Documents Reveal PGA Tour's Desire to Merge With DP World Tour, Own Piece of Ryder Cup
In the framework agreement announced June 6 between the DP World Tour, PGA Tour and the Public Investment Fund of Saudi Arabia, a for-profit new company would be established where all entities would contribute their assets and the PIF would participate by funding the venture.
With that the war was over, but so much more is outstanding to fill in the four corners of what will be a definitive agreement including the value of all the parties’ assets.
From those assets, the parties will derive ownership interests in the new company which will be named PGA Tour Enterprises.
According to documents filed on June 27 in the case of Larry Klayman vs. the PGA Tour that was originally filed on June 28, 2022, in the Circuit Court of the 15th Judicial Circuit for Palm Beach County, Fla., the European Tour Group (ETG), the parent of the DP World Tour, is in a precarious financial position that could make valuing their assets difficult.
The documents are part of the lawsuit filed by Klayman that accuses the PGA Tour, Tour commissioner Jay Monahan and DP World Tour/European Tour Group CEO Keith Pelley of concerted refusal to deal, horizontal market division, monopolization, attempt to monopolize the relevant market and civil conspiracy. The documents were made available to the public when Clerk of the Circuit Court Joseph Abruzzo determined the 357 pages of documents did not meet the criteria for confidentiality.
Of the 357 pages, only a handful were determined to be confidential under attorney-client privilege. First obtained and reported on by the Twitter account @desertdufferLLG, the documents were viewed in their entirety by Sports Illustrated via 15th Judicial Circuit Court.
On Jan. 29, 2021, the PGA Tour entered into an investment agreement to purchase 150 Ordinary B Shares, or 15% of European Tour Productions, for $85 million with $30 million to be paid at closing and four installments of $13.75 million to be paid annually from 2022 through 2025.
On the same date, the Tour and DP World Tour executed a strategic alliance agreement that brought both Tours closer with a goal of working together to develop an overall competitive global structure for men’s golf under which the two organizations would combine to put forth the ultimate professional golf schedule.
Eighteen months later, the Tour came to its members and in a 22-page document titled "European Tour Group Options," provided a review of the financial stability of the ETG and options to merge, if 75% of a voting membership of over 400 members of the DP World Tour agreed or to pivot to an alternative plan to continue to prop-up a financially strapped organization.
According to its analysis, the ETG typically is break-even across four-year cycles that includes one European and one American Ryder Cup.
But in the Tour’s analysis they found the ETG Business as Usual (BAU) forecast as overly optimistic, unrealistic and not in line with historical ETG financial performance, and stated there is nothing new aside from the DP World Tour and PGA Tour strategic alliance.
In 2022, even with the additional funds from the strategic alliance for the prize funds for the co-sanctioned Barbasol Championship and Barracuda Championship, the ETG BAU forecast shows its largest loss over the last eight years at $12 million.
In the executive summary of the options document, the PGA Tour wrote the following:
“On the risk front, a merger would require the PGA Tour to devote substantial financial resources toward the endeavor—particularly in the first 5 years of the merger when we anticipate $40-$60 million being required for a reserve fund above and beyond our current contractual amounts related to our investment in European Tour Productions.”
Even with the potential pitfalls, the Tour recommended pursuing the merger.
“Though it comes with initial financial risk, at the end of the day we are securing an important strategic asset in our sport in a transaction that allows us the opportunity to mitigate that risk and recoup our initial investment over a 10-to-15-year period. Controlling the asset delivers the financial promise associated with the ownership of ETG’s stake in the Ryder Cup and accomplishes our long-term strategic objectives.”
But why take the risk?
At the time, LIV Golf was making inroads that neither the PGA Tour or ETG saw coming.
Also, the PGA Tour mentioned the need to keep pathways open to the PGA Tour, to keep its status as the best tour.
“I was disappointed when I saw the initial acquisition happened, because it's not really what Europe’s ever wanted, to be a partner of the PGA Tour,” former European Tour and PGA Tour member Graeme McDowell said at LIV Golf's event last week in Spain. “We were always a viable option. I think that was a phrase used by the chief executive of the European Tour at one point, that the European Tour needs to be a viable option for the best players in the world.”
Other options in the proposal included buying out the IMG obligation with money the PGA Tour has secured through a $300 million credit facility.
One of the key financial risks the PGA Tour pinpointed is the near-term contractual expiration of guaranteed revenues in media and sponsorship.
According to the Tour's analysis, virtually no sponsorship or media revenues are guaranteed post-2026 and most contractual revenue falls away by the end of 2024.
“Generally, we find the DPWT event foundation unstable, borderline unsustainable, and at continued risk as the promoter operator model remains challenged,” the Tour concluded.
The Tour went on to say that “we have a strong sense of the areas in the ETG business model that are problematic and need to be strengthened or rebuilt. They are many of the same issues that existed on the PGA Tour 30 years ago.”
And the answer—targeted investment of resources—would provide the opportunity to greatly improve the performance of the business.
Lastly, the ETG is actively renegotiating the Ryder Cup Europe contract to remove an adverse change-of-control provision and well as eliminate PGA of Europe as an equity owner altogether.
The removal of the control provision is a condition precedent to affirming the proposed consolidation.
“We always knew that the PGA Tour being the big boy in the golf world didn't have any control of the best five events in the world, the four majors and the Ryder Cup,” McDowell said. “So, we always kind of were always figured they would make some sort of a play at some point.”
The PGA Tour declined to comment.