LIV Golf Has Money to Blow

After months of speculation, the Saudi-backed LIV Golf Invitational Series finally teed off on Thursday in London with a star-studded field, no global media rights deal in place, and a general sense of bewilderment from golf fans across the globe. 

Over the past six months, LIV has captivated the sports media world as the saga shifted from what seemed to be an impossibility to a full-fledged, fully funded spectacle. 

Some of the numbers being bandied about are staggering. 

The league has guaranteed Phil Mickelson at least $200 million just to play, and Dustin Johnson has reportedly signed a deal worth at least $125 million — a figure greater than Tiger Woods’ career Tour earnings ($120 million). 

LIV guarantees every person who plays in its tournaments a six-figure payout. Here’s the breakdown by numbers:

• 5-month season
• 8 events per season
• 48 total competitors
• $20 million purse prize each week for individual events
• $255 million total season purse

On average, top 10 finishers will earn from $4 million down to $540,000, while the dead-last golfer still takes home $120,000 — and don’t forget, there are no cuts. 

But let’s compare this weekend’s inaugural LIV tournament in London with some of the biggest PGA Tour average payouts (remembering again that LIV doesn’t have cuts). 

• LIV London Invitational: $521,000
• Players Championship: $286,000
• The Masters: $288,000
• PGA Championship: $192,000

On top of tournament winnings, there are bonuses. 

The PGA Tour does pay out on top of its purses — it introduced a Player Impact Program last year that paid Tiger Woods and nine other golfers a total of $40 million for the “interest” they were able to generate for the sport. Additionally, there is a $75 million pool for the FedEx Cup Playoffs, up $15 million from 2021, with the champion taking home $18 million.

While the PGA Tour has upped its pay scale, LIV has its own bonus system to supplement its outsized pay scale, including an $18 million purse for the regular-season individual champion from a pool of $30 million. 

LIV’s season-ending Team Championship will also carry a prize fund of $50 million to be divided among 12 squads, including $16 million for the first-place team.

Needless to say, LIV has demonstrated a willingness to spend cash — in excess. But how does a venture like this make sense from a financial standpoint? Is there a path to profitability? Or are they simply…LIVing la vida loca?

All Aboard the Money Train

To understand just how the league is being funded is to recognize the scale and plans of the backers. 

The Saudi Public Investment Fund (“PIF”) is the sovereign wealth fund of the Saudi kingdom and acts as a repository for the kingdom’s $600 billion asset base. 

The fund was first established in 1971, but it was not until 2014 that the council of ministers allowed for any investments outside the kingdom. 

This decade, the fund has changed its mandate, aligning with the kingdom’s 2030 vision plan — diversifying from traditional oil assets and building new industries domestically while investing in technology overseas. 

So what does foreign investment for the PIF actually look like? To date, the PIF has been active in investing in a few main asset classes: technology companies, sports, and gaming. 

Many of the fund’s tech investments have come from the PIF’s $45 billion investment in SoftBank’s original Vision Fund in 2016. 

Since then, the PIF’s foreign interests have increased substantially. A 2018 investment in electric carmaker Lucid Motors Inc. soared in value to almost $40 billion in early February. It also has stakes in video game makers Activision Blizzard Inc. and Electronic Arts Inc. through the investment.  

Then there are the PIF’s ambitions to become magnates in the sports world.

In the past 12 months, the PIF has been rumored to have many of the largest potential sales in international soccer, esports, and most recently golf. The PIF was heavily rumored to be involved in purchase talks for Chelsea and Inter Milan, while also said to be in talks with KKR to purchase Telecom Italia — the primary rightsholder for Serie A soccer. 

Then there are the deals that have actually closed. 

• In June 2022, it purchased an 8.1% stake worth $1.05 billion in Embracer Group — a video game and media holding company. 
• In May 2022, it purchased a 5% stake in Nintendo for $3 billion making them the company’s fifth largest shareholder.
• In January 2022, the PIF fully funded Savvy Gaming Group’s purchase of ESL and FACEIT to form the joint $1.5 billion entity “ESL FACEIT Group.”
• In October 2021, the PIF made an outright purchase of Newcastle United for $409 million.

To date, the investments are vast but fall into what we would consider traditional-style investments. 

LIV, however, is a bit of a different story. 

Operating at a Loss

The big question: How does LIV become a profitable endeavor? The answer: It might not have to. 

The PGA tour is a profitable venture — it forecasted revenue of $1.52 billion in 2022, with the main revenues coming from tournaments (~85%) and the remaining going to the chain of public and private courses operated by the PGA known as the Tournament Players Club Network. 

At the same time, the Tour is estimated to pay out $427 million in prize money in 2022. The financials ultimately look something like this:

• The tour will pay out 55% of its total revenues ($838 million) to players throughout the course of the season.
• Average purse in 2022 will be $9.1 million, which is up over $1 million from 2021.
• The remaining 45% will be used to cover tournament and TPC related expenses.
• The total revenue to “purse money” distributed represents a 3.5 ratio.

In simplified terms, in order for LIV to hit a similar profitability point, the incumbent league would require revenues of $900 million to hit a similar 3.5 revenue-to-purse money ratio. 

And how does one make money off of an international sports circuit? Media rights. 

Until the eve of the tournament, the key money-making ingredient was not yet in the picture. On Wednesday evening, however, LIV was able to ink deals with DAZN, SuperSport, and Sky Deutschland to help underwrite the cost of the tournament. 

While no financial details have been disclosed, the announced deals show that media companies are willing to partner with the fledgling league. 

The rights deals may have come at the last minute, but they should by no means be viewed as a life raft for the league. 

With the backing of the PIF, LIV has the luxury of operating at a loss for as long as it needs to in order to build the product. Being backed by a $600 billion war chest that plans to grow to $1 trillion by 2030 not only changes the playing field but alters the rules of the game. 

As the PGA Tour evaluates the threat of this upstart league, it would be wise to remember that it might not be playing the same game as LIV — which could be a dangerous proposition.