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The US Open starts Thursday at Los Angeles Country Club, but the pre-tournament talk and action was focused off the course after last week’s blockbuster announcement that the PGA Tour, DP World Tour (European Tour) and LIV Golf are merging.
Details are scarce about the combined for-profit entity, and few know what’s next, including the defending US Open champion.
“I just don’t know what’s going on,” Matt Fitzpatrick told the media on Tuesday. “I don’t think anybody knows what’s going on. Do we sign with PIF, do we not sign with PIF? I have no idea. While I guess it’s confusing, it’s pretty clear that nobody knows what’s going on , except for about four people in the world.”
We know that the three tours have a total revenue of about 2.4 billion dollars. And based on recent transactions, the combined entities are likely worth more than $10 billion.
As a nonprofit, the PGA Tour reports its financial results each year via the IRS’s Form 990, including executive compensation — PGA Tour Commissioner Jay Monahan earned $8.6 million in 2021. Revenue for the PGA Tour was $1.59 billion in the most recent filings — five times as much revenue as the European Tour – with $583 million from media rights, $152 million from tournaments it managed, $175 million from tournaments it co-sponsored and another $176 million from program sponsorships. The current media rights deals with CBS Sports, NBC Sports and ESPN started in 2022 and run through 2030. Total revenue likely approached $2 billion last year as the 2021 financials were still affected by COVID-19 and did not reflect the new media contract.
In 2021, the European Tour reported total revenue, including media, sponsorships, tournaments and the Ryder Cup, of £253 million – $322 million based on current exchange rates – a 61% increase from the COVID-19-affected 2020 season. Although most of the top pros have defected to the PGA or LIV Tours, the European Tour is expected to show strong financial gains when it reports its 2022 numbers, according to a person familiar with the results who was not authorized to speak in public. Revenue from ticket sales and media rights saw double-digit increases over 2019, while sponsorship revenue increased nearly 50%. The turnover has more than doubled.
Most of the proceeds are expected to flow into a new for-profit entity that will have Monahan as CEO and Yasir Al-Rumayyan, governor of Saudi Arabia’s Public Investment Fund, as chairman. PIF, which financially supported LIV Golf, is prepared to invest billions of dollars in the venture. The agreement ended all litigation between the parties, but still requires approval from the PGA Tour policy board and could be subject to scrutiny from regulators and politicians.
Sports team valuations have risen in recent years, driven by scarcity, institutional funds used for ownership and increasing value attributed to live events and broadcasts. The transactions have occurred at increasingly higher multiples of revenue, with the Milwaukee Bucks, Phoenix Suns and Washington Commanders all priced at more than 10 times revenue in recent deals.
The golf merger is not the same as a sports team sale, but a few recent transactions give a sense of what the global golf business is worth. In 2020, the PGA Tour invested in European Tour Productions, the European Tour’s media arm, worth about $550 million under a “strategic alliance,” and the PGA moved its stake from 15% to 40% the following year. The deal valued ETP at just over four times revenue, which averaged £100 million a year ($127 million) between 2018 and 2020. In 2021, ETP revenue was £123 million ($156 million).
Total revenue for the DP World Tour was an estimated $400 million last year, giving it a valuation in the $1.5 to $2 billion range.
The PGA Tour would have a premium multiple as the more desirable asset in the same way that the revenue multiple of the New York Yankees is higher than the Detroit Tigers. Therefore, a revenue multiple of five to six on 2022 PGA Tour accounts implies a valuation in the $10 billion to $12 billion range.
The professional golf tours are ultimately media and live events, not unlike WWE, which Endeavor agreed to buy last year for $9.3 billion. The deal valued WWE at more than seven times revenue, but WWE also generated $313 million in operating income last year. The PGA’s 990 shows “revenues minus expenses” topped the last decade at $78 million in 2016. The PGA Tour is set up as a 501(c)(6) organization, meaning its primary motive cannot be profit. Last year, the PGA had to dip into its reserves to cover the increase in prize money.
Institutional investors are increasingly looking at cash flow multiples, and if you manage the whole system, you should have a greater ability to generate more cash flow. However, PIF is probably thinking further than just its return on investment with this deal.
LIFE Golf generated “Almost zero” revenue in 2022, according to court documents. As for its value and future, the PGA Tour’s biggest public-facing supporter of the past 12 months, Rory McIlroy, says the press got the blockbuster announcement wrong. “I think the one thing that I think was really misunderstood yesterday was all the headlines were the PGA Tour merging with LIV,” McIlroy told the press last week ahead of the Canadian Open. “LIV has nothing to do with this, right? It’s the PGA Tour, the DP World Tour and the Public Investment Fund basically coming together to create a new company.”
The four-time major champion added: “I still hate LIFE; I hope it goes away and fully expect it to.”
Daniel Libit contributed with additional reporting.