Clair Peterson’s annual trip to the Arnold Palmer Invitational is not happening this year. The coronavirus pandemic means the longtime John Deere Classic tournament director won’t be on the driving range this week at the Bay Hill Club & Lodge among the players, caddies, coaches, trainers, sports psychologists, media and other tournament representatives.
COVID-19 restrictions make it all but impossible for that many people to be on site. The pandemic also has caused issues for Peterson and his colleagues on the PGA Tour who are attempting to run local, nonprofit entities with zero to very little revenue. Peterson, who was at Bay Hill a year ago this week to recruit players for what was to be the 50th playing of the John Deere Classic in Silvis, Illinois, has bigger things to worry about these days.
“That is the last time I traveled, for the Arnold Palmer event,” he said. “That is the mark on the calendar for me. And I certainly never felt we would be dealing with this a year later.”
While the best players in the world will be competing for a purse of $9.3 million this week in Orlando, Florida — and while the PGA Tour collects its full portion of sponsorship fees from MasterCard and NBC/Golf Channel — the local organization that benefits the Arnie’s Army Charitable Foundation will do all it can to continue to function.
That’s what every tournament has been doing since the sports world shut down, setting off a scramble to figure out when, how and if they could still play. Some tournaments were canceled. Some changed dates. Most, if the event played on, did so without spectators and pro-ams, the financial backbones of a tournament.
All had to face the same hard question: How do we continue?
This week’s Arnold Palmer Invitational (API) will allow the most spectators since the pandemic hit — an estimated 8,000 per day, about 25% capacity. It’s a small step on a long road back to normalcy. But it’s a big step too, as tournaments cannot operate under these conditions.
“It’s nerve-wracking,” said Jon Drago, tournament director of Texas’ AT&T Byron Nelson, which was canceled in May. “We have a budget to make to fund our own charity. And this is not a sustainable model. We were only able to survive because we had a solid and robust reserve fund in place for a rainy day. And it was pouring.”
The API is the last event that occurred under normal circumstances. A week later, the Players Championship, with 30,000 spectators on site at Florida’s TPC Sawgrass for the first round, was played. Quickly, though, things were changing. The rest of the tournament, officials said, would be played without spectators. Hours after that, PGA Tour commissioner Jay Monahan announced the event was being canceled, along with the next three tournaments on the schedule.
Eventually, 13 weeks of tournaments were lost, meaning those charged with running them in cities and towns across the country had to wonder how they were to pay their bills. This is how they’re trying to make ends meet.
A lot of money, and no money
No tournaments on the PGA Tour have pandemic insurance. It’s something that both the R&A and Wimbledon cited in canceling their big-money events in 2020 — The Open and the Wimbledon tennis tournament.
To purchase such insurance is “astronomical,” said Tracy West, tournament director for the Valspar Championship in Florida. It is why all the tournaments, some more than others, put aside money, called reserves, just in case there is an issue. Perhaps a title sponsor gets out of its contract early. Maybe rain makes for added expenses or even a postponed tournament. No event could have predicted a pandemic.
“Financially, it was very difficult,” said Peterson, part of a staff of seven full-time employees who work year-round for the John Deere Classic. “Even without a tournament, there are still administrative expenses just to keep the doors open. We have to pay the staff. There are utility bills, insurance premiums. We had no income at all with no pro-ams and no spectators. So we lost money.”
That might seem hard to be believe, given some of these numbers:
Typical purses at each event exceed $7 million, with this past week’s WGC event at $9.5 million and next week’s Players Championship at $15 million.
Television rights fees bring in $300 million per year, a figure which will rise significantly when the current deal ends later this year and the new one begins.
Umbrella sponsor FedEx, for which the season-long points race is named, kicks in $60 million a year. The winner of the FedEx Cup gets $15 million.
With all that money flying around, how are these events struggling? Each tournament operates as a nonprofit charitable organization, known as a 501c-3, which means the events see nearly all of those sponsorship and television funds pass through their books en route to what is paid to the players via a purse and what goes to the PGA Tour, which employs nearly 1,000 people.
That means each tournament takes on the majority of the responsibility for running the event. They operate like small businesses — hiring staff, renting office space, paying vendors for various supplies and setup fees. And the expectation is not simply to break even. Along with playing opportunities, the PGA Tour’s next-biggest mandate is to provide funds for charity. Tournaments are judged on that basis.
Doing that with no money coming in is impossible.
Several events that were canceled applied for loans through the Payroll Protection Program (PPP) set up by the federal government at the onset of the pandemic. Under the terms of the program, the loan is forgiven if there are no layoffs.
Many tournaments had to work out deals with their various sponsors. Some had gained some benefit despite events not being played. Others looked to defer their commitments into future years without asking for refunds. A tournament such as California’s AT&T Pebble Beach National Pro-Am was fortunate that many of its amateur participants — CEOs and celebrities who pay up to $30,000 to participate — did not request a refund, knowing that money would help the event.
For those tournament that didn’t get that kind of handout, things were very different.
The PGA Tour had to step in. Even though the organization based in Ponte Vedra Beach, Florida, suffered its own significant losses because of the absence of 13 weeks of events, its very existence is predicated on the local entities that showcase the players. No Tour officials would discuss specific arrangements; different deals were worked out based on different circumstances.
When play resumed in June, new financial issues came with the new normal:
Weekly COVID-19 testing to administer
Charter flights between tournaments to subsidize
Stipends for players who tested positive and had to quarantine
“Some tournaments have built reserves for difficult moments,” PGA Tour commissioner Jay Monahan said. “Certainly, they couldn’t foresee this one. But we had to make a commitment to each of these tournaments. They’re our partners. We wanted to do everything we could to help them survive and power through the challenges of 2020 and getting back to having fans.”
The PGA Tour had to make changes too. Monahan did not take his salary for several months. High-level executives took 25% pay cuts for a majority of the year. All other staff at the PGA Tour had their salaries frozen at 2019 levels. Still, the Tour laid off more than 50 employees.
How the money works
The arrangement between the PGA Tour, the title sponsors, the networks and the host organizations is complicated:
Title sponsors are on the hook for between $8 million and $15 million a year, depending on the event. That money is doled out in a percentage of the purse, with the PGA Tour covering the rest based on revenue from television rights fees. Another portion of the title sponsor fee is paid back to the networks to cover production costs via guaranteed advertising buys during that week’s broadcast and throughout the year. That makes golf appealing to the networks, because some 60% to 70% of their ad revenue is already accounted for. (ESPN is part of the new television rights deal that goes into effect with the start of the 2021-22 season; it was awarded the streaming rights that are now handled through PGA Tour Live.)
Each local tournament gets a portion of those fees — in the low six figures. That means nearly all of the money needed for salaries, grandstands, vendors, player hospitality, printing of tickets, renting shuttles and more must be raised locally. And that is done through tickets, pro-ams, hospitality, merchandise and concessions.
Although no exact figures are available, each week the PGA Tour did not play meant considerable title sponsor and television revenue lost. While no prize funds were paid out, the Tour missed out on millions that would have gone into its own coffers to operate.
That is why there was such a strong desire to get back to playing as soon as possible. In mid-June, golf returned with the Charles Schwab Challenge in Texas. Golf was back.
Trying to survive in the new normal
The Valspar Championship was the first full event canceled. Innisbrook Resort’s Copperhead Course was built out and ready to go.
“We went into panic mode,” tournament director West said.
At the end of April, more than a year after the Copperhead Course was set for action, the Valspar Championship will happen. A scheduling change should help too. This year, the event will take place three weeks after the Masters, allowing for more time and the possibility of fans. Still, attendance, if there is any, will be smaller than normal.
The Byron Nelson is staring at a similar situation: no revenue last year and a reduced number this year when it begins in the middle of May in McKinney, Texas.
“We weren’t really far along in our build yet,” tournament director Drago said. “If you could be fortunate from a canceling standpoint, we were probably the most fortunate. The faucet on expenses wasn’t quite to the level turned on yet like, say, the Valspar.”
And this year?
“We’ve now been planning three separate tournaments for six months: no fans, limited and full,” he said. “Two months ago, it became pretty clear that a full Byron Nelson wasn’t going to happen.”
Drago said he feels fortunate his tournament can have a Wednesday pro-am this year.
“The pro-am separates us from other sports,” he said. “It’s an asset we have access to. Something we can sell. To have that back, it just put you at that better starting point. Anything it allows you to do as far as having fans allows you to get closer to breaking even.”
The most complicated of the group, though, was the John Deere. It was still on, the fifth tournament in line after the restart. But it ended up canceling.
“It was not an easy decision,” tournament director Peterson said. “I think May 26 is when we made the final decision. This is around when our build would start.
“We were in a position of having no large gatherings, and we really couldn’t see how having an event without any spectators or a pro-am was something we felt comfortable with.”
Peterson said the reserve fund took a 25% hit in addition to other measures. A pro-am will be part of the tournament in July, and Peterson expects some number of fans, still to be determined.
“We want to just try to see how we can break even,” he said.
A pro-am helps. Michael Tothe, the tournament director of the Charles Schwab Challenge, said his Monday pro-am has 28 teams that pay $14,000 each for a total of $392,000. The Wednesday pro-am brings in $32,000 per team, of which there are 52 for a total of $1,664,000. That’s over $2 million in revenue from the two pro-ams, with a net of about $1.7 million after expenses. Both were canceled in 2020. Those pro-ams will be back in May, with a spectator allowance to be determined.
Not knowing, even a year later, remains the biggest obstacle. The BMW Championship, part of the FedEx Cup playoffs, had a dramatic finish a year ago in Illinois, with Dustin Johnson holing a long putt to force a playoff then watching Jon Rahm do the same on the first playoff hole. It was all in front of about a dozen spectators. This year, the event moves to Caves Valley in Maryland.
“Last year, we were down 67%,” Western Golf Association president and CEO John Kaczkowski said of the BMW. “The reason we weren’t down 100% is we have great partners at the Tour, and great partners with BMW and Olympia Fields. Because of them, we were able to have some revenue.”
And now, the year comes full circle, to the last place where normal happened.
“We were the last full event, so we did not have to go through some of that pain that others did,” said Joie Chitwood, the tournament director for the Arnold Palmer Invitational. “Some of those other tournaments are still dealing with restrictions, as well, so it’s two years of challenges. We don’t want to be at a deficit, but when you take 75% of our customers away, that’s tough. And yet there are things you can’t sacrifice.”
This year’s API will be different. There will be pro-ams, but capacity will be limited to 25%. Still, Chitwood said seeing a few thousand fans at last month’s Waste Management Phoenix Open was reason for optimism.
“It was the energy and emotion when you have fans on property, the response you can feel,” he said. “It only made our team work harder to make sure we can do this with fans on property so we can enjoy sports that way. There’s such a difference when you have fans there to react to those great moments.”