What Other Bloggers are Saying: Part 2

This week, two posts piqued serious interest, both of which are shared, with discussion, below. On Mr Business Golf, Scot Duke, laid out the various problems facing the game of golf. His discussion was thorough, but lacking answers to the questions he posed. In an attempt to expand the discussion and offer a few solutions to topics he brought up (and some he did not), I responded with some viable options, but also with other questions. Many of the issues brought up created paradoxically aligned stances of the status of the game. I hope for the sake of quality discussion that I hear more from Mr Business Golf on the matter. Next, on In Between 18, which I found for the first time this week, Mr. Goodman responded to the criticism that Northern Trust, a financial institution that received TARP money (parodied bottom left) from the US Government, received after hosting their annual PGA Tournament at Riviera Country Club (pictured right). I took the opportunity to rant and rave here, not at the author at all, but at the critics. The topic has been hitting a nerve, and I welcomed the open door Mr. Goldman provided to publish my thoughts.

“Issues Hurting Golf”
Comment

Given the invitation, here are a few solutions and a few rebuttals to the discussion of what ails the game of golf. Business golfers, yes, “drive the cart” for the industry. Always have; always will. The industry over-invested in “the ‘C Suite’ executives who carry the Corporate Checkbook on the corporate jet,” creating too many ultra-luxurious golf getaways for only those that can pay top dollar. Corporate retreats and outings to golf courses fall under this category as well. What affects those executives right now is not what generally affects the everyday golfer, but a fear of being labeled frivolous. This is only a cyclical issue; as soon as the economy rights itself and TARPees repay the Government, no one will even notice such trips. As for these same corporations, like Northern Trust, getting smashed for sponsoring a golf tournament, once again, corporate image is the culprit. The media is quick to jump to conclusions without understanding the need for such a company to generate exposure and quality advertising outlets through the PGA tour and its attendees. These things, like the others, will pass as the country rights itself. As for the issues affecting the non-Business Golfers, the industry needs to adjust.

Too slow, too costly, too hard, and not worth it; these are the arguments, right? In response to the pace of play issue, especially concerning the assertion that “greed and bad management of golf course operations” contributing to the problem, two opposing issues emerge. First, if the course plays slowly because the management stacks fivesomes every eight minutes apart, does that mean bad things for the game? It sounds like too many people want to be out on those courses. Economically, the management could earn the same amount per group by limiting to foursomes only, spacing them out every twelve minutes and charging 20-25% more per round. The courses that have “bad management” are clearly the ones that employ the low-cost, high volume approach to profit. Here is the conflict: does golf want more people on the course and slower rounds for low prices, or fewer people on the course and faster rounds for higher prices? The everyday golfer needs to understand this trade-off between courses, as they are clearly diversified to target each golfer’s needs. Either pay more, or stop complaining about the 6 hour round. Until golfers are attracted to Executive courses, where one can play shorter, but sometimes challenging holes and half the price for half as long, they will still face this dilemma.

Thank you for the post, but I really would like to hear your solutions.

“Noble and Perhaps Unnecessary”
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The incident you bring up is utterly appalling. Arguably, Northern Trust did not even need the TARP money they received, and probably would be better off now without it. You are right, Northern Trust has nothing to be ashamed of except poor timing,” the media and critics within the Government should be ashamed for their lack of understanding of simple business practices. If one does not even take into account the penalties and broken relationships the bank would have suffered from pulling out of their sponsorship deal with the PGA Tour, the reasoning for keeping the tournament should still be crystal clear. A company like Northern Trust, that derives a large amount of its revenues from everyday individuals, like those that attend and watch golf tournaments on TV, needs to advertise. Truthfully, commercial banks offer nearly identical products. People choose one over another on perception and location. Northern Trust sponsors this golf tournament to reach people and build their business. Furthermore, it would have been a really bad signal to investors about the status of their business had they pulled out.

Additionally, any PGA tournament also boosts the economy of the area in which it is located. Whether fans are traveling to area and staying in local hotels to see Phil Mickelson play or just buying a few beers on the course, golf tournaments bring large revenues. By hosting their tournament, Northern Trust provided jobs to servers, parking attendants, coordinators, are all the other people involved in the production. Does the media understand this when the criticize Northern Trust for wasting taxpayer money on frivolity.

Golf vs. Recession: An Unlikely Leader

One would think that golf, like most discretionary income-based activities, is struggling to maintain its financial status in a downtrodden economy. One would think, right? Though decreased consumer spending has (somewhat) hurt the retail side of the game, the overall impact has been less significant than many, including myself, expected.

Before this discussion makes any sense, I must first define what factors contribute to making a fair assessment of the status of the sport. The golf industry, by revenue drivers, consists of green fees, equipment sales, instruction, membership fees, and on-course food and beverage. An assessment of this industry will yield a fair evaluation of how golf courses and country clubs are performing in our economy, but I believe more factors matter. What about the professional tours? Television viewership of the major tournaments gives us a key indicator of the game’s popularity. Furthermore, statistics such as total number of rounds played, total number of participants, and average green fee measure popularity and industry revenue growth. And what about the foundations, like the USGA, that exist solely to building the game, and corporate sponsors that make the regional professional tournaments possible? Each of these aspects of the sport contributes to the game of golf; and each has fared differently through our country’s financial troubles.

Surprisingly, through 2008, total revenues to golf courses and country clubs have only dropped 0.7% compared to 2007 revenues. When compared to other consumer spending based businesses, like travel, retail, and lodging, of which many have seen revenues decline 5% or more, the golf industry is getting along just fine. Furthermore, based on the data compiled by PerformanceTrack (click on Jan 2009 report), last year’s total number or rounds played only dropped 0.8% compare to 2007. If you compare that with the decrease in number of days the courses were open due to playable weather, which went down 0.7%, the number of rounds played in 2008, during a recession, held constant. This report, which only looks at golf fees, merchandise, and food, indicates an increase in total revenues compared to last year. Convincing evidence if you ask me, but we must consider more.

Has the game become less popular to watch as Americans face more and more financial troubles? If one looks to recent TV ratings, one would definitely think the game has a problem. But, we can not make that assessment without a key factor to the game of golf: Tiger Woods. Since June 2008, when he won the US Open in historic fashion (see picture below), Tiger has not played in a single golf tournament. Unfortunately, one can directly correlate TV viewership to whether or not Tiger is playing in the tournament and if he is in contention to win or not. (See graph; Tiger joined Tour in 1997 and won this tournament in 2000, 2002, and 2008). The 2008 PGA Tour Championship, the next major tournament played in America, was watched by 55% less people than the previous year’s event (which Tiger won). Less people watching a tournament does not necessarily man less people playing the game, but it does have implications for corporate sponsors.

Two such sponsors have filled recent headlines. First, Travelers, a large American based insurance company, just renewed their contract to continue hosting the Travelers Championship in Hartford, CT. This news came as a big relief to the PGA Tour, which was uncertain whether a company so closely tied to the financial meltdown would still be able to support the tour, and Hartford economy for that matter. On the other hand, Ginn Resorts announced in January of this year that they are pulling their sponsorship deals with the LPGA Tour’s Ginn Open and the Champions Tour Ginn Championship, which will likely kill the two tournaments. Both companies are facing challenging environments, as the insurance companies were hit by loses in the credit default swap markets and resort hotels, like those operated by Ginn, do not have the same traffic as before. So far, the PGA Tour has yet to lose any sponsors, despite challenging circumstances and lost viewers in the absence of Tiger Woods. Though the loss of sponsors hurts the smaller tours, and in turn the local communities that the events support, the overall impact on the game is less significant.

Did you know that the USGA posts its annual income on the Internet? I didn’t, but it turns out the data (select Financial Summary link) is promising. Last year, their revenues increased by almost 14%, and amount of money received from sponsors increased 113%! So, even though the PGA Tour is uncertain about continuing contracts, the USGA, which operates the US Open and many charitable organizations, should be pleased with their prospects.

Frankly, I’m impressed by how well the revenue side of the game, the side that is so closely tied to consumer spending, has endured this recession. I believe that the game underwent a decline after the Tiger boom of 1997-2002, when the number of total golfers jumped nearly 20% in just a few years. Much like the resurgence of the game after Bobby Jones in the 1920s, and exciting years the 1970s when Arnold Palmer, Jack Nicklaus, and Gary Player duked it out for top billings, the game had to steady itself after Tiger. I will go into the details of this transformation later on the 6º Driver, because it interests me very much, but for now, and by now I mean 2008 compared to 2007, the game of golf remains resilient. The data shows that people are still hitting the links, and I find that comforting. And, with talk of Tiger returning any week (link), TV ratings will go up. Corporate sponsors will be reassured that they can receive large advertising audiences with a healthy Tiger Woods. I know I’ll be watching.