The Golf Channel climbs the cable leaderboard

Joe Gibbs used to be called crazy. Now people routinely call him a visionary.

So it goes for the entrepreneur who dreamed up The Golf Channel, nursed it through some difficult times and ultimately turned it into one of the cable industry’s biggest cash cows.

Nine years after it hit the airwaves, The Golf Channel has the sort of powerhouse demographics and cash flow that are the envy of much of the cable industry. Conceived in 1991 as one of the original niche channels of the pre-digital era, it took four years to get it on the air and four more to turn a profit. But it’s now worth more than $1.5 billion – perhaps significantly more than that – and enjoys the backing of Comcast Corp., the nation’s largest cable company.

Gibbs, who retired from the channel in 2001, acknowledges “a lot of uneasy moments” during TGC’s infancy, but insists, “I never doubted it from the day that we finished the business plan.”

Comcast’s pending bid to acquire The Walt Disney Co. – though far from a done deal – raises intriguing scenarios for the Orlando, Fla.-based Golf Channel. Some observers say its prospects would be further enhanced by access to Disney’s rich content – such as its golf programming and its unrivaled ESPN unit – while others fear it could be stifled if the formula used to build the business were to be altered.

Clearly, that formula has worked well for The Golf Channel. Kagan World Media, a media research firm based in Carmel, Calif., estimated that the channel in 2003 had $193 million in revenues and $80.3 million in cash flow, which Kagan defines as earnings before interest, taxation, depreciation and amortization. Kagan’s John Mansell said that estimated 41.6 percent margin places TGC “among the most profitable cable channels” – very likely the most profitable when compared with other niche sports channel like Outdoor Life Network and Speed.

In fact, according to estimates prepared by another Kagan analyst for “The Economics of Basic Cable Networks,” The Golf Channel ranks third in revenues among 90 niche channels. This book estimated TGC’s 2003 revenues at $180.3 million, trailing The Weather Channel ($251.6 million) and The Food Channel ($190.9 million). Of that total, Kagan estimated that $72.1 million is ad revenue, $92 million is affiliate fees, and $16.2 million is for video cassettes and other merchandise.

In late 2003, Comcast acquired virtually complete control over The Golf Channel, buying the Tribune Co.’s 8.6 percent stake for $100 million. The channel reaches nearly 60 million homes, and Gibbs doubts Comcast would even consider purchase offers of less than $2 billion.

Who would have guessed? When Gibbs dreamed up the idea in 1991, the only thing he knew about golf was Arnold Palmer, who had stayed at his guest house during the PGA Championship at Shoal Creek in Birmingham, Ala., the previous year.

Gibbs spent 21⁄2 years crisscrossing the country, trying to drum up financing.

“Everybody thought it was crazy,” recalls Gibbs, who now runs his own investment firm in Orlando.

At the time, cable entrepreneur Ted Turner also was thinking about starting a golf channel. But by the time Turner approached the PGA Tour with the idea, Peter Smith, senior international vice president of IMG, had been busy sewing up options to broadcast overseas tours if Gibbs secured financing.

“I had Arnold in my camp, I had IMG in my camp, and so we won,” Gibbs says.

His big break came Jan. 2, 1994. On that day, Gibbs made his pitch to Tim Neher, then the vice chairman of Continental Cablevision. It likely helped that Neher, now retired, is a low-handicapper and president of prestigious Seminole Golf Club in North Palm Beach, Fla. Neher sold the idea to Brian Roberts, scion of family-run Comcast. By summer, six cable companies had lined up behind the venture, pouring in $60 million to complement the $9 million that Gibbs and his friends had committed.

Around that time, David Manougian, who would assume the presidency when Gibbs retired, was weighing whether to leave a safe job at Nike for the risky start-up.

“If there’s going to be a 200- to 300-channel universe, and there’s only going to be one niche channel that exists, golf is the one that it should be, and so the channel is going to be successful,” Manougian recalls thinking. So he joined the network in 1994 as vice president of ad sales.

But even with the backing of the cable companies, securing distribution was difficult.

“There were two times where we had over 200 employees on Monday that I couldn’t pay on Friday,” Gibbs says. “I used to say I slept like a baby. I was awake every two hours.”

Gibbs secured $15 million in bridge financing, then in mid-1996 wrangled $50 million from the Fox Cable Network Group for a 33 percent stake in The Golf Channel. (In May 2001, Comcast paid $275 million for Fox’s stake.) It took four years and $135 million in operating losses before The Golf Channel turned a profit.

At the outset, the original programming was sparse, but, says Gary Stevenson, TGC’s chief operating officer in 1994-95, “the production values were excellent. They weren’t snazzy, they weren’t like HBO, but they were always solid.”

Michael J. Whelan, TGC’s original executive producer, recalls that the Jan. 17, 1995, launch was “probably the most frightening and exciting day that I’ve ever had.” Whelan remembers screwing in light bulbs and vacuuming sawdust just minutes before the initial broadcast.

Known for being gifted but often erratic, Whelan was hired by Bob Greenway, another HBO Sports alum, to develop the sets and talent that viewers would see. Whelan, who left the channel in 1998, is not shy about assessing his tenure.

“I created the place,” Whelan says. “I was the Walt Disney of The Golf Channel.”

Whelan hired the on-air personalities, many of whom, such as Jennifer Mills and Brian Hammonds, have been fixtures since the channel’s inception.

“My vision was to put high-quality, aesthetically pleasing images on the screen with people who knew the sport and could communicate it in a way that makes you feel like you are sitting around talking about it after a round of golf,” Whelan says.

No one embodied that more than Peter Kessler, plucked by Whelan from the obscurity of a marketing job in New York, where the two men knew each other from Kessler’s days doing voice-overs for HBO Sports. Kessler jumped at the chance to be the face of the new channel, though he first had to navigate a lengthy hiring process. He recalls being awakened at all hours of the night in 1994 to be peppered with questions about obscure golf history. Kessler aced those tests and quickly became a ubiquitous presence on the nascent channel, hosting “Golf Talk Live” and instructional programs.

“Peter shined the most brightly,” Whelan says. “Peter probably knows more about golf than anyone on this planet. He really attracted so many viewers and so many advertisers.”

The objective from the beginning, says Kessler, was “to present entertaining golf programming – not news, not controversy. I was the only one there who took a stand on anything, and it cost me.”

Kessler publicly challenged Palmer’s decision to endorse Callaway Golf’s ERC II, a hot-faced driver that did not conform with U.S. Golf Association rules. Kessler says he still regrets “that the one disagreement that we happened to have in public happened to get blown out of proportion.”

That episode illustrated what some believe is TGC’s aversion to hot topics. In a panel discussion at the PGA Merchandise Show in January, Manougian didn’t necessarily dispute that.

“I think it’s something that we take a lot of pride in at The Golf Channel is really spending a lot of time in highlighting the positive. . .” Manougian said. “We will really try not to get caught up in the media frenzy of trying to focus on the one out of 100 things that might go wrong or that are bad and really try to focus on all of the positives that take place in the game of golf.”

Tournaments have become a larger part of TGC’s coverage, particularly with the addition this year of the Champions Tour. And TGC has used the tournaments to showcase some creative production twists, such as on-course player interviews and the use of heart monitors. Manougian says original programming, such as “The Big Break,” “is much higher on our radar screen today than it probably was two or three years ago.”

But the guts of the programming revolves around its studio shows – “Golf Central,” the pregame and postgame shows, and instructional programs. TGC’s programming also includes a heavy sprinkling of historical golf footage, infomercials and, like other niche channels, re-airing of original programming.

Over the past two years, TGC has begun to bundle expanded on-site coverage of events into large sponsorship packages with Mercedes-Benz, Bank of America and Ford. In 2003, for instance, TGC agreed to what Ben Lord, the channel’s former vice president of sponsorship sales, calls “enhanced” coverage – broadcasting its studio shows live from the tournament.

“The Annika thing was such a bonus that we didn’t even know about when we put the whole deal together,” says Lord, referring to Annika Sorenstam’s appearance at the Bank of America Colonial in 2003. “Bank of America latched onto the fact that we could give them additional coverage. . . . The Golf Channel can give them pregame and postgame (coverage) and ‘Golf Talk,’ and have Annika be on ‘Golf Talk.’”

The idea of incorporating expanded production coverage into sponsorship packages has been well received by advertisers, who have made seven-figure, multiyear commitments to The Golf Channel. But some production staffers criticize the practice, saying the deals provide favorable coverage for key advertisers.

“There were a lot of people in the building who were very relieved when Annika showed up,” says one TGC insider. “It covered up what was really going on. . . . If we had done what we did at Colonial without Annika there, people would have known what we were doing there.”

More recently, this source notes, The Golf Channel made the Ford Championship in Miami “look like it’s a major championship.” TGC increased its staffing of the event from two people last year to 12 this year, including its top on-air talent, broadcasting its pregame and postgame shows from the tournament. A week later, it cut staffing back to two for the Honda Classic.

Rich Stoddart, the Ford Division’s marketing communications manager, noted that his company’s sponsorship package with The Golf Channel was expanded this year “to include a significant on-site portion of the Doral event. We felt like that was something you don’t find anywhere else.”

The Golf Channel insider says such deals have sparked debate internally among production staffers concerned that “if your check is big enough, we will send anyone you want” to cover a tournament.

“It would concern me if we were saying to Bank of America, ‘You either partner up with us or we’re not going to report on your event,’ ” Manougian says. “That would be journalistically inappropriate. But that’s not what we’re doing. If they weren’t a partner of ours, we would go about business as usual and we would report on it in all of our news shows. We’re not extending the news part of our brand, we’re expanding the event coverage of our brand.”

Manougian acknowledges this is “a little bit of a fine line,” but says it enhances the viewing experience and gives sponsors “a greater buzz about their event.” He anticipates similar agreements with other major brands.

Even without the inducement of expanded tournament coverage, The Golf Channel has been a popular media buy for major brands outside the golf industry. Marketers say TGC’s Nielsen ratings tend to top out at less than 1 point, which is common for niche channels. (For TGC, 1 point equates to about 598,000 homes.) But the channel’s ability to deliver a passionate and affluent audience has made companies such as AT&T, Gillette, Rolex and General Motors longtime advertisers. According to Jeff Bliss, president of The Javelin Group, a sports media and marketing firm in Alexandria, Va., TGC “is more than just a pure ad buy.”

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