Sunday, June 22, 2008

Various US Open News and Notes

It all comes out of a San Diego Union-Tribune piece by Tim Sullivan.

First, some news on future US Open sites in 2016-2018.

Mark your calendars for June 2018. Mark them in pencil, though, because the invitation has just been issued and the approval process can be prolonged.

The next two Open openings, in 2016 and 2017, are expected to be filled by Oakmont Country Club, the suburban Pittsburgh site of the 2007 Open, and the new Erin Hills (Wis.) Golf Course, site of the 2011 U.S. Amateur.

The USGA will consider those courses at its October championships and executive committee meetings in New Jersey. Based on the commercial and theatrical success of the 108th Open, however, Torrey Pines could also be considered for fast-track approval.

Of course, none of this is set in stone. The clubs have to negotiate with the USGA and come to an agreement for an official announcement to be made. Also, in the case of Torrey, the city of San Diego has to agree to the contract as well as various side organizations that are related to Torrey - no Friends of Torrey Pines this time, though. Just the hotels and such. Keep your fingers crossed, San Diego, and stay classy.

Then Sullivan shifts his conversation with David B. Fay, executive director of the USGA, to revenues and payments. Apparently, he is not too happy with Jon Show's reporting of the profits of the US Open.

Whether auditors will conclude that the city broke even on the 2008 Open will depend on the size of their imagination. The city stands to collect only $500,000 in cash for an event that could be worth up to $50 million in profits to the USGA, according to Street & Smith's Sports Business Journal.

Though Fay says that estimate is a distortion – “the guy who parsed the numbers together for Sports Business should receive an advanced degree for making accounting a creative art!” he wrote – the USGA typically books enough profit to pay millions to the Open site.

Unfortunately, though, no where in the piece does Show mention anything about payments to the city or the Friends of Torrey Pines. Actually, the piece that talked about how the city of San Diego was getting ripped off was reported in the Union-Tribune. The city may only get $500K, but the total payout comes close to $6 million. About 12% of the Open's profits were given back to the course or the city.

Keep in mind, though, that the Friends of Torrey Pines was an organization created specifically for being the intermediary negotiating between the city of San Diego and the USGA. And they got $5.37 million from the USGA. The city got $500,000 plus another $700,000 in reimbursement for expenses and public safety. Unfortunately, though, the city put in a whole lot more than that.

Meantime, the city's golf enterprise fund will make no direct money from the U.S. Open, while about $3 million has been spent on projects related to the Open, according to Golf Manager Mark Woodward. That work includes the acquisition and installation of one million square feet of kikuyu turf, the moving of trees, repainting the clubhouse and restrooms, and the construction of new cart paths to minimize damage to the grass.

Also, the problem with the Friends of Torrey Pines has been detailed in the past, but some may have forgotten it. So, let me rehash it. It all starts with the Chris Millard piece that ripped a new one into Walter Driver:

One current example of this trend is the case of Cameron Jay Rains. Rains is the co-chairman of the 2008 U.S. Open at Torrey Pines. He is also a member (since 2003) of the executive committee. This circumvents the time-honored practice in which local championship chairs report to USGA staff. When asked whether the arrangement presents a conflict, Driver says, "He was the chair of the '08 Open before he came on the executive committee, and we essentially screened him off from any potential conflict." Pressed to admit Rains' dual interests could at least raise some eyebrows, Driver is dismissive. "Doesn't work that way," he insists.

Some observers aren't so sure. "The person negotiating on behalf of the city of San Diego [Rains] is also on the USGA executive committee," says Shackelford. "He's on both sides of the table. So when San Diego [officials] want to know how many hats were sold and what their cut of the revenue is, this isn't a problem? Who is [Rains] looking out for? It's just astonishing."

In the end, Rains did raise about $3.5 million through the creation of Friends of Torrey Pines for various course projects that eventually led to the Open coming to Torrey. This was private capital, though. That private capital investment is being paid off by the USGA in the form of $5.37 million. In effect, they will make a $600K profit from their investment.

The funny thing is that they estimated last year that they would make $2 million less - a break even investment, so to speak:

Rains said this week he believes the Friends of Torrey Pines will receive about $3.5 million from the Open – $2.5 million in corporate sales and the $950,000 the city reimbursed it for the South's reconstruction.

It almost sounds a loss of money here for the FOTP because of the $1.2 million that goes back to the city from the Friends. The Union-Tribune reported the $5.37 million number from Rains the week of the Open:

The Friends reported they would receive $5.37 million from the Open, largely from rent payments and corporate hospitality shares through the USGA. Most of that – $3.4 million – will go back to the families and businesses that paid for the renovation of the South Course in 2001. They have said they will contribute that money to charity.

There is no legal obligation for the 30 investors that make up the Friends to donate the money to charity. I suppose they could consider it reimbursement for their investment. Still, this means that the city will lose a few million dollars on the deal with the USGA. And, as I read it, it also means that the Friends will make back their investment plus $600K. Basically, money that could have gone to pad the cost for San Diego will go to private hands instead. That is a solid return on investment for Friends of Torrey Pines - almost 20%.

And I will close with a quote from a Tod Leonard piece already quoted in this post from Rains:

“The money that comes back will be given to charity,” Rains said. “I don't want anybody to say we made money off a public golf course.”

Though Rains said he will leave it up to the individual donors on how they donate their share, he intends to encourage funding a project that will enhance the experience for city golfers. He said he could not be more specific at this time.

So, what about that $600K again? And going from a $1.2 million loss to a $600K profit in the course of a year?

...that got out of hand really quickly.

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