5th October 2016

The PGA European Tour (‘the Tour’) have recently submitted their 31st December 2015 Consolidated Audited Accounts to Companies House.

These always make interesting reading, even more so this year, where a lot more non-financial information has been provided.

The Tour’s group of companies primarily looks after the interests of its members; professional golfers competing on the European Tour, the European Challenge Tour and the European Senior Tour which are all run by the business.

Chairman David Williams was appointed on 1st January 2014 so these accounts cover his second year in charge. Keith Pelley replaced George O’Grady CBE as Chief Executive Officer on 3rd August 2015 so these were still early days for the new man at the helm.

The PGA European Tour businesses are dependent upon a continuing global interest in golf, television rights contracts, sponsorship contracts and the successful running of a number of key tournaments.

Flicking through the accounts, covering the 12 month period to 31st December 2015, the following caught my eye: –

1. A well publicised “new and revitalised” strategy has been adopted under Keith Pelley’s leadership. In his Chairman’s Report, written in June 2016, David Williams says “There is significant investment taking place in both upgrading our management capability and in our infrastructure.”  Pelley himself says in his CEO Report “we are currently augmenting our commercial operation, have undertaken a complete overhaul and restructuring of our digital operation, have instigated a legal department and established a players relations department which will continue to expand over the coming months to drive our Players’ First Philosophy.

2. The Strategic Report was quick to point out that “the year following a home Ryder Cup is typically financially challenging.” As most people know The Ryder Cup is critical to the ongoing welfare of the European Tour.

Subsidiary company Ryder Cup Europe LLP is responsible for the organisation of the Ryder Cup matches that take place in Europe. It is a partnership between the PGA European Tour (60%), the PGA (20%) and the PGAs of Europe (20%). The match is run in conjunction with the PGA of America and other subsidiaries appear to benefit from away matches to a degree.

3. Due to the massive impact of the Ryder Cup the Tour budgets over a four year cycle, taking in home and away Ryder Cups, with income understandably being much greater when the match is contested in Europe. The Tour makes profits (or occasionally modest losses) in Ryder Cup years and absorbs losses in alternate years when the match isn’t played but additional ongoing costs relating to the match have to be absorbed.

2014 marked the end of the last budgeting cycle with a new one commencing on 1st January 2015. So these accounts cover Year 1 of the current business budget / plan.

The Tour is currently forecasting losses for both 2016 and 2017 due to the additional business infrastructure investments being made. With the Ryder Cup being staged in Paris in 2018 a large profit is expected which it is hoped will offset all of the losses incurred in the first three years of the current plan.

4. The Tour’s Key Performance Indicators have been broadened and now include Profit Before Tax, Prize Funds, Playing Opportunities, Top-Ranked Player Participation, Average Annual Strength of Field Rating and Stakeholder Satisfaction.

5. Five key guiding philosophies are stated in the Strategic Report: –

a) Player First – to ensure that player’s want to compete on the European Tour.

b) Partner First – prize money drives player participation so sponsors need to be shown tangible value from their involvement.

c) A Global Business – the organisation needs to better reflect it’s international reach.

d) Consumer-Focussed – fan engagement is critical to driving sponsor involvement and player participation.

e) Disciplined In Our Business – focus on efficiency to maximise returns to members.

6. Sir Michael Bonallack OBE resigned as a non-executive / shadow director on 31st December 2015.

7. Turnover was £153,633,366 (2014: £231,382,079). This 34% decrease was primarily due to the 2014 numbers benefiting from the Ryder Cup match at Gleneagles.

8. A Net Loss Before Taxation of £7,154,041 was reported (2014: £17,586,362 Profit). This compares poorly with the record 2014 profit but reflects the reduced income and higher costs due to the ongoing strategic investments.

9. Cash balances at the year end were £13,953,368 (2014: £18,580,769. During the year the tour received Interest of £231,431 (2014: £148,443) on its surplus funds.

10. Total Members’ funds (Total Net Worth) decreased to £16,849,596 (2014 Restated: £25,173,188).

11. The Tour’s Intangible Assets include the title rights to the British Masters and the Scottish Open.

12. On average the Tour employed 205 (2014: 201 / 2013: 167) staff and 11 consultants (2014: 12) during the year. Net Staff Costs in 2015 were £14,955,545 (2014: £14,323,167). Net Staff Costs for 2015 include costs of £1,428,642 (2014: £2,642,221) relating to Ryder Cup Europe LLP (see 3) above).

13. The highest paid Director, which I believe would still have been George O’Grady, received remuneration (and bonuses) of £610,717 in 2015 (2014: £681,868, George O’Grady).

14. Some corporate restructuring has taken place as PGA European Tour Properties Ltd and Ryder Cup Europe Official Hospitality 2014 Limited are both no longer trading. The Tour therefore had at the year end four trading subsidiaries and four joint venture investments.

15. The Tour has to manage a number of trading risks. These are primarily: –

a) Foreign currency risks as it trades across many continents and countries. In 2015 a Net Foreign Exchange Gain of £53,555 was charged to the accounts (2014: Loss £127,597). Forward currency contracts are used when natural hedges are not fully available (i.e. when currency receipts broadly match payments)

b) Credit risks where the tour relies on promoters, sponsors and other customers fulfilling contracts that may have been entered into long before events take place. Payment track records and credit references are undertaken. At the end of the 2015 trading year the Group had Trade Debtors of £10,394,322 (2014: £17,596,253) so these are not inconsiderable sums. A bad debt provision of £460,760 (2014: 0) was required during the year.

16. The Tour made charitable donations, mainly to bodies engaged in the development of golf, of £775,513 in 2015 (2014: £710,952).

17. The Tour banks with Barclays and is audited by accountants Grant Thornton.

A disappointing material loss in isolation in 2015 but allowing for the Ryder Cup and the strategic investments being made it is clear that the European Tour remains in overall good financial health. Strong reserves and cash balances support the Tour through the troughs of it’s four year trading cycle.

It will be interesting to see how Keith Pelley executes the new strategy and the extent of the losses that will be reported in 2016 and 2017. Clearly it will be imperative that the 2018 Ryder Cup is a success so that it enables the Tour to fully recover the losses in 2015-17 and gives everyone hope that it can thrive as we move into the 2020’s.

ME.

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