The Business of Sports

Sticker Shock at the U.S. Open


(The 14th paragraph has been updated)

On the Hallowed—and Expensive—Ground of Pebble Beach

Is the PGA Tour's most egalitarian tournament too exclusionary when it's held in a tiny upscale market such as Pebble Beach, where the average hotel room tops $1,445 in a slow season? Hosting the U.S. Open usually brings in $100 million in economic impact to the local community, but Bill Perocchi, chief executive of the Pebble Beach Co., expect that visitors during the week of the Open will spend $150 million in hotels, restaurants, retail stores, and other business venues.

The U.S. Open has sold out for 23 consecutive years and this year won't buck the trend.

In 1919, developer Samuel F.P. Morse decided to build a golf course in order to create more interest around ocean view property he was trying to sell in California's Monterey County. Over the past century, the Pebble Beach Golf Links has generated more than its share of U.S. Open excitement, from Bobby Jones losing in the first round of the 1929 U.S. Amateur championship to Arnold Palmer's breakthrough victory in 1960, Tom Watson's 1982 chip-in, and Tiger Woods' victory by a record 15 strokes a decade ago.

The U.S. Open returns to Pebble Beach this week for the fifth time in its history. And as the buzz and the spectator capacity has escalated over time, so have the prices.

Some Staggering Rates

Even during non-Major days, Pebble Beach is not for the faint of heart or slender of wallet. The course's three famous "Cliffs" holes (the 8th, 9th, and 10th) confound even scratch amateurs, as regularly witnessed during the course's annual AT&T ProAm, and a round there will set you back $495. (Resort guests get a cart thrown in.) The Pebble Beach Club's three other courses are slightly more wallet-friendly: Spyglass is $350 per round, the Links at Spanish Bay $260, and old Del Monte $110. But lodging at the Lodge packs a wallop: The least expensive Garden View rooms go for $695 a night, a view of the Pacific will cost you $965, and suites range from $1,800 to $2,250. What's more, a minimum two-night stay is required to play the Pebble Beach course.

As always during America's mega-events, local hoteliers take full advantage of sports travelers, and this week on the Monterey Peninsula and beyond is no different. Even lower-end lodging is at a premium, with the modest Knights Inn in Monterey costing $300 per night ($64 on a Thursday night in mid-September), the Holiday Inn Express at Monterey Bay at $437 per night ($97 in September), and the Embassy Suites in Seaside $519 per night now, $161 per night then.

Corporations don't get off any easier.

Alongside returning USGA partners American Express (AXP), IBM (IBM), Rolex, and Royal Bank of Scotland (RBS), companies planning hospitality at the U.S. Open have purchased almost 100 percent of the hospitality venues available, from $155,000 chalets with seating for 40 to rooms in the world-famous Lodge at Pebble Beach from $195,000 to $350,000. The least expensive option—still available!—for companies hoping to entertain clients there are $37,000 corporate tables for 10 in Pavilion tents. Food and beverage cost $10,500 additional.

As Golf.com's David Dusek notes, "the official car of the USGA's U.S. Open is, um, not American. It's a Lexus."

For the golfers competing, the venue is a welcome stop and a worthy course. Says Australian pro Geoff Ogilvy, winner in 2006 at Winged Foot after leader Phil Mickelson hit a hospitality tent: "Great venues have great winners. … It's great champions that validate a golf course." With this in mind, the U.S. Golf Assn. and its TV partners ESPN and NBC will be giving maximum exposure to the likes of Mickelson and Woods, with each receiving a prime 4:36 p.m. Eastern start time on Thursday and Friday. Woods will be paired with Memphis winner Lee Westwood and past champion Ernie Els, while Mickelson will play with Padraig Harrington and last year's PGA Championship winner, Y.E. Yang.

2. U.S. Open: Golf Retailers Examine Their Game

At Pebble Beach, as with all U.S. Open sites, the 30,000-square-foot U.S. Open Merchandise Pavilion features more than 490,000 pieces of merchandise. Inside, it has the feel of a department store, with sections for just about every major brand of golf apparel and 52 cash registers to check out shoppers going to or coming from the course.

Golf equipment led all sales of sports equipment in 2009, totaling $2.48 billion, but down 11.4 percent from 2008. However, with U.S. consumer spending numbers now down across the board, according to government figures released on Monday, golf industry executives are proceeding with caution.

On Monday, spokesmen for Callaway Golf (ELY) said the Carlsbad (Calif.) company "would report lower sales and profits for the second quarter than previously expected as the pace of the economic recovery remains sluggish," according to the San Diego Tribune. Callaway has revised its sales forecast to $295 million to $305 million for the period ending June 30, 2010.

Almost literally down the street in Carlsbad, executives at TaylorMade-Adidas actually saw a pop—albeit a small one—in sales. In 2009, TaylorMade-Adidas Golf revenues increased 2% to €831 million from €812 million in the prior year, according to the Adidas-Group 2009 annual report. U.S. sales stayed almost flat, a definite win in the current economy. "We have to grow outside the U.S.," emphasized TaylorMade-Adidas CEO Mark King in an interview on Monday at the company's headquarters, also in Carlsbad. "Seventy percent of our business is now coming from outside the U.S. Ten years ago, that number was 10 percent." Adidas (ADS) purchased the TaylorMade group in 1998, a deal that served as a catalyst for much of the last decade's international growth.

Even though golf isn't completely recession-proof, King says, "The National Golf Foundation has found golf to be the last sport affected and the first to recover" in today's economy. "Most people who play golf are still playing," King adds. "They're not spending as much money when they play, but they're still playing." Such platforms as The Golf Channel have helped shape the way people see golf, he opined, and helped the sport to capture attention and spur investment.

It's new, innovative products, however, that have the ability to bring the most people into the game, King insists. "We present new technologies every 12 months in all of the categories we compete in," he says, and more PGA Tour pros use TaylorMade-Adidas products than any other brand—"strength in numbers as opposed to icons."

Nike (NKE), a brand that definitely took the icon route when mapping out its marketing, is facing greater perception challenges as a result of the Tiger Woods fallout, according to YouGov BrandIndex, the only daily consumer perception research service of brands.

Nike's reputation scores show that respondents would be increasingly "embarrassed" to work for the Nike brand. In April, during the Masters and the poorly-received ad Nike premiered featuring Woods and his late father Earl, Nike's branding scores dropped 11 points, from 39 at the beginning of the month to 28, as of Apr. 13. (A score can range from 100 to -100 and is compiled by subtracting negative feedback from positive; a zero score means equal positive and negative feedback.)

And for the first time in a decade, Woods did not top Marketing Evaluations' "Sports Q Scores" list when its June numbers were revealed last week. The 47 year-old system ranks the appeal of celebrities: Woods dropped to No. 25 in popularity, and his negative scores doubled.

Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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