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The DP World Tour's Business Dilemma
Declining revenue and operating at a loss leave the DP World Tour vulnerable.
Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 37 new Perfect Putt members who have joined us since last Monday. Join 3,485 intelligent and curious golfers by subscribing below.
Hey Golfers —
The European Tour was excited to announce its name change and partnership with DP World last fall — the deal was reportedly worth $400 million over ten years.
The DP World Tour rolled out changes across its tour for the 2022 season.
$200 million total purse pool
47 events played in 27 countries
$2 million minimum tournament purses
The European Tour and DP World financial partnership are out of necessity — to enable the European Tour to remain financially responsible in a time of uncertainty in professional golf.
The DP World Tour has seen two years of declining revenue — and only one of the last three years had a positive EBITDA. The primary driver for revenue and positive EBITDA in 2018 was due to recognizing $81 million from the Ryder Cup.
As the PGA Tour and LIV Golf battle for players to play on their respective tours — what happens to the DP World Tour?
The DP World Tour has proactively done two things.
DP World partnership to raise capital
Created the strategic alliance with the PGA Tour
As part of the strategic alliance between the PGA Tour and DP World Tour — the PGA Tour acquired a minority stake in European Tour Productions, the media arm of the DP World Tour, which produces and distributes content internationally.
The PGA Tour invested $85 million for a 15% investment in European Tour Productions, valuing European Tour Productions north of $550 million.
The PGA Tour paid $30 million in January of 2021 and will pay $13.75 million in four annual installments.
One item to note in regards to the strategic alliance — Jay Monahan was elected to the Board of Directors of the DP World Tour in January of 2021.
While the DP World Tour's cash position is as strong as it has been in the last three years ($76 million), it cannot afford to lose players to a competing tour and jeopardize sponsor and TV revenue due to the poor strength of field tournaments especially when some events are of similar caliber to the Japan Tour.
Let me explain:
I looked at how competitive the DP World Tour is compared to the PGA Tour and Japan Golf Tour. I broke down three key areas.
Strength of Field
To make this as comparative as possible, I took the last nine events in each respective tour. This does not include co-sanctioned events, i.e., major tournaments or WGC events.
Here is the table of events for your reference.
The Japan Tour is relatively competitive with the DP World Tour regarding Total Purse payouts for each event.
PGA Tour Median — $8,600,000
DP World Tour Median — $2,000,000
Japan Tour Median — $740,000
Not surprisingly, the winner’s share follows a similar trend to the total purse.
PGA Tour Median — $1,548,000
DP World Tour Median — $330,000
Japan Tour Median — $148,000
Strength of Field
The Strength of Field chart is undoubtedly interesting to me. The DP World Tour and Japan Tour have nearly identical tournament field strengths.
To clarify — the higher the number in the strength of field, the better.
PGA Tour Median — 256
DP World Tour Median — 58
Japan Tour Median — 33
The DP World Tour cannot afford for its field strength to decline, or it risks declining revenue and an already larger operating loss. The DP World Tour is not afforded to operate from a position of power right now — they need the golfers playing in LIV Golf events to play on their tour.
In my opinion, the DP World Tour has three options.
Status quo — stay the course
Strengthen the financial partnership with the PGA Tour
Look to get acquired — by either LIV Golf or the PGA Tour
I would be surprised if the DP World Tour did nothing, so let’s take that off the table.
As crazy as an acquisition sounds, it isn’t out of the picture. Raine Capital Group tried to acquire the DP World Tour a few years ago. I would be shocked if the PGA Tour acquired the DP World Tour when it is taking its operating capital and investing it in increasing purse sizes.
In my opinion, the most likely option is the DP World Tour will deepen its financial partnership with the PGA Tour to become even more aligned to take on competitive golf leagues. Look for more co-sanctioned events — where LIV Golfers won’t be allowed to compete — in the future.
Have yourself a great Monday. I will be writing next week’s newsletter on Tuesday, July 5th, due to the 4th of July Holiday!
I used a new software for building charts this week — click here to see the interactive charts. Let me know what you think!
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