Last week's Bob Hope Classic on the PGA Tour is a shining example of the problem that the Tour faces in this economy. Chrysler, which was listed as the title sponsor of the event just weeks ago, asked tournament organizers to remove their name from the title of the event. Chrysler still paid title sponsor fees as part of its contract with the PGA Tour, but had a very low key presence at the event. There were fewer Chrysler vehicles at the event and none of the Chrysler executives were present on site. Even that annoying interview that is normally conducted with a sponsor executive at the last hole did not happen. Chrysler made a concerted effort to be neither seen nor heard in the California desert.
Reports have come out since that say that tournament organizers expect that Chrysler will again sponsor the Hope in 2010. Its understated presence this year, though, seems to suggest that Chrysler will try to quietly bail out of its contractual obligations. European automaker Fiat was sold a one-third stake in Chrysler during tournament week, which means Cerebus Capital will have to answer to another partner that is keeping it afloat.
Chrysler also has to answer to the American public. Chrysler and GM are recipient of bridge loans from the taxpayer, vis-à-vis the federal government. You and I have a vested stake in the success or failure of these two automakers. Never mind the impact on the job market if these companies fail. You and I are investors in the American auto industry.
We are also investors in the financial sector that grew so out of control and over-leveraged that they ruined our housing market, credit system, and faith in free market capitalism. The federal government has used its TARP program and the unlimited balance sheet of the Federal Reserve to make trillions of dollars of investments into our financial companies.
Many of these companies that have received funds are sponsors of PGA Tour tournaments. The PGA Tour schedule is littered with title sponsors that are in industries receiving investments of our money and backed by our goodwill. Citigroup, heavily involved in golf sponsorships, was rightly criticized this week for purportedly awaiting delivery of a $50 million private jet while simultaneously accepting billions of dollars from the federal government. Public pressure and outrage from those reports forced Citigroup to cancel the order.
While PGA Tour sponsorship is not a $50 million proposition, it is a multi-million dollar proposition. That is the kind of expenditure that draws a critical eye if exposed to the public. The executives at General Motors arrived to Washington for their second begging session with Congress by car and commercial jetliner instead of private jet because of perception. The perception that companies which are receiving federal government loans and equity could somehow invest in a fat cat sport like golf will be damaging. The clamors for change will come full throttle as the economy worsens seemingly by the day.
A good percentage of the schedule is up for renegotiation this year and in 2010. Invariably, events sponsored by troubled companies are on the list. Considering that economists do not expect things the economic bleeding to stop until the middle of this year at a minimum, sponsors will be cash-strapped and their balance sheets scrutinized by shareholders. That means that the PGA Tour is likely to face a lot of rejection in its sponsorship negotiations this year.
In order to maintain purse sizes and keep up with the European Tour, the PGA Tour will be forced to find a new wave of sponsors that are willing to pay the hefty price tag of sponsorship. That pool of potential new sponsors is dwindling. If the current television advertising environment is any indicator, that pool may also be undesirable.
A recent report showed that traditional primetime advertisers — financials, staple companies, and the like — have yielded their ad buys to companies and products that normally are seen during midday and night-owl hours. Have you noticed that you are seeing many more commercials for Snuggie, CashPoint payday loans, and Oxi Clean during primetime? They are taking up the space vacated and unwanted by bigger companies. They may be the kind of company most financially able to sponsor golf today at the PGA Tour's current rates.
Could you imagine such a thing? The World Golf Championships Snuggie Invitational? How about the ironic Cash Point Open? Well, it is that kind of company that is more likely to thrive during a lousy economy. People are cash-strapped and staying at home more. They will flock to these businesses and products. Perhaps the Netflix Championship is not too far off in the horizon.
Going this route would severely damage the brand that the folks in Ponte Vedra work very hard to protect. They want the PGA Tour brand shared with companies of long-standing tradition. They want transnationals. They want names associated with the richness of the game. Unfortunately, that is probably not available in this economy at the price they advertise.
That in mind, the PGA Tour can opt to take the hit in its brand, or lower the price tag of sponsorship across the board. Sponsors have said for years that the egalitarian price tag for PGA Tour events is bogus. U.S. Bank, which opted out of its sponsorship of the Milwaukee event, basically said that they were not getting enough bang for their buck. To sponsor an event scheduled opposite the Open Championship, the Tour would have to ask Golf News Net to pay $10.
The Tour should take this time as an opportunity to reconfigure its sponsorship rates. There should be tiers of sponsorship based on the quality of field it expects and its place in the schedule. World Golf Championship event sponsorship should cost way more than events opposite them or major championships. Fall Series events should practically be free until they prove their comparative value to the regular FedEx Cup season.
Even if it does not adopt this approach, it should cut prices across the board. Companies and their investors are likely to better stomach a smaller bill and are doubly likely to remain sponsors when the economy improves because of the kind of goodwill that the Tour would show by lowering the price of sponsorship.
Left with the choice between incongruent sponsors or traditional sponsors at a lower price, the Tour would probably choose for the lower price. It does come at a risk of angering players that have shown loyalty to the PGA Tour. The Tour would likely also be forced to change its restrictions on its players' schedules outside of the PGA Tour and potentially lift the ban on appearance fees for players. This would be part of the domino effect of trying to balance the reality of golf sponsorship demand and the competition that the PGA Tour faces from the European Tour.
The PGA Tour faces some awfully tough months ahead and I do not envy them. They will have to answer to a lot of different masters — their sponsors, their players, and their competition all breathing down their neck. It will likely have to make many compromises. And unfortunately for Commissioner Tim Finchem, not even Tiger Woods could bail him out of this one.
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