You’re not the only one who is confused about the current status of the PGA Tour’s negotiations with Saudi Arabia’s Public Investment Fund, and the reports that there are other investment opportunities available from U.S. based interests.
Imagine yourself as one of 500 or more members of the PGA Tour, with a certain level of status but a lot of uncertainty. Joe Ogilvie, a former PGA Tour professional, has stepped up to help explain the current situation in a simple and easy-to-understand way. Ogilvie is a former PGA Tour pro who now manages money at Wallace Capital Management. He sent an open message to the Tour’s membership on Oct. 24 that Golfweek was able to obtain. Ogilvie is considered to be one of the most intelligent voices in golf. He was a former player director of the Tour’s policy board. He earned the nickname “The Lil Commish” during his playing career for his understanding of Tour’s inner workings.
Ogilvie, in a three-page letter, asserts that there has never been a more exciting time to join the PGA Tour. However, there are important decisions to make and he highlights both pros and cons.
Ogilvie says that adding a partner is not always necessary. However, he wants members to be aware of what it means and their unique position.
If we sell part of our Tour we will be bringing on a partner. Ogilvie writes that it’s similar to getting married. Once consummated, all parties, including you, will be taken into account when making decisions by the law. They’re with us, so we can’t check in on them or take their money. For better or worse, they will be a part of our Tour. “We must know the motivations and expectations of new investors, as well as how they will contribute to the board’s functioning.”
Ogilvie does not suggest what the best course-of-action for the Tour would be, other than to remind the players of the importance of addressing governance at the beginning and that this is their Tour. If they adopt a for-profit model, even though they don’t actually own it, they still need to maintain control.
He writes: “The players have to continue to maintain governance control over the new for profit entity and the initial not-for-profit organization.” “Any new seats taken by an investor should maintain their relative control position in the board.”
The full text of the open letter is available here.
October 24, 2023
Open letter to members of the PGA Tour
Between 1999 and 2014, I had the opportunity to walk in your shoes. The Tour was a great time. Tiger Woods carried the world of golf on his shoulders and everyone in the sport rode that wave. During this time, the PGA Tour became a tour without equal. We played in the biggest economy in the World; 90% of tournaments were within three time zones. Perfect courses, a rabid following, and the most famous athlete in the world (not Michael Jordan) was on the PGA Tour. It was not a fair fight.
The majority of these conditions still exist today. The US has the largest economy, 90% of the PGA Tour tournaments are played within three time zones. The courses are in excellent condition, the fans are amazing, and we no longer have one needle-moving star (Tiger). Instead, we now have the most diverse, youngest collection of stars ever on the PGA Tour.
In the age of streaming sports is the only thing you can watch live. Sports on TV and digital right value exploded when the PGA Tour TV contract expired (which was terrible). The new television deal began in 2022. That was the same year Saudi Arabia’s Public Investment Fund (PIF), which invested $2B in professional golf, created LIV Golf and put into place the previous TV contract. Tiger Woods was a major financial influence on my generation. Your generation has been hit by a financial tsunami created by the lalapalooza of new competition and skyrocketing sports rights values.
This tsunami is the reason why so many people are interested in investing in your Tour. All private equity proposals and the Saudi PIF Framework Agreement have something in common. The PGA Tour is split into two separate entities, a for-profit entity, PGA Tour Enterprises, as well as a non-profit entity, PGA Tour, Inc.
As a 501(c), the PGA Tour cannot have any owners. You are all members of a professional golf league. It exists to promote the game, support its tournaments financially, and invest in the PGA Tour organisation, including the TPC Network (The Players), President’s Cup etc. We are all members of the same non-profit organization that has assets worth billions.
How can a 501c6 possibly be worth billions of dollars? Take the Honda Classic to illustrate potential asset value. The franchise value of this event would easily exceed $100MM if it were franchised, like in the NFL and MLB. Imagine the value of The Players Cup or President’s Cup. It isn’t a stretch for each to be valued at more than $1.5B. This unique situation is more than just sports-washing. It’s why Saudi PIF, and many other outside investors, are eager to invest in the Tour.
Saudi PIF, along with other investors from outside the Kingdom, primarily operate in “Private Equity” or PE. They are well-capitalized, large companies with many ambitious, brilliant people. PEs are investing to make outsized returns to their investors. This will result in huge pay packages at the exit.
In general, if a PE company invests $1B in a newly-formed PGA Tour Enterprises over the next 5 to 6 years, that investment should be worth at minimum $2B. This $1B in additional value could be achieved by reducing unprofitable areas of the business, divesting or selling assets, transforming the organization into a leaner, more efficient operation, and using debt wisely. Also, they look for ways to increase revenue and invest. For the PGA Tour, this could mean an increase in ticket price, creating premium experiences, changing tournament venues/cities and improving economics through activities such as the Ryder Cup. (The Europeans requested and received ownership of the Ryder Cup around 1987 without paying a penny. The PEs’ participation in the board of director will initiate these opportunities. Do not be surprised if any PE investment is accompanied by the demand for a seat on the board of directors. This is commonly known as governance rights.
Every Tour member should understand this. We are bringing on a partner when we sell part of our Tour. This is similar to marriage. The law requires that all parties, including the new spouse, be taken into account when making decisions. They’re with us, so we can’t check in on them or take their money. For better or worse, they will be a part of our Tour. We need to understand the motivations and expectations of new investors, as well as how they plan to participate in the working of the board.
It is therefore important that we achieve these key objectives before we take on a financial sponsor for the Tour. Before we do, we must codify the following in the PGA Tour Bylaws: the policy board will consist of a majority player directors with the same voting rights as independent directors. The framework agreement is the most significant decision made since Jack Nicklaus and Arnold Palmer created the modern PGA Tour. It was also the only one that was made without the input of any PGA Tour players, including the ones who represent you on the PGA Tour’s policy board.
Players must maintain governance control over both the new for profit entity and the original non-profit entity. Investors must retain their relative control over the board if they take on new seats.
The assets of the PGA Tour do not have any legacy ownership because they are the only members of a 501c6. It is important to understand and remember this. MLB and NFL had already established ownership of their teams long before they renounced their 501c6 status. We have a fresh slate.
Investors must align their interests as closely as possible with the players’, elevating the stage on which the best golfers from around the world demonstrate their skills. The fan experience will be improved through improvements to our venues, investments in digital products, and television production. This will result in continued advancements in purses.
Last but not least, culture and values are important in a business partner. We want a golf partner who will invest in the long-term.
It has never been a more exciting time to be a PGA Tour Member. By ensuring that the governance is done correctly today, the stars of tomorrow can feel the same. It is an amazing accomplishment to be able to call yourself a PGA Tour Member. Only.0003% golfers in the world have achieved this. I wish you the best of luck for the remainder of the season and success in 2024.
My best,
Joe Ogilvie
