February 9, 2009

Mixed Signals

As jilted SBS knocks the LPGA's new, lucrative deal with a Korean cable TV provider, the unanswered question is: Was this a good move?

Swan song: Annika Sorenstam drew a crowd at the 2008 SBS Open, but the sponsor will not be back in 2010.

Swan song: Annika Sorenstam drew a crowd at the 2008 SBS Open, but the sponsor will not be back in 2010.

That the LPGA came into the 2009 season with only three fewer tournaments than last year was probably a small victory given the state of the global economy. Not expected was that it would lose another event last month—the Ginn Open—before it was to be played in April, a victim of the real-estate collapse that also claimed the Ginn Championship on the Champions Tour. Now, the LPGA is taking a calculated risk for the 2010 schedule by signing a lucrative new deal for the Korean television rights to LPGA events with J Golf, a subsidiary of Joongang Daily News. The new partner means severing a 15-year relationship with the Seoul Broadcasting System, and losing the SBS Open after the season-opening tournament at the Turtle Bay Resort in Hawaii.

While the matter of Korean television rights for LPGA events might seem like a minor issue, it is not. The income from those rights is the tour's largest single revenue stream. And it is safe to assume the value of the LPGA in the Korean market will only grow in direct proportion to the success of Korean players on tour. Last year, both the U.S. Women's Open (Inbee Park) and the Ricoh Women's British Open (Jiyai Shin) were won by Koreans, who now number nearly 50 on tour. That Park was only 19 years old and Shin 20 when they grabbed their titles certainly bodes well for more major victories by Koreans—and better ratings.

The contract with J Golf, which has yet to be announced by the tour or the network, but details of which were obtained by Golf World, is a multiyear deal likely worth in excess of $4 million annually, according to sources familiar with the negotiations. That is up significantly from the $2.25 million SBS says it paid to broadcast 30 events in Korea this year. Asked if his company would continue to sponsor the SBS Open when coverage moves to J Golf next year, Sang Y. Chun, president and CEO of SBS International, said: "Absolutely not."

Chun, who said he was "disappointed, upset really" at losing the contract, said his feelings were "not about the money [but] about the way we were treated." He said the LPGA never told him what figure J Golf bid and that negotiations were ended so abruptly that he was told on a Friday afternoon that his Monday morning meeting with the tour would not be necessary. Peter Smith, an agent for IMG who negotiates international TV deals for the LPGA, disputes that version of events. "The LPGA acted totally in good faith," said Smith, who added that he began contract talks with SBS in September 2007. "Any characterization by anyone of anything to the contrary is simply inaccurate and untrue."

While the LPGA declined to comment on the Korean TV contract, Smith says it would be incorrect to assume a sponsor would not be found to replace SBS. The sponsorship situation is challenging, however. The Ginn Tribute, Fields Open and SemGroup Championship folded last year with Ginn and SemGroup victims of the bad economy. Safeway pulled out of its Phoenix event, keeping its Portland, Ore., tournament, but leaving the LPGA to subsidize the Arizona stop. The ADT Championship is off the 2009 schedule as well, although the LPGA has vowed to bring it back in 2010 with a new sponsor.

McDonald's also is expected to leave, after this year's LPGA Championship (which, like the former ADT and the Solheim Cup, is owned by the tour). Contracts for about a third of the LPGA events expire this year while hefty new sanctioning fees kick in for 2010. Domestic TV deals with ESPN and Golf Channel also expire. A lawsuit settled out of court last year by ESPN against the LPGA raises questions about that relationship.

The risks for the LPGA in leaving SBS are twofold. First, SBS has a proven track record of support for the tour. Chun bought the rights to show LPGA events in Korea in 1994, before Se Ri Pak had her breakout year in 1998, for $60,000. The rights fee SBS pays has increased to $2.25 million annually. SBS opened negotiations for a new contract at $3 million a year—a 33-percent increase—and, according to Chen, indicated a willingness to go to at least $4 million, but was apparently outbid.

The second risk for the LPGA is that J Golf is a smaller operation than SBS. "They have moved Tiffany's from 57th Street in Manhattan to Flatbush Avenue in Brooklyn," Chun said. While J Golf broadcasts a variety of tours, including the men's and women's Korean tours and the men's and women's European tours, Chun said J Golf generated far less revenue in 2008 than the $26,385,000 for SBS Golf. SBS, which also has rights to the Winter and Summer Olympics and World Cup soccer, is one of the three major national networks in Korea while J Golf is a cable-only operation.

The reward for the LPGA appears to be a significant boost in cash from Korean TV beginning in 2010, a year in which shaking sponsorship dollars loose is going to be a major challenge. That makes this shift a wise—perhaps necessary—move. The question is whether the short-term gain is worth the risk. Almost from the day she took over as LPGA commissioner at the 2005 Solheim Cup, Carolyn Bivens has taken an aggressive business approach, feeling the tour is undervalued and under compensated. It's a bold approach that has had mixed results.

"You can't help thinking about the ShopRite/Ginn situation," said one member of the LPGA Tournament Owners Association, speaking on the condition of anonymity. The reference was to the ShopRite Classic, an LPGA event for 21 years that ended after 2006 in a dispute over its week on the schedule, which was given to the Ginn Tribute, which folded after two years. Another TOA member compared the switch from SBS to J Golf to the ill-fated move by the Champions Tour from ESPN to CNBC in 2002.

Clearly, David outbid Goliath. J Golf seems to have stepped up and paid dearly for the LPGA rights, gambling on increasing value for a tour on the upswing. The LPGA traded security offered by SBS for the instant cash—and potential for even more—offered by J Golf. It remains to be seen whether it was the right thing to do.