- Tour looking to diversify revenue streams and build B2C operations
- Organisation converts ETP joint venture into preferred supplier deal
- Pelley claims deal will give tour greater editorial control and free up cash flows
Keith Pelley, chief executive of the European Tour, says the marketing minds at Wentworth toyed with the idea of a name change when the organisation recently underwent a brand refresh. They wondered whether ‘European’ continued to be the best adjective for a golf circuit that passes through South Africa and Mauritius in the winter months and whose central narrative is the race to Dubai. That they eventually resisted the temptation to tinker, tells you a lot about the balance of commercial power at the organisation.
“We looked at it closely, not just in context of the fact that we play in 31 different countries,” he says. “But we also looked at it in the context of the Ryder Cup and how important that property is to the European Tour, and which is as European as it goes.”
For better or worse, the biennial match against the USA remains the golden goose in the tour’s portfolio of international tournaments, helping to balance the books in a four-year breakeven cycle. Revenues increase significantly in European Ryder Cup years and to a lesser margin when the PGA of America hosts the tournament. Exactly how much the European Tour depends on the event is reinforced by the fact that it made a loss in each of the non-Ryder Cup years between 2011 and 2018.
Pelley says a new tour logo and slogan (‘driving golf further’) are the next stage in a clearly defined strategy to diversify the tour’s business and broaden its commercial appeal – all the while taking care not to undermine its greatest asset. The Canadian predicts that the latest changes, allied to the structural overhaul he has implemented since joining in 2015, will help to even out revenues over the next four years.
“I think that was a big discussion point and always has been: are we completely reliant on the Ryder Cup?” he says. “And the answer would be that we have been in the past. But in order for us to be a company that’s flourishing, we can no longer rely on the Ryder Cup and in this cycle [2019-2022] we will not.”
He says the 2017 decision to take full control of European Tour Productions – the outfit that produces and distributes coverage of the European Tour, Ryder Cup, The Open, Senior Tour and Challenge Tour events – is fundamental to this transition. Previously a joint venture with IMG, Pelley decided to restructure the relationship to give the tour more editorial control and free up cash flows.
“The best way to explain it is we converted a joint venture into a long-term preferred supplier deal,” he says. “We spent 18 months negotiating a deal with IMG which saw us take back control of our content and the world feed, which has also been an incredibly strong deal financially for us.”
Under the new 20-year contract, the tour will pay IMG to continue to provide production and some distribution services, but it has also freed itself of the obligation to share 50 per cent of joint venture revenues with the agency. The latest set of accounts for the tour indicates it paid IMG £12.9m for these services in 2018, the first year of the restructured relationship, and took on an additional £37m in production costs that were previously carried by its JV partner. But revenues also increased by more than 60 per cent year-on-year, (from £210.9m in 2017 to £337.6m in 2018), not all of which can be attributed to it being a European Ryder Cup year.
“The accounts include 100 per cent of the costs, but you’ll also see 100 per cent of the revenue,” explains Pelley. “The ETP [restructure] will generate just under £50m over the next cycle for us, in net free cash flow.”
The deal hasn’t been to the taste of everyone, with one tournament director expressing concerns to SportBusiness about £392m of ‘capital commitments’ related to the restructure in the latest set of European Tour accounts.
When the concerns are relayed to Pelley, he is eager to stress that the tour has not taken on any additional debt in taking on IMG’s JV share. So much so, he invites Jo Stent, the tour’s chief financial officer into the room to explain the deal. She says that the £392m relates to variable and fixed payment portions to the agency over the next twenty years based on historic performance.
“There was no capital outlay,” she explains. “All that we did was take the existing arrangements, and in order for us to obtain 100 per cent control of the assets, we gave IMG a 20-year contract with break clauses in year eight and year 16.”
Digital media and audience intelligence
Aside from improving cash flow, Pelley says a further reason for taking the global feed in-house is that it improves the tour’s branded content capabilities and its capacity to showcase tournament host cities in its coverage, something which will in turn help to grow hosting fees.
“What is critical is that the world feed and all editorial content is now controlled internally and that allows us to really customise it for different partners, for different cities, different countries, different tourism departments,” he says.
The European Tour has already developed a strong reputation for creative short-form content during Pelley’s tenure – earning recognition at last year’s BT Sport Industry Awards when its ‘Access all areas’ series won the prize for best social media campaign. Perhaps the sincerest compliment was the moment Discovery Media poached social media and community manager Jamie Kennedy earlier this year, to head up digital operations for its new GolfTV streaming service.
Discovery’s admiration hasn’t been entirely detrimental to the business, however. In late 2018 the media company announced a ‘substantial’ and wide-ranging deal to acquire rights to all European Tour events and the next two Ryder Cups in selected markets, commencing in 2019. It is thought the European Tour’s digital prowess played an important role in the deal, as some of its ancillary content and shoulder programming will help Discovery fill gaps in the GolfTV content schedule.
Pelley thinks there is plenty of room in the golf ecosystem for Discovery’s digital product and the European Tour’s own ambitions to become an entertainment and content business. It is understood the tour will work together with Discovery on certain content initiatives while continuing to produce other digital programming independently. This will mean the tour continues to have a skin in the audience intelligence and data gathering game.
“When I first came here, one of my first focuses was audience intelligence,” he says. “We made a conscious effort to build our social media team and try to create a culture of creativity and entertainment around golf as the platform.
“I always said that TV ratings are another form of currency. And data and information on our players or on our audience is another form of currency, as long as you uphold the integrity measures.”
The Canadian says he now wants to spend some of this currency growing business-to-consumer (B2C) revenues.
“As far as far as our overall revenue is concerned, less than three per cent is from B2C, which is a real concern for us,” he says. “If you compare that, for example, to the PGA Tour, 23 per cent of their total revenue comes from B2C.
He thinks there is a ‘ceiling’ to the business of running golf tournaments and he wants to adopt a multi-platform approach that allows the tour to communicate with consumers on a more consistent basis. To this end, the European Tour website and app have been updated and moves have been made to improve the tour’s CRM system. Pelley says the introduction of the ‘more modern and flexible’ logo and identity is in keeping with attempts to improve direct interaction with consumers.
“Reach, engage, capture, convert and retain is what I what I often say,” he explains. “You reach them through the broadcast world feed, through original content on our social [media channels]; you engage them through the website and the European Tour app, and you then try to capture more information through a European Tour database. You then convert them into ambassadors for the tour by giving them tickets and hospitality and merchandising, and then you try to retain with incredible service, loyalty and proper communication.”
A near doubling of sponsorship revenues at the European Tour in the last four-year cycle shows some of the investments that have already been made are bearing fruit. Pelley ascribes the increase to the tour’s improved branded content capabilities thanks to the ETP deal, greater revenues from the Ryder Cup in Paris in 2018 compared to the last European event at Gleneagles in 2014, and to the creation of the Rolex Series.
The Swiss watchmaker was persuaded to more than double its investment in the European Tour and underwrite the lion’s large share of an additional $12.2m in prize money for the new seven-event series in 2016, which was part of a plan to prevent an exodus of players to the wealthier US PGA Tour. It is thought a richer package of digital video content rights helped get the deal over the line.
The tour has also restarted the stalled Worldwide Partner programme for the Ryder Cup. One of the weaknesses of the programme previously was that the sponsorship rights to the tournament were sold by the European Tour in the years that it hosted the event and by the PGA of America for the return leg. The two organisations have now created a joint venture to prevent cross-selling of the rights and make it easier for brands to make longer-term commitments on an exclusive basis.
BMW last year joined the programme for the next two matches, in the US in 2020 and Italy in 2022, while global professional services company Aon came on board in September. Pelley says he is dismayed that more hasn’t been made of the recent deal.
“Nobody has talked about that, nobody has written about it because nobody has asked us about it,” he says. “But we recognized the problems – that if we were going to come together globally and work closer together, we had to be aligned from a commercial perspective and now we are.”
Pelley thinks additional sponsorship growth will come from a strategy to take over the management of more events.
“I think when I arrived here, we operated five tournaments and we now operate 15. And that means we control all aspects of the tournament from tickets to hospitality, to merchandise, to sponsorship to everything inside the ropes and outside the ropes.”
He says the strategy puts the tour in a position to upsell tournament-level sponsors, as was the case when sunglasses and eyewear manufacturer Maui Jim upgraded a smaller deal into a global partnership in June. Acting as a tournament organiser also provides greater opportunities to gather audience data.
“There’s a correlation between us promoting events and our B2C strategy, because now with us producing more events, we’re communicating with the consumer in a different way and more often,” he says.
Prize fund and playing opportunities
By Pelley’s estimates, the upturn in sponsorship revenues and some rights distribution benefits from the ETP deal were worth an additional £54m in revenues between 2015 and 2018. He says £15m of this was reinvested in sponsor activations and £39m was invested in new tournaments.
The true measure of success will be whether more of the world’s leading players are persuaded that the prize money on offer justifies entering European competitions over lucrative PGA Tour events more frequently.
“The ETP deal is a big part of that, as is the Rolex Series,” says Pelley. “We have a better commercial proposition; we’re going to grow the B2C business and our intention is that the European Tour will be profitable on a standalone basis and continue to provide the highest prize funds and the most playing opportunities for our members. That’s the plan that we have in place and we’re pretty comfortable with it.”