Golf – why something so daft makes sense

Blain’s Morning Porridge 8th June 2023:  Golf – why something so daft makes sense

“The person signing the cheque always wins…”

Golf – you have to laugh. But there is serious upside to be made from global sports franchise values as leisure time, AI, and prosperous middle classes emerge around the globe. Saudi might be the proverbial bull in a China-shop with their wallet, but it’s a plan!

Golf?

The Saudi Arabian Sovereign Wealth Fund, PIF, just spent billions to effectively buy Golf – why?

Golf is oft described as a good walk spoilt. It’s a downright nonsense of a sport. It’s known widely as Whack-*uck because most folk curse after every single frustrating swing of their multitudinous golf bats – yet, any player chucking his clubs in the car boot early doors Saturday will admit it’s highly addictive. I do not play golf. Sailing and golf are incompatible..

What do the Saudi’s know about WhackF*** that we don’t? Maybe Crown Prince MBS is a golfing nut? Maybe the Saudi’s think owning Golf will bring them prestige and soft power, or entice tourists to what is frankly a beautiful and stunning country to play on air conditioned courses – but somewhat lacking in the windswept, rain drenched, deep ball-swallowing machair tussocks that characterise links-courses in driech Scotland where the game was invented.

Or maybe they’ve worked out what it might be worth?

Call the way the deal was done what you will, but Saudi just took out the US PGA – effectively winning control with very, very sharp elbows and upsetting a lot of folk. They will spend billions, but could potentially reap trillions if they have called the global sporting zeitgeist correctly. (Alternatively, others think it’s yet another example of Saudi’s disconnected scattergun, “childlike” approach to buying global influence, and a national investment strategy that’s going nowhere being fritter away on vanity projects….)

Personally, if I can find a way to invest in the future value of global sport – then I will be all over it alike a rash.

Golf is not the only sport the Saudi’s are spending money on. Last year they gave serious consideration to a $20 bln bid for Formula One. They have their eye and billions to spend on Football, offering time-expired professional footballing stars eyewatering sums to appear in their new domestic league – where they say they are encouraging their young nation to engage and play. I doubt its likely to happen, and the investment team at PIF know that. As I write this morning there are rumours they will make Lionel Messi an offer he simply can’t refuse to not play in Florida for the twilight of his career – despite having committed to Beckham’s team y’day.

Some sports are already massive business opportunities – and that will widen as AI and leisure time change our priorities. Monetising the value of sporting franchises through the media and merchandising is massive in the USA – the key thing being viewers paying to watch.

The opportunity is to do the same thing around the world. Streaming, pay-per-view, the value of franchise around players, teams and sports. C’mon… every time you watch Formula 1 don’t you hanker for the old F1 cars you kept on your shelf as a kid? Following last season I bought books on F1 engineering – something I’ve been utterly uninterested in for decades… but re-awakened by crafted sports narratives on the TV and in the media… what I know about “porpoising” is quite worrying and utterly useless in my real world….

In the US domestic market there are sports the rest of the world doesn’t give a fig for, like Hockey, Basketball and AFL (American Football). All of them are worth multiples of what Global Football (“soccer”) generates – despite being the life and soul of billions more people. Saudi and others recognise sports as an opportunity – especially as nations in the developing South rise and see the growth of wealthier, time rich middle classes. Developing and then reaping franchise value from sport is a massive arbitrage opportunity. Just take a look at the number of Football team shops in Dubai’s Malls to understand the potential.

There is a tribal element to the way we follow sports. It’s as true of teams as it is of star players. Generally, an average fan will never get close to the skills of a professional sportsman – except perhaps in Golf. An investment banker will pay hundreds of thousands for a round with a leading player, and walk away beaten by just a few strokes. Amateur cyclists, runners and even sailors relish the opportunity to play in the same space as their heroes.

Teams in the English Premier league (the most valuable soccer competition) have been snapped up by 2 sovereign wealth funds, and numerous hedge funders/wealthy men – Jim Ratcliffe looks likely to win Manchester United from the Glazer family – assuming Qatar doesn’t come up with a stunning bid later today. Ratcliffe claims he is a dual ManU and Chelsea fan – but that’s like saying you passionately support both Biden and Trump.

Despite the Glazers looking like to have tripled their investment since 2007 in ManU (and left it floundering in the mid ranges with a outdated stadium), perhaps the last laugh with go to Hollywood boys Ryan Reynolds and Rob McElhenney buying non-league Wrexham (my wife was a supporter in her youth), for £2 mm. After securing promotion back into the leagues, becoming a runaway TV success and arranging exhibition games against Premier league sides this summer in the US, Wrexham is worth multiple times what the Deadpool star and his chum paid for it.

TV and streaming is critical to sports merchandising. The success of TV shows like Drive to Survive has boosted Formula 1 – and dramatically increased its fanbase around the globe. It’s transformed F1 into TV gold – and multiplied the value many times. Full Swing is doing the same thing for golf – and it captured the reaction of both PGA players (disgust) and LIV players (relief) to yesterday’s big news the PGA and LIV were merging.

Whatever the reasons, the LIV/PGA deal has upset leading golfers. They will “get over it”. The vast sums they are set to earn will probably calm their anger and hurt… even if they called the way the deal was done, PIF using the threat of anti-trust legislation to force the US PGA golf tour to agree a merger “hypocritical” and worse. (Now there is noise the deal may be investigated – also on anti-competition grounds!)  Recently PGA said Saudi’s bottomless coffers were being used to seduce “athletes” with “astronomical sums of money.. to sportswash the recent history of Saudi atrocities”. Apparently not.

Money talks… A US senator summed it up: “for months the PGA officials were complaining about Saudi human rights record disqualifying them from taking a stake in a major US Sport. I guess their concerns weren’t really about human rights?”

Maybe it won’t turn out so bad. Qatar’s World Cup was on the receiving end of much angst, anger and accusations of construction wage slavery about just how unsuitable a place it would be to host the tournament, yet fans got one of the best World Cup Finals in decades. Generally everyone agreed it was better than it was bad.

The formula doesn’t seem to work for every sport. Buried deep in the news y’day was the end of London-Irish rugby club, bankrupt and out the game for at least a year. A great shame – we used to take our kids to watch them decades ago. At the top end of rugby it’s almost impossible to get tickets for the Six Nations Internationals, and the World Cup will be stunning, but at the club level there simply isn’t the demand or supporter interest anymore. Clubs are failing.

Perhaps Rugby Union is a sport for a TV treatment – explain why Rugby is so popular, but so few folk are willing to pay to see it at club level?

Back to golf:

Many years ago I was asked a couple of times to look at financing golf courses on the verge of bankruptcy. I looked at the numbers – which barely stacked up as anything but landbanks, and visited a few sites to discover down at heel facilities and club houses with a couple of pensioners drinking all day cups of tea. The trend suggested Golf was increasingly an old person’s sport – gently rambling off into the sunset.

That seems to be changing. I’m told the clubs are full again – partly from wealthier professionals “working from home”, the move out of London, but also I think on the back of rising golf-addiction.

I am terrified to pick up a golf-bat. I saw what it did to my favourite Uncle – Golf is a disease! I fear I may also carry the genetic mutation that could leave me wearing ridiculous Pringle Jumpers while bankrupting myself on clubs…

My Uncle Jim played terrible golf all his life, yet he rose to become a greatly loved Captain of the Sandyhills club in Glasgow – over 1000 members showed up to his funeral. He spent his life struggling to get his handicap below 30. He was convinced he could be a great golfer, but couldn’t quite figure out what was holding him back. He blamed the clubs, the multiple professionals who could not help his stuttering swing, his golfing breeks, the weather, the way he addressed the ball. He spent thousands on the miniscule improvements a new driver or niblick might bring, ignoring the reality he couldn’t hit the ball straight… My aunty smiled and lived it with it… Other than golf – he was the best uncle ever.. funny, witty, a prankster, but deadly serious about golf. A very happy man.

As I final comment on Golf, I suppose I should apologise.

I’m a Scotsman. The game is our fault. While we’ve given the modern world some great things; from cloning sheep, to bicycles, Telephones, contact lenses, MRI scanners, steam engines, radar, TV, antibiotics, modern banking, hypodermic syringes, ATMs, Haggis and Irn Bru, plus a host of other great stuff including Robert Burns to the Bay City Rollers… we’ve made a few errors (like HSBC). Golf is certainly up with the worst .

There is evidence it started as a prank. Some say it was blue painted highlanders convincing Italian Tourists in the 1^st Century AD on their grand perambulation around Britannia that whacking a pebble with their pIilum around a field was a skilled and somehow fun test of skill… Oh, how the Picts did giggle… until it became clear… some legionaries actually enjoyed it.

Even idiots understand Golf is a perfect business – like drugs. Donald Trump owns a couple up in Scotland, but uniquely, they are absolute money black holes. Golf gives average folk enormous boons – it brings players esteem, happiness, a sense of purpose, and a forgetfulness about how much money they are prepared to spend trying to achieve the same golf-ball accuracy a few genetically freakish professional players seem able to achieve every game. A golf addict will spend any amount to be like them.

Hence Saudi Golf Diplomacy… (Seriously, this is an investment trend to get involved in…)

Five things to read this morning…

WSJ      The PGA Tour Partners With Its Nemesis LIV. The Money Wins Again.

BBerg   Who Really Owns Your Football Club?

FT         Out of luck: the bleak economic outlook Starmer will face

FT         Tech sell-off drags US Stocks lower

BBerg   Tech-Heavy China Stock Index Hits Three-Year Low as Bets Unravel

Out of time, back to the day job..

Bill Blain

Strategist – Shard Capital