by Commissioner Jay Monahan.

How does money flow in and out of the PGA?

• Media Rights: Oh we’re talking about media rights again?! Yes, yes we are because that’s how leagues need to sell themselves to broadcasting companies.

  • In 2020, the PGA Tour struck a 9-year deal with CBS, NBC, and ESPN that started in 2022 and is set to last until 2030.

  • Although the PGA Tour won’t reveal specific financial information behind the current deal, the previous one between the PGA, CBS, and NBC was valued at ~$400M annually.

    • And it’s been rumored PGA officials negotiated an increase at ~70% for the current deal package, meaning the new cost comes in ~$700M/year.

• Tournament Sponsors: If you’ve ever been to a golf tournament or watched one on TV, you know there are sponsors everywhere! On the players’ hats, shirts, and golf bags. Sponsors are on the leaderboards, tournament names, signage around the course, etc.

  • The PGA Tour’s annual income in 2022 was $1.9B.

  • Their major sources of income are from media rights and tournament income ($425M in 2023).

    • Wrapped up in the tournament income is the title sponsorship income of the tournaments, which forms the largest chunk of the tournament revenue (higher than other sources like ticket sales, hospitality, and pro-am entry fees).

    • Title sponsors pay a sponsorship fee to the PGA Tour that's ~150% of the tournament's purse

      • For example: if the total purse for the Wells Fargo Championship was $20M, then Wells Fargo would pay the PGA Tour $30M total for sponsorship rights of the tournament + 70% of available TV advertising 🤯.

• Player Purses: What’s unique about golf (and tennis too, if we’re keeping tally), is that players earn money based on their performance following each tournament finish. PGA golfers don’t technically have a salary.

  • After the 2022-23 season (and because of the rise of LIV Golf…more on that later), PGA players are guaranteed $500K against earnings.

  • Like we said it’s not salary, it’s a base level. Exempt PGA Tour players receive $500K (rookies are allowed to collect it as a lump sum) and they only start to collect prize money when they earn more than the $500K base amount.

    • However, if they don’t collect more than $500K, they don’t have to give the money back (phew 😮‍💨).

    • Players who make the field in an event and miss the cut (chance to continue playing) will earn $5K — which helps with travel and caddie expenses.

      • Caddies are imperative to a player's success. And because of that, they are paid by the players themselves, earning roughly $1,500 to $3,000 per week and share in a percentage of the player's winnings (5-10%, depending on the finish).

  • Due to lower payouts and more PGA golfers jumping ship to their competitor, LIV Golf, the PGA Tour decided to inject $153M into player payouts for prize-money increases and the Player Impact Program (PIP). What did this do? Well, it helped increase the tournament purses.

    • For example: prior to the 2022-23 season, tournaments such as, the Players Championship, the RBC Heritage, and the Wells Fargo Championship each had purse sizes of $15M total to hand out to players. Now that number has increased to $25M each.

    • The 2024 PGA Championship even saw a rise in total prize money with $18.5M (+6% from 2023).

      • Schauffele received ~$3.3M, (+$180K from last year.

      • Bryson DeChambeau (2nd place) received ~$2M and Viktor Hovland (3rd place) received $1.3M.

      • The rest of the field will earn less than $1M. Even the last place golfer in 78th place received ~$22K.

• Equity Program: As of January, the PGA Tour finalized a deal with the Strategic Sports Group (SSG) for an immediate investment of $1.5B into a new, for-profit entity named PGA Tour Enterprises. But the big change was to include an equity program for the players (*cough cough* because of LIV Golf).

  • Equity will be based on a number of factors and players will be ranked via a specific number of “membership units,” (kind of like a stake in a company), where the value of their units will vest over time.

    • Essentially high-performing players will receive a greater stake in PGA Tour Enterprises.

  • There are 193 players on the Tour and not all of them will receive equal stakes.

    • Players are sectioned into four groups, with Group 1 seeing $750M (~80% of total) in value divvied out to 36 players. These are players who have rated well in the PIP and won many/important tournaments within the last 5 years.

    • Group 2 will consist of $75M of value issued to 64 players considered “steady performers and up-and-comers.” They will be based on FedEx Cup points earned over the last 3 years.

    • Group 3 members, a total of 57 players, will earn from a pile of $30M based on tournaments won, career money and number of times finishing in the top 125 of the FedEx Cup.

    • Finally, Group 4 members are considered “past legends,” and will see 36 players receive their share of $75M in equity based on Career Points.

Where does the PGA go from here?

• LIV breathing down their necks. Why are all these new programs and rules being instituted? It’s because of the rise in popularity from the players (not the fans) for LIV Golf. For years, players felt like they were being underpaid for their service. And LIV gets all its funding from the Saudi Public Investment Fund (PIF), which means there’s enough oil money to throw around and pry the best players away from the PGA such as: Jon Rahm (3yr, $300M), Brooks Koepka (4yr, $100M+), Bryson DeChambeau (5yr, $125M), and Phil Mickelson (4yr, $200M). All this to say, the PGA is playing catchup because they did not foresee this type of competition breathing down their, then, monopoly necks.

• PGA needs cash bad. It’s why back in June 2023, the PGA agreed to merge with LIV Golf. The problem is that the PGA Tour and PIF didn’t have an actual deal — just an agreement to eventually reach a deal, which hasn’t happened yet, and might happen in August after the Tour Championship (?). But even that is a bit shaky coming from Commissioner Monahan. In the meantime, the PGA will need to continue raising money like they did with SSG to stay competitive to ensure more top tier players don’t jump ship to LIV — you could say Monahan is on the hot seat.

• Sponsorship problems. Like we mentioned, tournament title sponsors must pay ~150% of the total prize money. And since the total prize money has increased substantially because of the influx of cash to retain top tier players, sponsors don’t want to pay these exorbitant costs when their costs were much lower just a couple years ago. We’re going to start to see sponsors such as Wells Fargo and Honda drop after their deals expire. Or we’ll see sponsors such as Royal Bank of Canada (RBC) refuse to agree on multi-year deals to ensure they’re not locked in at such a high price for an extended period of time.

• Innovation was never in the cards. Ultimately, the PGA thought they were sitting pretty. No real competition for decades, which means there was no need to innovate the way the game was played, increase wages/prize money substantially, etc. They relied on prestige and old timey tradition. Now they must innovate and change their ways fast, before it’s too late.

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Quick Hitters

• 🛑 It’s tough out there for rookies…who don’t sign the NFL Players Association’s group licensing agreement just yet? Fanatics is suing Arizona Cardinals rookie wide receiver, Marvin Harrison Jr. and his personal apparel company, the Official Harrison Collection, for breaching a contract and saying their agreement doesn’t exist. According to Fanatics, Harrison Jr. entered into an agreement, which Fanatics insists is a “binding term sheet,” in May 2023. Fanatics claims Harrison Jr. has been paid after signing the deal but has “refused to fulfill any of his [contractual] obligations.” Harrison Jr. allegedly warned Fanatics that he’s received “competing offers” from rival trading card companies and demanded Fanatics “meet or exceed” those offers. But since the rookie signed this term sheet, it makes the situation even stickier. In the meantime, if you’ve been saving up for that newly stitched red & white Harrison Jr. Cardinals jersey, you’re going to have to wait 🫣.

• 🍾 The NBA continues to show off their goods. According to a report from SponsorUnited, NBA team sponsorship revenue rose 7% to a record $1.5B during the 2023-24 season. The growth was driven by the new In-Season Tournament, the Global Games, and the emergence of rising stars.

  • Alcohol brands had the highest number of sponsorship deals for the 5th straight year with 290, and the $98M in spending was up 24% from last year.

  • With the implementation of jersey sponsor patches starting in the 2017-18 season, the Golden State Warriors recorded the richest deal with Rakuten worth ~$45M per year. Separately, the Brooklyn Nets (Webull), Los Angeles Lakers (Bibigo), and New York Knicks (Sphere) all earn between $25M and $30M for their deals.

  • Financial services brands spent the most money at $247M. Spending includes banks, mortgage, and investment firms, was down 14%, but it is still 2x more than $122M for technology.

  • For players, Gradey Dick, Jalen Brunson, Ausar Thompson, and Amen Thompson added the most endorsement deals over the past year, with each player landing at least 6 deals.