Tour treading water worried about economy

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PGA Tour (75x100)In just six years, the Wachovia Championship established itself as one of the premier events on the PGA Tour.
 
It featured one of the best golf courses in Quail Hollow, which attracted Tiger Woods, Phil Mickelson and a host of other world-class players. The gallery was among the largest on Tour. Tournament officials couldnt print tickets fast enough.
 
For now, its a good thing they didnt print any at all.
 
The tournament that seemed to have it all, suddenly had no title sponsor.
 
The staff came to work Sept. 29 only to learn that bidding was under way between Citigroup and Wells Fargo to acquire the banking operations of Charlotte, N.C.-based Wachovia, which earlier this year signed a contract extension with the PGA Tour through 2014.
 
On Friday, federal antitrust regulators cleared Wells Fargos $11.7 billion acquisition of Wachovia Corp., capping a weeklong battle for the bank.
 
Tickets were within five days of being printed when we stopped the presses, tournament director Kym Hougham said.
 
It was a troubling development for a sport that relies heavily on corporate support, with 11 title sponsors and three presenting sponsors coming from the financial services industry, each paying anywhere from $6 million to $12 million a year.
 
The Charlotte tournament expects to continue, with the contract assumed by Wells Fargo. In a similar case this year, Hewlett-Packard acquired Electronic Data Systems and took over title sponsorship of the Byron Nelson Championship in Dallas.
 
We know the tournament will happen, Hougham said. Well still sell out the tournament, but it may be later than normal.
 
Likewise, golf might be off the hook in the short term. All of its tournaments have sponsorship deals through 2010, with some of the deals through 2012 and others, like Wachovia, signed through 2014.
 
Its the long term that concerns PGA Tour commissioner Tim Finchem.
 
We have a lot of customers and sponsors in economic sectors that are impacted negatively by the volatility in the economy, Finchem said. Thus far, we have not suffered any major damage. But clearly, if the instability were to continue for a sustained period of time, we will have real challenges.
 
Some tournaments already are feeling the effects of an economic downturn in the second tier of sponsorships.
 
The 2009 season starts in Hawaii with the Mercedes-Benz Championship at Kapalua, where tournament host Gary Planos said costs are up, revenue is flat and sponsorship sales have been weak. Then its off to Honolulu for the Sony Open, which already is feeling the pinch.
 
We had six to eight sponsors that went away abruptly, some who had been with us for years, tournament director Ray Stosik said. We thought they would continue, but the economy forced them to make drastic changes.
 
The Arnold Palmer Invitational at the end of March, which has MasterCard as a presenting sponsor through 2012, has three associate sponsors. One of them, which tournament director Scott Wellington declined to identify, had to pull out.
 
I firmly believe well come out of it, Wellington said. But well take a hit next year.
 
Then there are sports agents, who usually spend October and November trying to find new endorsement deals for their players or renewing the ones they have. In many cases, they are told to call back later.
 
This year feels a little like it did right after 9-11, said Rocky Hambric of Dallas-based Hambric Sports Management. Its not so much, Were not interested. Its more like, We dont really want to do anything right now. Deals weve been working on for six months that we thought wed be agreeing to in October, they want to see where the bottom is before they decide.
 
The future is even more muddled on the LPGA.
 
Two tournaments already were gone before the Wall Street meltdown ' the Fields Open in Hawaii and the Ginn Tribute in South Carolina, a sponsorship that leaned heavily on real estate. Ginn consolidated its two LPGA events to one outside Orlando, Fla.
 
SemGroup sponsored an event in Tulsa, Okla., but it filed for bankruptcy in the spring. Safeway, which sponsored tournaments in Phoenix and Portland, Ore., also consolidated and now has only the Portland event. The LPGA, which doesnt nearly have the financial strength of the PGA Tour, said it might have to run a Phoenix event with its own money.
 
About one-third of the LPGA sponsorship deals are up for renewal this year.
 
We are reasonably confident in next years schedule being similar to this years schedule in number of events and level of prize money, said Chris Higgs, senior vice president of tournament business affairs. Theres still a couple of things to be concluded.
 
Kapalua, the only resort to host the PGA Tour and LPGA, has no title sponsor its first year with the LPGA.
 
Its difficult right now, Planos, the tournament host, said. Its been difficult all year. We looked quite a bit, but the right partnership hasnt come about. Well sponsor it ourselves, showing the beauty of Kapalua. The best way of selling it is to show how well we run it.
 
Finchem said about 15 tournaments have sponsorship deals that expire next year. One of them is the Deutsche Bank Championship, one of the playoff events for the FedEx Cup. Even before the credit crisis, trouble was looming, and it was clear the tour caught a break with the structure of its contracts.
 
The good news is, the deals for four- to six-years are signed, said Seth Waugh, CEO of Deutsche Bank Americas. Im a little more optimistic that well get through this. But if the contracts were not signed, youd lose a lot of folks.
 
Finchem is equally optimistic that were going to dodge major bullets.
 
His tenure has been blessed by good timing. The first big TV contract was negotiated after 21-year-old Tiger Woods won the Masters. The second was finished in the summer of 2001, two months before the Sept. 11 terrorist attacks. Purses continued to rise with the creation of the FedEx Cup, which pays a $35 million bonus pool each year.
 
For now, trouble is in an area not so obvious to the casual observer.
 
Were getting pecked by lots of little things, as we always are in a recession, Finchem said. If this thing goes all the way through 09, and we start losing sponsors, it might be different.
 
Turnover in sponsorship is nothing new on the PGA Tour. Five years ago, a dozen tournaments had different title sponsors. Neal Pilson, a TV consultant and former president of CBS Sports, once said the health of the tour is best defined by the waiting list of title sponsors.
 
Its a short list at best right now.
 
The Tour could not find a replacement sponsor for the tournament in Atlanta, which lost its spot on the spring schedule to the Valero Texas Open next year. Tampa Bay was on the verge of going away until Transitions Optical stepped in.
 
Through it all, golf was without its biggest star for all but about three months. Woods had surgery on his knee twice this year, the last one after winning the U.S. Open in June. Even Woods doesnt know when he can return in 2009.
 
Him not playing and the economy taking a downturn, its a punch in the gut, said Greg McLaughlin, who runs the AT&T National and the unofficial Chevron World Challenge, both hosted by Woods.
 
For now, the real victim could be charity.
 
PGA Tour events crossed the $1 billion mark two years ago in charitable giving, its hallmark. How much a tournament raises for local charities depends largely on the secondary tiers of sponsorship ' sky boxes, corporate packages, pro-ams.
 
When you look at it, the appearance that all these events have title sponsors is accurate, McLaughlin said. Look underneath the covers and find out about secondary sponsors.
 
The Shell Houston Open not only is starting its renewal contracts with such sponsors, but officials are still recovering from Hurricane Ike. It has solid title sponsorship, but tournament director Steve Timms said every tournaments biggest concern is corporate hospitality. In tough economic times, discretionary money is the first to go.
 
The psychology of this thing is that even if business is doing OK, you should go ahead and cut back, Timms said. Weve just completed our budget process. Well keep it even with 08 numbers. Well be pleased if we get that, and that may be aggressive.
 
Prize money comes primarily from title sponsorship and TV contracts. The only sting players might feel ' particularly those outside of the top 50 ' are personal endorsements. Hambric said he was thrilled to get Justin Leonards deal with Nike renewed in August.
 
But he worries about the long term, like everyone else.
 
If we went into something like a depression, sports marketing is not going to be the last thing to go, Hambric said. For a lot of companies, it might be the first thing to go ' and the last thing to come back.