Letter From Saugerties, December 11, 2006

Frank Hannigan served the USGA for 28 years, including six as Executive Director. He weighs in with another letter (previous editions can be read here, here and here). This time he writes about the USGA's decision to sign on American Express as a corporate sponsor, and reveals that the decision may have been influenced by a significant and unprecedented financial loss in 2006. 

Here are some, if not all, of the details of the recently announced commercial arrangement between the United States Golf Association and American Express, the first overt commercial sponsorship deal ever made by the USGA.

What’s in it for the USGA is the ability to bombard a culled American Express mailing list of more than 1 million with junk mail appeals. The recipients will be implored to become USGA “members.”

There will also be an email effort -  spam.    

The USGA claims it now has 800,000 individual “members” who have nothing to say about the entity to which they allegedly belong. They pay $l5 in the first year, $25 thereafter, and there are a surprising number who, out of the goodness and naivety of their hearts, send in amounts greater than $25.  This results, says the USGA, in an annual net of $2 million, making it the only significant profit center other than the US Open.   The Open’s profit is enormous but unrevealed.     
The new venture, says the governing body, has nothing to do with money.  It is rather an “outreach” program designed to make more golfers understand the Rules of Golf, learn how to properly repair divots and yearn to acquire USGA Handicaps.

It could happen that the project will result in a big jump in USGA “members.”  Additional profit would be regarded as an accidental by-product of the “outreach.”   Remember:  it is NOT about the money.

Personally, I have regarded the USGA as excessively wealthy for a long time.   

However, for 2006 the USGA reports will show an operations loss of $7 million, i.e., it spent $7 million more than it took in.

I find that amazing since the gross revenue for a US Open is more than $50 million, or about what a small major league baseball team like Kansas City takes in for a full season.   

The USGA, which reveals about its finances only what it is required to do legally, in this instance cites a growing number of annual grants or gifts.

During 2006 there were 201 grants totaling $4,842,855.   Of that total more than $2 million was given to the First Tee, the PGA Tour charity.  The USGA has been by far the largest donor to the First Tee.   (May any cynic be struck down who avers that the USGA’s generosity to the First Tee is a means of tamping down any Tour criticism about the size of US Open prize money which, at $5.5 million sounds like a lot but in reality is less than 15% of the gross compared to the 50% that goes to players in unionized team sports.)   

This grant program was initially pointed at increasing the number of golfers.  But when that didn’t work (golf has been essentially flat in terms of number of rounds played for  many years) the propaganda for the grants was shifted toward education – especially when it comes to exposing  children from low income backgrounds to the inestimable moral virtues of golf.

Despite the one-year operations loss, nobody in Far Hills is going to debtors prison since the USGA investments yielded a jump in value of about $25 million this year to offset the $7 million loss in operations.   The total book value of USGA investments is on the northern side of $250 million.

As for American Express, it became all warm and cuddly about the USGA after a divorce from the PGA Tour.  American Express had been a “title sponsor” of a tour event but got bent out of shape when offered what it regarded as unsuitable dates and locations for the future.

Now it will receive from the USGA:

1. The USGA’s own mailing list, piddling in Amex terms, but an effective way of getting more cards out there.

2.  A day or more when some customers might play the year’s US Open course.  Next year the USGA essentially owns Oakmont for spring outings for four days.   This is part of the basic arrangement whereby Oakmont receives a rental fee of an estimated  $7 million.

3.    The right to sell an unspecified number of US Open tickets to its cardholders even though the 2007 Open had earlier been described as sold out.  The lucky buyers will also have access to something called The  Trophy Club.  Its portals can be breached only by those who pay for the privilege.  They then have the right to purchase food and beverages at serious prices.  The USGA keeps about 30% of the cost of food and drink.

A man I know who wants tickets for business reasons jumped in quickly and was able to buy 3 such tickets (on his card, of course) good for Wednesday through Sunday.  The total price:  $1803.35 – which does include handling and mailing..

4.  As yet undetermined exclusive rights with respect to other USGA championships.   The USGA says it might offer those who buy tickets to the Women’s Open by way of American Express a Rules of Golf seminar on a roped off section of the course. The rank and file presumably would not be allowed to listen in.

5.  General good will because of its relationship with the USGA which has not bestowed its  blessings  on Visa or MasterCard. This is being triangulated in ads featuring Tiger Woods who gets a ton of money for endorsing American Express.

The USGA says this is not to be regarded as its one and only deal with commercial sponsors.    Example:  An airline could be induced to offer sharply reduced fares for USGA staff and committee travel.   This could be thought of as bridging the gap between those USGA volunteers who now have to pay for travel and the royalty at the summit of the USGA who have occasional access to a USGA-leased jet (speaking of ways to lose $7 million).

The USGA, in my view, has been totally re-defined starting in or about 1995 into an entity that ducks conflict but needs badly to be loved.   It is driven excessively by personality cults.  The primary winners during the last 10 years have been current President Walter Driver and his predecessor Fred Ridley.

Meanwhile, I muse about Howard Clark who served on the Executive Committee during the 1980s.    Clark was CEO of American Express and perhaps as much responsible as any person for making this a nation of little plastic cards.

Howard Clark, trust me, would not have bought into a USGA that thought it needed to do deals with his company. He would have understood that the selling of soul is part of such a process and it’s not worth the price.