Tuesday, June 10, 2008

How Much Money Does the Open Make?

I speculated in the area of $80M in revenues, and it turns out that I was not that far off - according to Jon Show at the Sports Business Journal.

Total revenue for the tournament should be close to $100 million, including estimates of $20 million in ticket sales, $15 million in corporate hospitality, $15 million in merchandise and $5 million in food and beverage.

That also includes approximately $40 million from domestic and international television revenue. Many of those arrangements include rights to air parts of other USGA tournaments, such as the Women’s and Senior Opens, but media industry sources estimated 95 percent of the value of those deals is attributable to the U.S. Open.

Expenses should be about $50 million based on Opens held at comparable courses.

That leads to a profitability projection of about $50 million. And that pretty much fuels the USGA for the rest of the year. To put that into perspective with an earlier post, Torrey Pines and associated organizations will get about 12% of the total profit as a separate series of payments.

According to Show, it also makes the Open the most profitable major as far as anyone can tell. It pulls in double what the PGA Championship does.

The piece then goes on to talk about the enormous revenue in hospitality and corporate tents thanks to the expansive Torrey grounds. Since they're not using the North Course (the easy one) to play, they can use it to shove the media there and luxurious tents for people with money to spend.

Torrey’s expansive layout and existing on-site accommodations have also translated to near-record level hospitality sales.

Hospitality generally brings in between $10 million and $15 million each year depending on how the geography is utilized. This year, the USGA expects total hospitality sales to be among the highest in recent U.S. Opens due primarily to two on-site hotels.

Options at the course range from all-inclusive $6,200 tables to specialty packages in the low-to-mid six figures. Space at the five-diamond-rated Lodge at Torrey Pines allowed the USGA to sell about $2.5 million in packages, including a $575,000 option that was the most expensive in Open history.

Not to say that this may have been a good reason to vote for Torrey, but to cash in on unused space seems like something the USGA would want to consider especially since costs are so high for running the Open. And considering that many people - insiders and outsiders to Torrey - thought this place would never be able to host an Open architecturally speaking, due to its size and other factors, the corporate tent availability had to have sweetened the deal. They need the cash now because if you consider future Open sites, they will be taking a hit soon:
Despite the direct effect a host course has on the success of a U.S. Open, USGA officials said profitability is not the ultimate decider on awarding sites. A look at future tournaments supports that statement. Next year’s U.S. Open at Bethpage will again challenge revenue records, but the USGA will sacrifice millions in 2013 due to size restrictions at Merion Golf Club in Ardmore, Pa.
Later in the piece, though, there is a semi-contradictory quote to the sentiment:
USGA Deputy Executive Director Mike Butz, who has been involved in planning U.S. Opens since 1981, said, “The philosophy used to be to select a site and then the staff figured out how to make it work. That’s still pretty much true, but we really have to be careful to look at the finances because it can swing millions of dollars one way or the other based on the costs to run it.”
Show also talks about how much that corporate sponsorship is really helping the bottom line of the Open by creating diverse revenue streams:
The addition of USGA corporate partners has helped reduce expenses such as courtesy cars for players, but the bottom line of an Open is not hugely affected by the addition of corporate sponsorship because the USGA does not include that revenue when determining the profitability of an individual event.
You really cannot account for RBS, IBM, or AmEx in the Open's bottom line. The services and revenue they provide to the USGA are geared toward general operations that may just happen to impact the Open. So, let's just consider Lexus. According to Adam Schupak's Beyond the Crossroad piece earlier in the year:
Lexus provided cars for the equivalent of nearly 13,000 days as the official vehicle of the U.S. Open and three other championships – a savings of more than $2 million the USGA spent on vehicles for contestants the previous year.
Basically, probably less than $1M in savings for the Open in particular.

Very interesting piece and a good read if you want to avoid my commentary and judge for yourself.

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