PGL and LIV: A Business Breakdown

The PGL and LIV are PGA Tour competitors. Do they have a profitable business model?

Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 40 new Perfect Putt members who have joined us since last Monday. Join 1,724 intelligent and curious golfers by subscribing below.

---

Hey Golfers —

A couple of critical items were announced regarding emerging professional golf leagues in the past few weeks.

• Premier Golf League — a memo was published detailing equity

• LIV Golf — The LIV Golf Invitational schedule and purses were announced

The Premier Golf League and LIV Golf are proposed, alternative golf leagues. They share a common vision for what they believe professional golf should be. However, funding sources for the respective leagues are a significant distinction between the two leagues.

Here is a quick breakdown of the two leagues — each league is linked to its website if you are interested in reading more.

Premier Golf League:

• Financed by the World Golf Group — British Organization

• Eight-month season

• 18 events per season

• $20 million purse prize each week for individual events

• $4 million first-place each week for individual events

LIV Golf:

• Financed by the Public Investment Fund — Saudi Arabia Government

• Five-month season

• Eight events per season

• $20 million purse prize each week for individual events

• $255 million total season purse

Here is the interesting thing. The Premier Golf League announced an equity offering to PGA Tour, Korn Ferry, and DP World Tour members, in an effort to partner with professional golf tours. In an article published by The Firepit Collective, the Premier Golf League gives itself a prospective value of $10 billion. The PGL stated the $10 billion valuation is based on an independent audit of their financial projections. They are expected to reach a $10 billion valuation within seven years.

Here is a breakdown of the equity allocation.

(Photo Credit: The Firepit Collective)

It gets crazier. The Premier Golf League states that players will receive cash payouts once the deal is ratified. Here is what each member tour player would receive.

• PGA Tour: $2 million

• Korn Ferry Tour: $300,000

Let’s put a couple of items into context. $2 million would have been enough for 68th on the PGA Tour money list in 2021. $300,000 would have been enough for 6th on the Korn Ferry Tour money list in 2019 — I used 2019 as a baseline due to the COVID impact on Korn Ferry Tour scheduling.

The Premier Golf League allocates shares to each voting member of the PGA Tour and Korn Ferry Tour. Here is how many shares and the projected valuation.

• PGA Tour voting member — 200,000 shares ($20 million valuation)

• Korn Ferry Tour voting member — 30,000 shares ($3 million valuation)

How did the Premier Golf League get to a $10 billion prospective valuation? I wish I knew. Valuing a company at $10 billion pre-revenue is insane.

Here is a quick example — Zillow raised $32 million, pre-revenue in 2005. Zillow is worth $13 billion today; it took them 16 years to get there.

Understanding that sports teams and leagues aren’t the same, below is a look at the top sports team valuations.

• Dallas Cowboys — $5.7 billion

• New York Yankees — $5.25 billion

• New York Knicks — $5 billion

• Barcelona — $4.76 billion

• Real Madrid — $4.75 billion

Let’s look at the PGA Tour to see if the unit economics make sense for PGL and LIV Golf.

The PGA Tour is in a healthy spot from a financial standpoint. Here is a breakdown of revenue from 2015 to 2019. The PGA Tour forecasted revenue of $1.52 billion in 2022.

(Data Credit: PGA Tour)

The PGA Tour splits its revenue into two buckets.

• Tournaments: 85%

• TPC Network: 15%

Included in tournament revenue is sponsor-driven advertising as well as domestic and international media rights.

Included in TPC Network revenue is corporate and retail licensing and investments.

The PGA Tour is in the first year of a nine-year TV contract worth $700 million per year with CBS Sports, NBC Sports, and ESPN. The previous PGA Tour TV contract was estimated at $400 million per year; the new deal represents a 75% increase.

A TV contract is the only way for LIV Golf and the Premier Golf League to generate meaningful revenue, as they will not have diversified revenue streams that the PGA Tour has with its TPC Network.

Taking it further — here is a look at season total purse payouts for each Tour.

• PGA Tour — $427 million

• Premier Golf League — $392 million

• LIV Golf — $255 million

Here is what we know. This year, the PGA Tour will pay out $427 million in purse money and is forecasted to do $1.52 billion in revenue — a 3.5 revenue to purse money ratio.

Oversimplifying it — the Premier Golf League would need to bring in $1.4 billion in revenue, and LIV Golf would need to bring in $900 million in revenue to have similar financial metrics as the PGA Tour.

To be fair — the breakeven to profitability could be less. Let’s say we are half wrong, and those respective revenues needed would be $700 million and $450 million. A large majority of that revenue would need to be made up in TV contracts.

I find it hard to believe that these leagues will become profitable. They may have a few years of operating existence, but there appears to be little room for profitable success in the current format.

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

Your feedback helps improve Perfect Putt. How did you like this week's newsletter?

Great - Meh - Bad

If you enjoyed this week’s newsletter, please share it with your friends :)

---