Money

How the PGA Tour’s new billion-dollar equity plan could help prevent player defections

February 27, 2024
a golf ball made of money sitting on nice green grass.  great business picture

It's no surprise that the PGA Tour’s recent deal with the Strategic Sports Group (SSG) could serve as a calculated hedge against a continued spending war with LIV Golf and the Saudi Public Investment Fund. SSG is infusing billions into the new for-profit entity with the goal of making the PGA Tour bigger and more profitable—and cutting players in on some of that potential profit up-front.

However, how does that investment really work for the players—who stand to collect more than $1.5 billion in equity—in the near and long-term? According to experts in venture capital and sports entrepreneurship, the playbook appears to look a lot more like Silicon Valley than Pine Valley.

The new entity—PGA Tour Enterprises—built an equity distribution plan that looks similar to something tech companies use to protect themselves from losing their most valuable contributors to deep-pocketed competitors. "The whole idea behind restricted stock units [RSUs] is to motivate employees to stay and create more value for the business," says Matt Erley, who before founding golf start-up fund Old Tom Ventures was the head of growth at beverage-delivery startup Drizly when it was acquired by Uber. "You're acting like an owner."

In broad terms, RSUs work in two phases: how they're allocated and triggered, and how and when they vest. At a tech start-up backed by a venture capital firm, the leadership team will usually assign a certain amount of equity to be distributed each year to contributors for a variety of reasons—from simply being a member of the team to achieving a performance milestone. The rules about how and when contributors get access to the equity they've been awarded are set with strategic goals in mind.

Confirmed details about the PGA Tour's new equity plan are still murky, but we know there will be four broad categories of players earning equity stakes in this initial round: A handful of superstars like Tiger Woods will share $750 million. A second group of 64 players will share $75 million based on their past three years of performance. The third group—mostly the remaining fully-exempt current players—will share $30 million, and a group of 36 designated "founding" players will share $75 million for their historical contributions. Another $600 million will be distributed in the future through recurring grants based on factors like on-course performance and Player Impact Program finish.

The equity distribution plan looks similar to one tech companies use to protect themselves from losing their most valuable contributors to deep-pocketed competitors.

"When these plans come together smoothly, it's because all of the people in the room establishing the equity terms have the same context and metrics, and they value the same things," says Tim Marken, a consultant and growth strategist who has worked with dozens of tech, media and sports companies. "They're saying, ‘This is where we want it to go, these are the people to get us there, and this is how we measure.’ They can look at it and say, 'It costs us X to do this now, but the value this brings is Y over time.’"

Building in recurring distributions incentivizes players to remain loyal to the PGA Tour and to keep trying to move up the ladder, and offering stakes to retired heroes helps gain buy-in for the plan and avoid bruising public-relations troubles. "You usually get issues when somebody wants to be cheap," Marken says. "Somebody wants to argue that somebody didn't contribute enough to deserve a share or something like that. Look at the black eye the NFL deals with because of how it has nickel-and-dimed players from earlier generations over health care and pensions. With this deal, the PGA Tour can get the legends on board and out in front."

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Previously, the PGA Tour's only enticement for a college star-in-waiting like Ludvig Aberg was to offer a quicker path to exempt status through college performance. Now, the new entity, PGA Tour Enterprises, could offer share units as a "sign-on bonus."

Alex Slitz

Equity can also be another lever in the recruitment of new players—something the PGA Tour never had to do before LIV. Previously, the PGA Tour's only enticement for a college star-in-waiting like Ludvig Aberg was to offer a quicker path to exempt status through college performance. Now, the new entity could offer share units as a sign-on bonus in the same way a tech company entices a talented software engineer from a competitor with a stock "signing bonus"—or LIV gives in the form of cash to someone like college All-American Eugenio Lopez Chacarra.

Of course, getting awarded those RSUs is just the first step in the dance. How those awards can turn from theoretical into real cash depends on a host of factors that can change from player to player, situation to situation and year to year. Certain players given larger equity stakes might have longer vesting periods for those shares or have personal or overall PGA Tour performance benchmarks that trigger an allocation of even more shares. The shares could have restrictions that prevent an active player from selling them, or even be linked to a player's retirement account and available only after an age threshold. All those details are new tools the new entity can use to keep talent and promote growth.

Even though the new PGA Tour entity shares aren't traded on any public market, there stands to be robust interest for any that do come up for sale. "It's a hot deal, and one that's hard to get a piece of," says Evan Roosevelt, Erley’s partner at Old Tom Ventures and a veteran early-stage growth strategist. "I think that question of liquidity is one that was very well thought out in the room, and there's a very sophisticated approach to creating a valuation benchmark for the PGA Tour. There's always going to be an opportunity to sell on the private market."

'This is an investment, and for the investment to work out, the pie has to grow.'
Matt Erley, Old Tom Ventures

Facilitating a liquidity event like a player selling his shares isn't the only feature of the new corporate arrangement. The PGA Tour's new format also leaves room for the PIF to buy a chunk of the deal and join SSG at the table—and bring with it its virtually unlimited resources.

Still, as important as all the dollars—and the deal minutiae surrounding the equity shares—are to the players, the real stakes come with how the increased investment translates into a bigger, more popular sport. "The bottom line is that this is an investment, and for the investment to work out, the pie has to grow," Erley says. "For that pie to grow, that means more fans have to be engaged. There needs to be higher TV viewership numbers, more sponsor dollars put into the league and more innovation. These deals put the pressure on for those things to happen. I think that's a good thing for the sport, and for the people who enjoy it."

What if the pie doesn't grow? The players who earned shares won’t be completely out of luck like they would be if the distribution was in the form of stock options—which could be worthless if the options are impossible to exercise. However, there undoubtedly would be pressure to make changes to the structure—or to the management team—to recover that lost theoretical value. In the real world, that’s when takeover talk starts to happen.