by On Wednesday, the PGA Tour announced a multi-billion dollar investment deal with the Strategic Sports Group (SSG). SSG is a consortium of high-profile investors with extensive experience in capital markets and the sports industry. SSG is led by Fenway Sports Group, a Boston-based holding company.
The announced deal, which includes an initial investment of $1.5B and up to a $3B total future investment, provides the Tour with financial security as it navigates its ongoing negotiation/battle with LIV Golf and the PIF. The deal includes the launch of PGA Tour Enterprises, a new for-profit entity in which SSG will be a minority investor.
Initial reports of the deal, unanimously approved by PGA Tour Player Directors, provide some answers to questions around the future of the PGA Tour. However, some questions remain.
How will this change the structure of the Tour?
So far, we know a few things about PGA Tour Enterprises. It will be organized as a for-profit company and will provide PGA Tour members the opportunity to become direct equity holders in the company. The introduction of a for-profit entity represents a significant shift for the PGA Tour, an organization with a longstanding commitment to maximizing playing opportunities for its membership as opposed to aggressively pursuing profitability. Despite the for-profit designation of PGA Tour Enterprises, the PGA Tour itself will continue to operate as a 501(c)(6) non-profit.
We also know that SSG consented to a future investment from the PIF, subject to regulatory approval. More on that below. –Joseph LaMagna
Who’s going to be in charge?
- Seven PGA Tour players, six of whom are policy board directors
- One additional director from the PGA Tour Policy Board
- Four members of SSG leadership: John Henry, Andy Cohen, Sam Kennedy, and Arthur Blank
- Jay Monahan
Notably, Jay Monahan will remain commissioner of the PGA Tour and will serve as CEO of PGA Tour Enterprises. To date, his commissionership has been devoid of product innovation and full of conflicting and hypocritical comments. Over the past couple years, Monahan has been repeatedly absent despite serving in a public-facing role in which communication is essential to the success and perception of the organization. Is it reasonable to question if Monahan is the best person to serve as CEO of the new entity? Absolutely.
Is it also reasonable to raise an eyebrow that Fenway Sports Group, where Monahan previously served as executive vice president before joining the PGA Tour, is leading SSG and vouching for Monahan as CEO of the new enterprise? Absolutely. On one hand, that’s just business. Monahan has an established relationship with Fenway Sports Group and must have earned the confidence of the other investors in the group. On the other hand, Monahan hasn’t done much over the past couple years that inspires much confidence in his ability to lead the PGA Tour, yet he remains in power. Is he the right person for the job? Are…are you sure? –JL
How will the Strategic Sports Group generate a return on its investment?
This is probably the most compelling, open-ended question coming out of the announcement. The Strategic Sports Group’s investment values PGA Tour Enterprises at $12B. The investment is not a donation; SSG expects to make a return on its money. How is that going to be accomplished? How is PGA Tour Enterprises going to spend the billions of dollars infused into the company? What cost-cutting measures will be introduced to trim the fat on the PGA Tour and steer the organization towards maximizing profitability?
I can envision a couple different ways in which the SSG investment could be spent. First and perhaps foremost, the PGA Tour does not own the most valuable assets in the golf world, like the Ryder Cup. The Ryder Cup is owned and operated by the PGA of America and Ryder Cup Europe, a group made up of the European Tour Group, the PGA of Great Britain and Ireland, and the Confederation of Professional Golf. With a couple billion dollars in the bank, might PGA Tour Enterprises look to pursue a deal with current Ryder Cup ownership to take over one of golf’s most prized assets? At least in theory, that seems like a potential candidate for spending the money.
The other use that immediately comes to mind would be deploying some of the cash to build or acquire stadium-like venues to host PGA Tour events. When the Tour does not own and operate a tournament venue, it must constantly manage and negotiate relationships with host venues. The recently-destroyed Dell Match Play, hosted annually at Austin Country Club, is a prime example of the challenges involved in hosting tournaments at spaces owned by external entities.
From all reports, the Dell Match Play was a successful, profitable tournament. Nonetheless, negotiations between Dell, the membership of Austin Country Club, and the PGA Tour fell apart last year, leading to the termination of one of the most compelling events on the PGA Tour schedule. Perhaps the tournament could have persisted if negotiations had gone differently, but it doesn’t change the fact that as long as a potential host venue belongs to an entity outside the PGA Tour, the Tour must always navigate competing interests and priorities outside of its control. When tournaments are hosted at venues within the TPC Network, which is owned by the PGA Tour, it removes some of the operational headaches with which the Tour must contend. I could see some of the $1.5B+ investment being used to construct or acquire existing facilities optimized for hosting PGA Tour events.
In terms of cost-cutting measures, you can bet that SSG will thoroughly examine the PGA Tour’s operations and identify areas to reduce costs. Could the PGA Tour operate with fewer employees? Is it within the Tour’s best interest to continue operating the Champions Tour? Costs are going to be scrutinized, and a private-equity minded ownership group is not going to sacrifice profitability in the name of maximizing playing opportunities.
Finally, the path to generating a return must include improving the PGA Tour product. Both the format of PGA Tour golf and its presentation are in dire need of reform, and a cash infusion can facilitate product innovation.
What does an improved version of the product look like? Well, the two following objectives must be met. The Tour needs to 1) solve its comparability problem and 2) create a special season-ending championship.
Currently, it is very difficult for fans to evaluate who the best player on the PGA Tour is. What should they look at? The FedEx Cup standings do not paint a precise picture of who is having the best season because golfers have not played in the same tournaments or even the same number of tournaments. Chris Kirk earned 753 FedEx Cup points this season before Rory McIlroy hit his first shot on the PGA Tour. Without a clear, digestible points system that allows fans to see who is playing the best, you don’t have a cohesive league. You just have a collection of tournaments.
In order to create a special season-ending championship, the Tour Championship needs to be destroyed, at least in its current form. The Tour Championship must identify a worthy season-ending champion, and the current field size of 30 players is far too many. Thirty players per year do not deserve to compete for that crown. The field size should be reduced to 8-12 players, and the format should be altered to maximize competition and excitement. Match play is the natural solution.
With a special season-ending championship, top players would be incentivized to show up to the top events or they would risk failing to qualify for the special season-ending championship. Finally, after years of half-heartedly tuning into an awful format, fans would be excited to turn on a fresh, competitive format featuring the top handful of players in the world.
If executed properly, that’s what the best version of the product looks like. -JL
How will equity stakes be distributed to players?
To be determined! According to the Tour’s press release, nearly 200 current PGA Tour members will be able to participate in the equity program, and the company is considering granting equity to future members as well. Per the press release, the grants vest over time and “will be based on career accomplishments, recent achievements, future participation and services and PGA Tour membership status.” All of that sounds great, but it leaves some questions unanswered.
What formula will be used to evaluate career achievements? What does the vesting schedule look like? How do you determine how much equity to allocate to each current PGA Tour member? How do you determine how much equity to reserve for future generations of players? Is the equity compensation going to be significant enough to dissuade PGA Tour members from taking significant guaranteed money from LIV?
I’m confident SSG has thought through the answers to those questions. The investors are highly experienced in both capital markets and the sports industry. But the answers to those questions are important and will be crucial to attracting and retaining talent on the PGA Tour, especially as long as LIV is a competitor that’s committed to luring talent away from the PGA Tour with large guaranteed payouts. –JL
What does this mean for the PIF deal?
Any PGA Tour/PIF deal does not seem close to completion. In a meeting with PGA Tour staff on Wednesday, Commissioner Jay Monahan said the deal was far off, and that this SSG deal was not contingent upon getting something done with their rival-turned-potential partner. Yasir Al-Rumayyan’s comments on the potential for a deal in the wake of the SSG news were similarly noncommittal. PGA Tour Policy Board members Adam Scott, Peter Malnati, Webb Simpson, and Jordan Spieth all appeared on various public platforms discussing the deal. They offered a common refrain, verging on talking points, describing a general interest in doing something but no sense of urgency with which to do it.
“I don’t think that it’s needed,” Spieth said. “I think the positive would be a unification, but I think that, like I mentioned before, I just think it’s something that is almost not even worth talking about right this second given how timely everything would be to try to get it figured out.” Not the words of a desperate man.
Speaking on a podcast, Simpson said, “[PIF] are working alongside SSG, and us, trying to come to a good starting point of negotiating the deal.” Almost eight months after the Framework Agreement was trumpeted and they’re just now at a starting point! “We felt maybe six months ago you could entertain both investors at the same time but we realized it would be really tough so we focused on SSG and we wanted to get that done.”
Additional Spieth comments seem to set a pretty hard line about that starting point. “I think from where I sit, which is hopefully representing our entire membership, it matters how they feel about the entire situation. And then, you know, at this point if the PIF were interested in coming in on terms that our members like and/or the economic terms are at or not beyond SSGs and they feel it would be a good idea, I think that’s where the discussions will start.”
That’s not to say a deal is dead. But the SSG arrangement was clearly a priority. Having that private equity funding secured first also probably helps with DOJ scrutiny if or when foreign investment from the PIF (or elsewhere) comes into the picture.
Despite public statements that leave the door open for a PIF deal, it certainly doesn’t feel like a foregone conclusion at this point. That’s surprising on a few levels. Forgoing that route would, in Jay Monahan’s phrasing, keep an extremely well-funded (and likely incensed) competitor “on the board.” One would presume the powerful individuals investing via SSG would prefer that everyone come back under the same tent so that they don’t have to defend themselves against virtually bottomless pockets going forward. But there are hard feelings yet to dissipate, and tough compromises yet to be made. Bottom line: unlike what many assumed, the SSG partnership seemingly does not guarantee a PIF deal is coming any time soon. –Brendan Porath
This piece originally appeared in the Fried Egg Golf newsletter. Subscribe for free and receive golf news and insight every Monday, Wednesday, and Friday.
