U4B PGA Business Model

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Neither a recession nor the eclipse of its brightest star can stymie the PGA Tour

The PGA Tour’s business model is unusual, cunning and largely the brainchild of Deane Beman, who headed the organization from 1974 until 1994. In 1978, Mr Beman encouraged all PGA Tour events to incorporate as charities and return all net proceeds from tournaments to the communities that hosted them. The thousands of people who run the tournaments each week are, by and large, volunteers, and as Mr Beman says: “I didn’t think a bunch of volunteers would give up their vacation time to have a bunch of athletes come in and make a bunch of money and run out of town with the money”. “The tour has donated $1 billion to charity in the past 15 years.”

Charity also makes sponsoring golf tournaments more attractive to corporations, and direct corporate sponsorship was the second of Mr Beman’s innovations. For the networks, this model eliminated the risk of not recouping production costs. It also made the remaining ad time more scarce, and thus more valuable. For the tour, it meant no longer needing to worry so much about ratings. Tournaments knew in advance that they would break even. And the tour as a whole was no longer dependent on a single source of cash: television now accounts for little more than half of its revenues.

For corporations, golf is golden. According to Adam Schupak, Mr Beman’s biographer, a company pays between $7m and $8m to sponsor a PGA Tour event on network television. But that investment translates into up to $55m-worth of exposure, not just in ads and promotional materials, but also because every news story about the event includes a plug. (You can’t report that so-and-so won the “Honda Classic” without mentioning the car.) Such returns keep sponsors sweeter than a bunker shot to six inches.

Golf is also attractive to sponsors because of its values, reckons Mr Beman. Players are expected to call penalties on themselves, shake hands with rivals and “act like gentlemen”. Footballers routinely cheat; golfers, even those who cheat on their wives, would not dream of it. According to the PGA Tour, over 90% of fans see golfers as “positive role models”.  All this has helped the PGA Tour to grow rapidly.

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