Last week MorningRead.com’s Alex Miceli praised the PGA Tour for taking the painful but prudent path by reducing staff. (The staff layoff news is here.)
Miceli reported some eye-opening numbers based on a video address Commissioner Jay Monahan gave to staff.
Commissioner Jay Monahan, in a video address to his staff, said the negative impact on revenue without spectators and hospitality income since play resumed in early June and projected through the end of the year will total more than $90 million.
At the same time, the Tour must shoulder the unbudgeted expense of implementing a health-and-safety program, which further erodes the bottom line.
And there was the price placed on the new Norman Foster-designed headquarters (the entrance drive will be Maybach compatible btw…big relief that the turning radius works for the preferred limo of dictators.) Monahan reportedly addressed the idea of stopping construction with the staff to save jobs since all were already working from home.
The 187,000-square-foot, $65 million building, which is scheduled to be finished by the end of the year, was designed as an adaptive office space, with an open-concept approach that will give 700 employees a better working environment.
According to sources, a halt in construction would cost the Tour more money than it would take to finish the project.
Ok I can see that. But the $65 million number sounds, well, modest since Foster is one of the biggest architectural names on the planet and players have grumbled to media about cost overruns.
This brings us the ultimate question from Miceli:
So, why jettison so many employees and not reduce the tournament prize money? As at many other big companies, moving money from one area to another can be difficult. At the tour, each tournament contract spells out how much the purse will be worth, with incremental raises often part of the contract.
Even if the purses were to be reduced, any savings likely would return to the sponsor, which pays a large percentage of the prize money. But what sponsor would want to reduce a purse and potentially damage the depth and quality of the field?
I’m guessing a sponsor like Wyndham, suffering huge losses in the pandemic, would love to not pay its full bonus pool and purse for last week’s event where the strength of field was a respectable, but hardly epic 325.
A MorningRead.com reader pushed back at the column and to the website’s credit, the letter was published. Charlie Jurgonis writes:
The 2019-20 PGA Tour season began with $375 million in prize money plus another $70 million in FedEx bonus money. Is Miceli saying that if the purses were cut 10 percent, to nearly $340 million, and the bonus pool were reduced to $60 million or so, that it would create a lesser field? That Rory McIlroy wouldn’t play in the Canadian Open because first-place money is $130,000 less than the $1.37 million that he won last year? A $45 million haircut from purses could cover 50 mid-level Tour staffers and health protocols until spectator things get back to normal.
That is a point many have made. But he adds this on the numbers, which suggests that revenue and other costs associated with the pandemic or overspending put the losses even higher.
That $90 million loss of revenue represents less than 7 percent of the total revenue for that year. If you offset that $90 million loss of revenue with the $56 million in operating surplus (using the same 2017 tax filing), the Tour needs to cover only $34 million, or about 2.5 percent of total revenue. A financial officer in a business venture with $1.47 billion in total revenue should be able to carve out 2.5 percent standing on his head, without layoffs.
If the Tour does incur a short-term operating loss by not laying off staff, it could cover those losses from it $2.4 billion-plus in cash and investments. The Tour would need to “hang on” until its new 9-year, $680 million per year TV deal starts in 2022 ... after the current $400 million-per-year contract expires.
A decent chunk of that new money will go to a huge increase in production costs as the PGA Tour takes over more elements to provide a more cohesive broadcast “product”.
Of course, in neither Miceli’s item or the follow up letter, is charity mentioned. Give that the PGA Tour is a non-profit 501(c)6 that would seem to be a factor in possibly either taking the pandemic PPP small loan, or in trimming purses to not reduce staff.
The 2018 Form 990’s show a $55 million decrease in revenues from the 2017 numbers cited above, meaning the $90 million figure for this season’s 11-cancelled-event schedule free of fans, is probably low.
The 2018 numbers also show a jump in Monahan’s salary from the $3.9 million number cited by Miceli to $6.73 million. Other compensation figures impossible to ignore.
—Paul Johnson, EVP of International Tours, raked in $2.8 million overseeing those cash cows, the PGA Tour China, PGA Tour LatinoAmerica, PGA Tour Canada and the MacKenzie Tour.
—CTO Andy Pazdur $2.12 million.
—Korn Ferry Tour President Dan Glod made $953k. (The leading money winner on the 2018 edition of that tour was Denny McCarthy, who made $255,792.)
—Ed Moorhouse, who retired at the end of 2017, raked in more than anyone for 2018, including the Commissioner, with a whopping $7.6 million retirement gift.
