The professional golf world has been in turmoil since the Saudi Arabian backed LIV Golf Tour announced its formation and began attempting to persuade PGA Tour players to participate in its events.
The LIV Tour is financially backed by the Public Investment Fund which is the sovereign wealth fund of Saudi Arabia. LIV has offered players big signing bonuses to join its tour as well as no-cut events in which every player is guaranteed a portion of a purse that is significantly larger than most PGA events.
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| Credit: The New York Times |
The third LIV golf tour event is being played this week at the Trump National Golf Club in Bedminster, New Jersey with a purse of $25 million. $4 million goes to the winner. By contrast, the winner of the PGA Tour's Rocket Mortgage Classic in Detroit this week will receive $1.35 million of an $8.4 million purse..
LIV represents the roman numeral for the number 54, the score if every hole was birdied on an par-72 course and the number of holes to be played at LIV events (compared to 72 holes at PGA Tour events and major championships).
LIV also uses a shotgun start so all competitors are on the course at the same time and the competition also includes a team event in addition to the individual golf competition.
Greg Norman signed on as CEO and LIV made headlines earlier in the year when it signed Phil Mickelson to what was reported to be a $200 million contract to join the series.
To put that in perspective, Mickelson had won $94 million in his entire career on the PGA Tour through 2021. Tiger Woods had earned $120 million.
LIV has subsequently signed other high profile names such as Dustin Johnson, Charl Schwartzel, Sergio Garcia, Ian Poulter, Louis Oousthuizen, Lee Westwood and Graeme McDowell.
None of these names surprised me as all of these players are in their 40's except Johnson and Schwartzel who are in their late 30's. However, this group would have been the most attracted to the big money guarantees at this stage of their careers as well as the opportunity to play a more limited schedule and still see large pay days.
Brooks Koepka, Bryson DeChambeau and Patrick Reed are three names who have also joined LIV that do not fit that age profile. All would be considered to be in the prime of their careers. However, Koepka and DeChambeau have also had injuries over the last year.
Have those injuries given them some new perspective on how long their PGA Tour is going to last and it makes sense to lock in a big pay day while they can? As to Patrick Reed...he is Patrick Reed. What more can you say?
Tougher to figure out is why good, young up and coming players such as Abraham Ancer, Talor Gooch and Matthew Wolff who have a lot of golf ahead of them would make the jump.
For the most part, it is easy to understand why the players that have jumped to LIV have done so.
There is a lot of big money being thrown around by the Saudis.
$25 million. $100 million, $200 million guarantees.
Even $1-$2 million as the reported money guaranteed to last year's US Amateur champion James Piot is enough to turn your head when the alternative is having to go to the Korn Ferry Tour and try to earn your way on to the PGA Tour with no guarantees of anything but travel, hotel, food and caddie costs each week.
It is tougher for me to figure out what is the end game for the Saudis.
If they are investing a billion dollars or more in a fledging golf tour they undoubtedly expect a return on that investment.
They clearly have to expect that the PGA Tour will ultimately pay them off someway (through a legal settlement) or some type of merger will eventually occur that allows them a return on the money they are putting into this.
This has usually been the outcome when other upstart professional leagues (AFL, ABA etc) set out to compete with established pro circuits.
However, it is difficult for me to see there is enough money in the game to justify the high upfront payments that LIV is paying to players.
The PGA Tour is a lucrative enterprise. It is considered a "business league" by the Internal Revenue Service and operates as a Section 501(c)(6) non-profit.
This does not make it charitable enterprise under Section 501(c)(3) but it does not have to pay income taxes on any profits as long as it is operated to promote the interests of its members (PGA Tour members).
I have reviewed several Form 990's for the PGA Tour that it is required by the IRS to be filed each year.
It was bringing in about $1.5 billion in revenues in 2019 which is more representative than the Covid-shortened 2020 year. About a third of that was in media revenues.
It has an accumulated surplus on its balance sheet of about $1.2 billion.
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| Source: http://thf_media.s3.amazonaws.com/2022/pga_2020_990.pdf |
The majority of annual revenues ends up in the pockets on the players. Money is also spent to put on the tournaments and a host of charities are taken care of each year. Tour Commissioner Jay Monahan makes around $9 million per year.
That sounds like a lot but NFL Commissioner Roger Goodall has been pulling in around $64 million per year and MLB Commissioner Rob Manfred has an annual salary of $17.5 million.
The PGA Tour funds a pension plan for its members which I have seen some of the players refer to as the most generous in professional sports. The tax return above showed $45 million in expenses in the current year for "Player Retirement Earnings." There are $2.5 billion in assets on the balance sheet in publicly-traded and other securities that should give comfort to the members that future obligations of the PGA Tour will be met.
Unlike the NFL, MLB or NBA the PGA Tour is really run by and for the benefit of the players. There are no owners like there are in those pro leagues. Four players (Rory McIlroy, Charley Hoffman, Kevin Kisner, James Hahn) and the Director of the PGA of America are on the ten-member board and they can hire and fire Monahan or anybody else if they don't like the job they are doing for them.
One would have to argue the PGA Tour has done a very good job of that in that LIV would be willing to pay hundreds of millions of dollars to players who built their reputations playing on the PGA Tour.
As evidence of that is this chart from Golf Digest that shows the number of PGA Tour players who made at least $1 million in prize winnings has exceeded 100 for six of the last seven seasons (the only exception being the Covid-shortened year of 2020).
Yes, there was a Tiger effect. However, Tiger and the PGA Tour helped make a lot of golfers very wealthy.
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| Source: https://www.golfdigest.com/story/pga-tour-players-who-earned-1-million-in-2021-purse-increases |
The reality of all of this is that any professional league needs talented athletes. However, the athletes also need a venue to showcase their talents.
I wrote a blog post five years ago on why some songs became hits and others did not.
The biggest factors were exposure and repeated repetition.
The greatest song in the world means nothing if it is not heard a lot...and by a lot of people.
We have always heard that "content is king". Yes, you need content.
However, content means nothing without distribution.
Derek Thompson, the author of the book "Hit Makers" said it this way.
"Content may be king, but distribution is the kingdom".
Tom Cruise might be the same actor performing in a community theatre in New Jersey as he is in Top Gun.
His fame and his fortune is due to the distribution of his films.
He might be the same guy performing at the community theater but how many would see him and how many would care?
The best examples of the importance of distribution over content in recent years is looking at what happened to Bill O'Reilly and Megyn Kelly at Fox News. They both are talented and had broad audiences at FNC. Today you hear little about either as they try to maintain relevance on their own without the benefit of the FNC distribution and exposure.
The content may be the same. The distribution is no longer there.
In my opinion this is the biggest challenge that the LIV Tour and it players will face.
LIV may have guys who can play the game but it is going to be difficult to get and sustain an audience.
At a minimum, LIV needs a tv deal which it does not have right now. They then need to get people to watch it.
The reality is that the "kingdom" of golf revolves around the four major championships and the the PGA Tour. If you are not playing in these events it is going to be hard to maintain relevancy as a competitor.
The LIV players are going to be irrelevant in the golf kingdom despite the fact they are getting paid a lot money by the Kingdom of Saudi Arabia.
The LIV players could remain relevant if they can play and win (or compete strongly) in the four major championships. This would, in turn, burnish the reputation of the LIV.
However, the four majors are select events with specific qualification standards.
For example, all the 30 top players in the PGA Tour FedEx points standings for 2021 were eligible to play in the 2022 US Open, PGA and British Open.
Will the same qualification status apply for 2023?
All the majors have stated they are reviewing qualification criteria for the 2023 championships. It has been suggested that LIV players may be excluded somehow.
If I was providing advice in this regard, I would urge all of the major championships to not change anything. They would just be inviting unnecessary legal challenges.
The fact is that each of the LIV players are gradually going to descend into irrelevancy as the criteria exists today. If the players are not accumulating FedEx points on the PGA Tour and/or Official World Golf Ranking (OWGR) points for the LIV events their chances of playing in the majors is going to be diminished.
As it stands now, Talor Gooch is the only LIV player that is in the Top 30 in FedEx points for this season (Gooch is currently #18). However, in that he is not playing any more PGA Tour events this year he may not be in the Top 30 by the end of the year.
The sure way into the majors is to be in the Top 50 World Golf Rankings either for the previous or current season (top 60 for US Open, top 100 for PGA Championship). A high OWGR ranking has previously gotten you into the majors.
However, the LIV Tour events have not been deemed eligible for World Ranking points yet and that does not look like it will happen anytime soon. For one, the OWGR rules require a new tour to be in operation at least a year for its events to be sanctioned. Second, the World Rankings have required that an event be at least 72 holes to qualify and to have a cut after 36 holes. Neither is the case with LIV right now.
Therefore, LIV players are not going to accumulate any World Ranking points over the next year if the traditional rules are followed. As a result, those that are in the Top 50 now will all gradually fall out of the Top 50 and this projection suggests that none of the LIV players will be in the Top 100 by next Spring.
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| Source: https://www.golfmagic.com/liv-golf/liv-golf-projected-world-rankings-rebels-end-2022 |
LIV has applied for OWGR status but it might take a year to get that status under the best of circumstances. That means it would be another year before any of the players have significant points to get back into the Top 50, 60 or 100. At that point they will all be attempting to regain relevancy after two years away from the limelight. It will not be easy.
There is one more obvious path for some of the LIV players to get into major championship fields and that is the traditional exemption for past champions.
The Masters (age 65 and under), PGA (willing and able) and British Open (60 and under) provide an exemption for all past champions.
The U.S. Open only provides an exemption for winners from the last five years. LIV players Brooks Koepka and Bryson DeChambeau could get into the 2023 U.S. Open if the traditional rules continue to apply next year.
The past champion exemption would provide a path into The Masters for Phil Mickelson, Dustin Johnson, Sergio Garcia, Charl Schwartzel and Patrick Reed.
Would The Masters risk changing the rules to exclude these players because of LIV?
If anyone has deep pockets in the sport of golf it is The Masters.
It would make little sense in my opinion to open up the The Masters to potential legal liability unnecessarily by changing the rules to exclude the LIV players.
The same for the other majors.
My guess is that it is unlikely any of these players are going to be competitive especially due to the fact that will have not really been tested for extended periods of time in high pressure golf with premier competition.
As far as the PGA Tour goes, play on the tour can continue as the defecting (and suspended) players fade into increasing irrelevancy.
The biggest concern the PGA Tour has will be maintaining its continuing good relationships with the corporate sponsors who provide the bulk of the money to keep it all running.
FedEx, AT&T, RBC, Coca-Cola and all the corporate sponsors are the ultimate key to all of this.
If sponsors decide to start spreading their marketing dollars to include LIV, the PGA Tour is going to have problems.
However, until that happens, LIV's prospects are not good.
As for LIV's players, I hope they got the money upfront and have good investment advisors to invest the money for their futures.
Their future in golf is likely to be irrelevant going forward.
Some of these guys may have (or could have) been kings of the game.
However, the fact is that they don't rule the kingdom.
And those who control the majors and PGA Tour do right now.
Saudi Arabia and LIV want a piece of that kingdom.
LIV may get some type of monetary settlement from the PGA Tour in the end.
Perhaps a couple of LIV events will be incorporated into the PGA Tour when this is all over.
The PGA Tour may lose its tax-exempt status due to the scrutiny it will be under.
The charities that the PGA Tour supports may end up with less.
However, I will be shocked if an independent LIV Golf Tour exists in three years time.
It is also difficult to see when it is all over that professional golfers in general, the charities supported by the PGA Tour and the overall game of golf will be better.
I am not betting on LIV living long term.
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