Feature
Profits all round driven by TV deals
Richard Gillis looks at the exponential growth of the tournament
15/09/06: It has become fashionable to analyse a business by identifying its "tipping point". The theory is that success can be contagious, that it shares characteristics with the spread of epidemic. There is a moment when everything changes, where small actions have disproportionately dramatic effects, enough to turn previously loss-making dogs into multi-million smash hits.
Any of this sound familiar?
It seems appropriate to extend this analogy to Ryder Cup, because we should be under no illusions: this is a business; and to use the jargon of day, it has "tipped" – big time.
When did this happen? How did this money-no-object, bang-for-your-buck, media-driven circus emerge from what was a relatively unsung, end-of-season, gentlemen’s excuse me?
It has become fashionable to analyse a business by identifying its "tipping point". The theory is that success can be contagious, that it shares characteristics with the spread of epidemic. There is a moment when everything changes, where small actions have disproportionately dramatic effects, enough to turn previously loss-making dogs into multi-million smash hits.
Any of this sound familiar?
It seems appropriate to extend this analogy to Ryder Cup, because we should be under no illusions: this is a business; and to use the jargon of day, it has "tipped" – big time.
When did this happen? How did this money-no-object, bang-for-your-buck, media-driven circus emerge from what was a relatively unsung, end-of-season, gentlemen’s excuse me?
If we were voting, there would be support for Sam Torrance’s putt, hanging for an age on the lip of the 18th hole at the Belfry in 1985 to seize the first European win. Perhaps the momentum started two years previously, when Europe went within a point of winning in the US for the first time. Or was it at the post-match cheese-and-wine do in 1979, when Jack Nicklaus mentioned to Great Britain and Ireland PGA president John Darby that it might be a good idea to get his Spanish mates involved before the whole thing collapsed through lack of interest?
The 1985 Ryder Cup was the first to break even, returning a profit equivalent to €445,000. The previous "home" event, at Walton Heath in 1981, lost €74,000. Compare this to the last time the event was staged in Europe, at the Belfry in 2002, when the profit approached €12.599 million. It is estimated this year’s event, at the K Club, will reap at least €14.822 million in profit.
The real engine for growth was provided by the Sky television deal in the early 1990s, a relationship that has been extended to cover the next event, in 2008.
The TV rights to the cup are bundled in with those of the European Tour as a whole. In a Ryder Cup year Sky pays €29.645 million, compared to €14.822 million in a non-Ryder Cup year. And the introduction of competition into the market for golf rights is likely to be further good news for the European Tour. The Irish company Setanta Sports may try to add the Ryder Cup to its roster of golf when the current deal runs out. Setanta has just taken the rights to the American PGA Tour from Sky, for €14.087 million, starting January 2007.
The figures provide evidence of how significant the Ryder Cup has become as a cash cow to the European and USPGA Tours. There is, however, a considerable difference in the revenue split between the two, a source of irritation to the Europeans. The USPGA owns the rights to the "American years", and the European Tour controls commercial rights on this side of the Atlantic. The USPGA benefits from being able to sell the property into its own huge domestic market and keep most of the profits.
The money is divided on a ratio of five to one in favour of the USPGA. The last event, held at Oakland Hills in 2004, made an estimated €54.75 million for the Americans. By comparison, the US Open garners €39.109 million, and the Masters about €35.197 million, though both must pay players’ purses. So, in commercial terms the Ryder Cup is the European Tour’s "major", but one that comes around only every fourth years.
Golf fans in Ireland would do well to hope the money continues to flow in, as it is used to support non-profitable events on the Tour’s ever expanding schedules. One beneficiary is the Irish Open, which despite the presence of a regular title sponsor - Nissan’s deal finished this year - regularly fails to break even. In crude terms, no Ryder Cup, no Irish Open.
It is for this reason that the Tour must squeeze every last euro from its week at the K Club. Of the 40,000 tickets sold for each day of the event, 7,500 have gone to the corporate sector, roughly 20 per cent. According to a senior sponsorship expert, each of these corporate tickets is worth around 10 times more to the European Tour than an "ordinary" ticket (most of the ordinary tickets were issued by ballot to the public last year).
The demand from the corporate sector has become insatiable. Tickets and hospitality are bound into the packages bought by sponsors such as AIB, O2 and Bord Bia.
In addition, the European Tour sells separate corporate hospitality packages to third-party agents, who sell them on to interested parties. These packages have been sold for anything between €800 to €10,000 a head.
The figure of 20 per cent is entirely arbitrary and decided by the European Tour and the PGA of America. But it illustrates the tension between making money and providing an opportunity for real fans to witness the event at first hand.
Given its head, the free market would make that mark higher. When questioned, a spokesman for one leading sports agency said, "Why not make it 50 per cent? The demand from business is there so why wouldn’t you?"
When a governing body gets this equation wrong the most tangible indicator is the number of empty seats. This can be a public-relations disaster, as, for example, during the early stages of the World Cup finals. Corporate tickets that had been bought by sponsors went unused as fans were locked outside the grounds.
The European Tour is likely to be spared this embarrassment. By their nature golf crowds are more fluid, and corporate invites to the Ryder Cup, because of their scarcity value, will be taken up with enthusiasm.
However, the commercial influence of the Ryder Cup goes far beyond five days in late September. It has become critical to the whole business plan of the European Tour. To keep sponsors and broadcasters happy, the Tour must get Europe’s best players out on the course more often. The Ryder Cup is its chief recruiting sergeant.
A major plank of the Tour’s strategy since the early 1980s has been the trend to invest in co-sanctioned events with other tours in new territories. This expansion has stretched the definition of Europe to breaking point and beyond, as the main tour and the Seniors and Challenge Tours now include stop-overs in South Africa, Australia, the Middle East, China and Malaysia. This allows the Tour to sell itself to a broader range of sponsors and offer a viable alternative to the riches available to the best players on the USPGA Tour.
Ironically, as the Ryder Cup has prospered it has come under greater scrutiny from the players, some of whom have questioned why they are not getting a cut of the pie. When the leading American magazine Golf Digest revealed how much money was being made by the USPGA from the Ryder Cup in 1999, it caused considerable unrest in the locker-rooms.
The players, most notably Tiger Woods, demanded answers. Mark O’Meara, Woods’s best friend, acted as unofficial spokesman, raising the issue of player payment. At a press conference, O’Meara turned to the attendant journalists and said, tongue in cheek: "You should come and donate your salary to a charity that week too. You guys don’t mind doing that do you? Either that or they shouldn’t charge the spectators to come and watch."
A compromise was reached whereby the USPGA donates €156,462 per player, half going to charity and the other half to a college development programme in each US player’s name. This is where the issue currently rests.
But the spat was informative, revealing the sensitivities on both sides in relation to money and the Ryder Cup. Multi-millionaire golfers tend to look silly when they get themselves into a pay dispute. There is, however, a simmering resentment that they are routinely used to promote something in which they have no financial stake.
Likewise, a Ryder Cup without Tiger Woods would make a dent in the competition’s commercial value, given the player is likely to qualify automatically for another 10 years at least. A further complication involves the role of IMG, the all-powerful sports-management company founded by the late Mark McCormack, which has an interest in both sides. IMG acts as agent to most of the players on both teams. Most notably it has been Woods’s agent since he turned professional as a teenager, negotiating every one of his commercial deals from the €78.224-million Nike contract down.
The company is also embedded in the commercial activity of the European Tour and by extension the Ryder Cup. This relationship hinges on the shared ownership of European Tour Productions, the television arm of the Tour, which sells the broadcast rights to the event and provides the pictures to the world’s TV stations. This company is 50 per cent owned by the European Tour and 50 per cent by IMG.
And however it plays out, there are sound financial reasons for maintaining the status quo. The companies clamouring to put their name alongside the Ryder Cup pay a premium because it is a one-off. They are buying into the notion that for this one week of the year every putt holed is for the good of the team, rather than going towards a down payment on a holiday home in Dubai. And if it’s good for business, that’s the way it’ll stay.