Performance Bonuses: The Quiet Money in Golf

Golfers can see seven and eight figure sponsor performance bonuses.

Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 35 new Perfect Putt members who have joined us since last Monday. Join 4,919 intelligent and curious golfers by subscribing below.

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Hey Golfers —

Darren Clarke was a long shot to win the 2011 Open Championship. The 42-year-old went off with 170-to-1 bettings odds — his chances of winning were less than .5 percent.

(Photo Credit: Irish News)

From 1993 to 2008, Darren had 12 combined wins on the PGA Tour and European Tour — Darren had a great run in professional golf during this time. And in 2011, he notched another win on the European Tour at the Iberdrola Open.

His form in Major Championships told a different story — Darren didn’t have a top-ten finish since the 2001 Open Championship, where he finished third.

The lack of form in Major Championships almost certainly impacted his sponsor agreements and compensation. Darren’s manager, Chubby Chandler, agreed to a unique sponsor contract with Dunlop.

Darren would wear the Dunlop logo for free. But if he won a Major Championship — Dunlop would pay him a $3 million bonus.

Darren Clarke won $4.45 million for winning The Open Championship.

• $1.45 million first-place prize

• $3 million Dunlop bonus

For context — the $4.45 million would be worth around $6 million today, adjusted for inflation.

I had the opportunity to speak with David Lyons from Black Swan Sports to learn more about performance bonuses from sponsors — it was a fascinating conversation.

Black Swan Sports is based out of Dublin, Ireland, and underwrites insurance policies for specific sporting outcomes for sponsors. They underwrite several different sports.

• Golf

• Soccer

• Tennis

• Football

• NASCAR

• Rugby

Black Swan is one of the world's three largest sports risk underwriters. As it pertains to golf — they underwrite numerous outcomes and scenarios for sponsors.

Here are some of the more common outcomes:

• A player to win a Major

• A player to win a specific event

• A player to win the FedEx Cup

• A player to win the Race to Dubai

• A player to make the Ryder Cup Team

• A player to finish the season inside the OWGR Top Ten

Black Swan Sports indirectly works with 30 of the top 100 golfers in the world through the player’s sponsors.

Due to confidentiality agreements, David couldn’t share past and current deals, and I respect that.

But here is what he told me about the size of some sponsor deals. A top player could expect an eight-figure performance bonus based on a specific outcome. For example — Rory McIlroy winning the Masters could result in an eight-figure performance bonus from one of his sponsors.

Here is how the process works.

A sponsor will reach out to Black Swan and ask for the price based on a specific outcome for a particular player. Let’s say Nike will write in a $1 million performance bonus for Tommy Fleetwood to win the Masters.

Most sponsors will lock in performance bonuses before the start of the season. David will start his process by evaluating the futures betting market. Tommy Fleetwood is currently 65-to-1 to win the Masters — a 1.5% chance to win.

This scenario would cost Nike around $15,000 to pay Tommy Fleetwood a $1 million bonus if he won the Masters.

Let’s look at another example — Sam Burns making the Ryder Cup Team.

Imagine that Callaway writes in a $250,000 bonus for Sam to make the Ryder Cup Team. Callaway works with a sports risk underwriter to determine the price of this specific outcome.

Based on a set of probabilities — a sports risk underwriter develops the potential outcome of this event. Let’s say the chances of this happening are 30%. The price for Callaway to insure the outcome of Sam Burns making the Ryder Cup team would be $75,000.

David told me that it is extremely common and a prerequisite for sponsor deals to have performance-related bonuses in their endorsement contracts.

It is important to note — not every sponsor will buy an insurance policy for every outcome.

Another interesting wrinkle to Black Swan Sports business is writing risk outcomes for OEMs and retailers.

During the 2020 U.S. Open at Winged Foot — Callaway teamed up with Dick’s Sporting Goods and Golf Galaxy.

The deal?

Purchase a Callaway driver before the tournament starts and receive a chance to get the club for free if a Callaway staff member wins the U.S. Open.

Callaway then analyzed its total risk and likely reached out to a sports risk underwriter to work on the probability of the outcome happening.

In this scenario, Callaway would want a staff member to win. It provides them with double the PR and exposure.

Bottom line — top golfers can make millions of dollars per year on sponsor performance bonuses. Forbes estimated that Rory McIlroy made $34 million off the course last year, and Jordan Spieth made $31 million off the course last year.

Of course, not all of that money was sponsor performance related. But it certainly played a positive role.

One interesting tidbit of information. Black Swan sees a fraction of performance-related bonuses for the LIV players compared to the PGA Tour players. And it makes sense with the guaranteed money — golfers are seeing tens of millions in guaranteed money. Is there motivation?

Have yourself a great Monday. Talk to you next week!

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