Has LIV Golf Exposed the Long-Overlooked Cracks in the PGA Tour’s Business Model?

“I can’t believe they’ve done so well for so long,” said Rory McIlroy at the Stick to the Football podcast. The Northern Irish golfer was not talking about LIV Golf. Rather, the Ulsterman was surprised that the PGA Tour he batted for so long survived and thrived with its obvious flaws.

The four-time Major winner, speaking from Dubai, expanded on the flaws he referred to earlier. Revenue is definitely part of it. McIlroy wanted to grow the $2.5B revenue to $4B or $5B. But asking sponsors to pony up millions is surely not the right step, as the Northern Irishman was convinced. Rather, the PGA Tour, which has mostly cooped itself up inside the US, needs to “spread their wings.” But it was not just McIlroy who openly flagged the flaws in the existing system.

Another major champion rings the alarm bell

Webb Simpson has full faith in the product. But the Tour Policy Board member is not so sure about the business model. Simpson admits he is not a student of economics or finance. But the only skill you need to assess the sustainability of the Tour’s business model is common sense. The Tour already takes some 150% of the purse size from sponsors and is asking for more.

The seven-time PGA Tour winner claimed, “The model is broken at the purse sizes we’ve been going the last year. And the sponsors are starting to feel it.” Sponsors are not getting the ROI they want. As Rory McIlroy pointed out not too long ago, “They’re [PGA Tour] asking sponsors to pay $20-25million to sponsor an event but they’re not seeing the value in it as they can’t guarantee the top 50 guys will be playing, so they won’t give them the money.”.

Wells Fargo has already announced their departure. Simpson, who is close to the top brass, claimed that demands reached the tipping point, which the $169 billion company deems unfit for their business. Notably, the Wells Fargo Championship’s purse size has seen a massive leap to $20 million from $9 million in 2021–22.

Honda left last year, and reportedly, Farmers Insurance, another big-money sponsor, will not renew its contract beyond 2026. In fact, the two-time Major Champ worries that “there will probably be a couple more this year, I would think, maybe one or two more.”

The product, Simpson believes, is good, but “we’ve just got to sell it at the right price. We’ve got to be careful there.” Carefulness is what the top brass lacks, it seems. Actually, it’s not just the sponsors; even the tournament hosts are starting to feel the heat.

PGA Tour event hosts are stretched thin

As per Sports Business Journal, the PGA Tour is putting up an additional fee through which the events will contribute a portion of purses from 2025. The fee will depend on the market and vary according to the type of event. So, a Signature event, like the Sentry, has to cough up more than a regular or an opposite tournament host.

As per the new plans, they are supposed to pay 50% of that fee starting next year. The value will increase to 75% in 2026, and the hosts need to pay the full amount by 2027. On top of that, tournament hosts revealed that the PGAT is also planning to take a portion of the revenue.

Yes, the tour offers an entitlement fee to the hosts. However, they are the ones who put in the most effort to generate revenue through ticket sales, merchandise sales, Pro-Am spots, and sponsorships. After paying the staff, infrastructure, rentals, etc., the money goes to charity.

Golfweek reported that Friends of Hawaii charities, which host the Sony Open in Hawaii, have raised $24 million over the last two decades. But the director, Ray Stosik, doubts if that’ll be possible in the future unless there are “some PGA Tour subsidies in certain areas.”

The hosts are not in great shape either. Sony Open reported a $178,000 loss in its last tax filing, as per the same report. Stosik added with a tinge of pessimism, “If we could break even this year, I think that would be a positive.” But it’s not just revenue where the Tour has been exposed.

Keith Pelley takes a subtle dig at the PGA Tour

Keith Pelley, following in the footsteps of Rory McIlroy, fired a shot at the PGA Tour before vacating his seat at the Wentworth Club. Tuning in with the Ulsterman, the Canadian said, “Every business now that is growing wants to be global.”

“I think the growth of the game is global. That’s where the focus needs to be,” Pelley said forthrightly in his admission. Commending PIF for its global vision, the departing European Tour CEO said, “They understand the importance of global. PIF (Saudi Arabia’s Public Investment Fund) certainly understands the importance of being global.”

McIlroy, while admitting the American market’s importance, revealed his future plans for expanding the global footprint. For the PGA Tour, it has been a tough task to convince players to travel overseas for a tournament, which is why the World Golf Championship met its downfall.

Read More: From ‘Irrational Threat’ to ‘Powerful Addition’: Has LIV Golf Finally Become More Than a Punchline?

But LIV Golf seems to have hammered home that the Tour needs to look beyond the Atlantic to survive in the long run. The markets in Japan, Australia, and the Middle East remain an untapped source of revenue as well. As more players seem to find their voice and the power that comes with it, the breakaway league has played the role of a necessary disruptor.

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