Braced For The Storm

By Ron Sirak
Illustrations By Mary Ann Smith November 7, 2008

The Conservatory at Hammock Beach, site of last week's Ginn sur Mer Classic, is a visually stunning Tom Watson design that winds over humps and hollows, around numerous bodies of water and through a rather impressive piece of property near the Atlantic Ocean in Palm Coast, Fla. In every direction the line of sight is not intruded upon by man-made structures (except for the clubhouse), leaving only nature to please the eye. But that's not the way it was meant to be. In 2005, 337 lots at The Conservatory were sold at prices starting at $330,000, but virtually none of them are built upon, a silently shouted statement about the broader economic challenges whose shadows fall across the PGA Tour.

While veteran players at last week's tour stop admitted to the same economic jitters everyone is feeling, owned up to dismayed peeks at their Wall Street-battered deferred-income plans, and expressed concern about future endorsement deals, they also voiced confidence in their product and praised the way the PGA Tour prepared for tough times. With most tournaments under long-term contracts and a well-funded war chest in reserve if a sponsor or two goes belly-up, they believe the tour is reasonably well positioned in extremely unsettled times.

"Obviously, we have some concerns," said Brad Faxon, a former member of the tour policy board who has seen the tour grow from a purse of $21.3 million in his rookie year of 1984 to nearly $280 million this year. "We have a lot of corporate partners who are in financial services, cars, real estate, and those are tough businesses right now. We are not going to go unscathed."

In fact, the PGA Tour has a dozen title sponsors in the banking/financial services areas and another half-dozen from the auto industry. But except for three "opposite" events held the same week as more prominent tournaments next year, all current tour sponsor agreements run through 2010, more than half through 2012, several through 2014 and one through 2016.

"We are well positioned," says Faxon. "We have contracts, and we have a strong product." The tour also has another secret weapon -- cash in reserve for potential emergencies. "We are constructed to weather a crisis," said Davis Love III, another former policy-board member. "[Commissioner Tim Finchem] always said we had to have a war chest for disasters. If one or two events run into trouble, we have the money. I think Tim has been underappreciated. We will ride out the storm. If we don't take a pay cut in the next year or two, it will be a miracle -- and I don't think we will."

For years Finchem argued that not every dollar should go into purses. "Tim's done a fantastic job," said Chris DiMarco. "We don't have to play for $8 million every week." For the tour, the area of greatest vulnerability next year is the sale of corporate hospitality tents and pro-am spots. Players, on the other hand, will feel the pinch in endorsement contracts and -- at least in the short term -- in their deferred income plans.

Rocky Hambric, an agent whose clients include 1997 British Open champ Justin Leonard, says some equipment companies are cutting back as much as 25 percent in deals involving non-superstars, but predicts the big names will still draw top dollar.

"In the corporate world [beyond golf manufacturers] we have seen some reluctance, but not as much as I expected," said Hambric. "The companies who have been long-term supporters of deals with individuals don't seem to be abandoning that philosophy."

In addition to the title sponsors and television money -- CBS and NBC are signed through 2012 and Golf Channel through 2021 -- significant revenue streams are generated through corporate hospitality. That revenue is far from guaranteed.

At the Honda Classic, for example, a 1,410-square-foot chalet on the 18th hole sells for $45,500 and a 940-square-foot one fetches $34,500. A foursome in the Wednesday pro-am goes for $28,000 -- $7,000 per player. Some of these deals are locked in for next year, but some are not.

"Many of our sponsorship agreements were multiyear and [run] through the 2009 event," said Greg McLaughlin, tournament director of the AT&T National at Congressional CC, which has the advantage of having Tiger Woods as its host.

"The agreements up for renewal have been mixed," said McLaughlin. "Several corporations have committed to 2009, and others have requested to wait until after the new year to let us know. It's too early to say how the charitable contributions will be impacted, but we anticipate a similar donation to charity in 2009 [as in '08]."

Like anyone with a 401(k) retirement plan, PGA Tour players -- who have lucrative deferred-income packages -- have gotten hurt. "It's the talk of what's going on," explained Faxon. "Some guys have lost 30 to 40 percent, depending on how aggressively they invested."