Apr 23rd, 2020
European Tour facing financial ruin?
COVID-19 presents the perfect storm
Words: GolfPunk Photography: Getty Images
As the Coronavirus crisis rumbles on golf tours facing an uncertain future. Every week that passes means that both the PGA Tour and European Tour are losing millions in TV and sponsorship revenues. The Americans have a plan for survival but their European counterparts face the perfect storm of challenges that threaten the existence of the European Tour itself.
The PGA Tour has the majority of its events based in the USA and a government which is looking to get sport up and running with their support. President Trump, a keen golfer, is seen as a valuable ally of the PGA Tour although there is nothing in writing and it is an election year after all so who knows.
By contrast, the European Tour has a whole potpourri of jurisdictions, governments and organisations to deal with in trying to maintain a tour. In April they should have visited both Malaysia and China before heading back to Europe for an event in Spain.
Whilst countries are slowly starting to emerge from the melee they are at very different stages on the curve of the pandemic and it is unlikely that there will be a consensus on how to exit the lockdown or even when.
Even if events are possible, with or without crowds, there is the thorny issue of travel restrictions. Add to these issues sponsors not getting the benefits from the physical attendance of events and the picture is rather bleak.
Taking a look at the last set of PGA European Tour group accounts for the year to 31 December 2018, the most recent publicly available, shows a relatively good picture on the face of it. The accounts show a profit of £10.2 million compared to a loss of £9.5 million in 2017 and a healthy cash balance of £22.6 million.
However, if one looks at the strategic report, it sets out the principal risks and uncertainties the group faces. The main risks are set in the report and are:
1) TV broadcasting market changes resulting in a challenge to TV income streams.
2) Golf sponsorship becomes less compelling and sponsorship values decline.
3) Financial and operational health of the promoter network comes under pressure.
4) The attractiveness of the Ryder Cup to both the commercial market and the wider membership declines.
5) An integrity issue occurs.
6) An act of terrorism conflict or war occurs affecting PGA European Tour’s schedules members or staff.
Looking down the list, except for points 4 and 5 the risks have come home to roost as a result of the Coronavirus pandemic.
TV income has dried up due to events not being staged. Companies of all sizes are struggling and there is likely to be a long term impact on the size of their advertising and marketing budgets.
The European Tour schedule has been blown apart by the pandemic with six events cancelled and nine postponed. Even if a program of some sort is successfully cobbled together the financial impact on the Tour’s finances will be huge.
The financial performance of PGA European Tour in 2019 is not known but given 2018 was a Ryder Cup year it is likely to show a much lower profit if any profit at all. Assuming an average performance suggests cash reserves coming into 2020 of less than £20 million.
The last European Tour event staged was the Oman Open at the beginning of March since which time the Tour’s revenue has fallen off the edge of a cliff. Undoubtedly cost savings will have been made but the Tour will be burning cash at a rate that will be giving its management sleepless nights.
It is hardly surprising that Keith Pelley, CEO of the PGA European Tour, has warned players of harder times ahead and the likelihood of lower amounts of cash being available. Pelley is putting a brave face on it but one can’t help thinking about the analogy of a swan.
Sadly, we fear that on the surface everything looks calm but underneath the Tour’s feet are paddling frantically to keep their financial head above water. And the women’s tours are another thing all together…
And another thing...