2006: A Mini-tour with mighty aspirations
Thursday, June 30, 2011
Big money purses. Television coverage. Sky boxes for sponsors. Tournaments held across the country. Sponsorship deals with Donald Trump. It may sound like the PGA Tour, but it’s not.
This is the U.S. Pro Golf Tour, a mini-tour with visions of grandeur.
Traditionally, mini-tour golf has been set up like a poker game – every one antes up and the winner takes the lion’s share of the pot. The USPGT, however, is committed to a very different business model. It promises to build a tour where the players compete for more money– much more money – than just their combined entry fees.
And that’s just the beginning. When all is said and done, the USPGT intends to bring order to the unorganized clutter that long has been the world of mini-tours.
Among its 2007 initiatives: Conduct 22 USPGT tournaments for a total purse of $16.3 million; develop six 12-event regional tours, called the Players Tours, as a feeder system to the main circuit; create a 12-event senior series for players 47 and older; and establish a celebrity series to host as many as 18 events. Members will pay a minimum of $6,000 to compete on the USPGT or Players Tours for purses far greater than anything seen in golf’s minor leagues – from $300,000 for a typical USPGT event to as much as $5 million for one of its majors. Ultimately, the USPGT aspires to become the nation’s No. 3 men’s tour, behind the PGA Tour and Nationwide Tour, and the place where golfers with no playing status elsewhere can turn to earn a decent living.
Greens Worldwide Inc. is the parent company of the U.S. Pro Golf Tour and the publicly traded entity (GRWW.OB) that has acquired several competing tours with a combination of cash and stock. But some of those deals already have unraveled, forcing Greens Worldwide to scale back its 2007 plans and causing some players to wonder whether the USPGT might collapse under the weight of its own ambition.
There are plenty of skeptics but many others remain optimistic, hoping the tour will blossom and enable players “to get rich at the mini-tour level,” as one player put it. By offering an attractive entry fee-to-purse ratio, the USPGT has signed up 227 paying members this year.
Others, however, are taking a wait-and-see approach. They’ve been hoodwinked before by mini-tours that turned out to be fly-by-night operations.
“The last (mini-tour operator) with a can’t-miss plan has been missing ever since,” says Oren Geri, a veteran mini-tour player, recalling how the Maverick Tour folded.
The big question is can the USPGT attract sponsors to cover the cost of the purses? It’s a house of cards that could come crashing down, and the mini-tour landscape is littered with past failures.
But even with all the bad memories, many players say they want, or need, a stable minor-league circuit to emerge. It’s a simple case of supply and demand: Roughly 300 professionals compete weekly on the PGA and Nationwide tours; add another 78 for the 50-and-over set who compete on the Champions Tour. Golfers without any status on these established tours need a place to play where they can eke out a living while honing their game.
And someone always comes along to fill that void.
R. Thomas Kidd, 59, a former Champions Tour wanna-be, is CEO and president of Greens Worldwide and the mastermind of the plan.This isn’t his first foray into the mini-tour business – and that’s an issue with the skeptics.
From 1999 to 2004 he ran the American Senior Golf Association Tour for golfers 47 and older. Owing to the closed nature of the Champions Tour, Kidd saw an opportunity to create another arena where seniors could compete. But, he says, when sponsors didn’t pay their bills, his checks bounced and the tour folded. His reputation took a hit. Now he is asking many of the golfers he didn’t pay to give him a second chance.
Kidd will need every mini-tour golfer he can get. All of his tours offer a combined purse of $27.5 million. Even if they hit their target goal of 1,720 players – which some say is far-fetched – they will fall far short of collecting enough membership and entry fees to cover the purse money they are promising (see chart, next page). And that doesn’t take into account other expenses such as employee salaries, overhead and course rental fees.
The deadline to pay the membership at the lowest rate of $6,000 was Oct. 20. The next deadline, requiring payment of $6,500, is Nov. 10. Many prospective players criticize the USPGT’s effort to collect that sum right after many of them have paid as much as $5,000 to enter the first stage of PGA Tour Qualifying School, which required registration by Oct. 4.
In an e-mail sent to USPGT management and regional tour directors, Gary DeSerrano – founder of the Tight Lies Tours, which was acquired by Greens Worldwide in June – raised another concern. He wrote: “Requiring the money so early with little information about the schedules, makes it sound like the company is desperate for money.”
But Kidd dismisses concerns about the USPGT’s fiscal health. “Money is a nonissue for us,” he says.
To afford the lavish purses it plans to offer, the USPGT will need to attract sponsorship dollars from companies that are interested in television exposure.
Television networks have shown little interest in mini-tour golf and buying air-time often is cost prohibitive for tour operators. But Kidd has found a way. Last year, for example, the USPGT purchased time on The Golf Channel to televise its inaugural event. And this year the USPGT is being shown on Fox Sports Net, which operates 22 regional sports channels nationwide. Ratings have ranged from too small to record in some markets to as high as .52 in Portland, Ore.
The USPGT is paying FSN $490,000 to distribute the broadcast of its nine tournaments and paying Winnercom, an independent sports production company, $50,000 to produce each episode.
FSN has the option, exercisable in writing no later than Dec. 15, to renew the terms of the agreement for 10 broadcasts in 2007 at an increased cost of 5 percent. The tour’s Trump majors, four tournaments played at Trump courses for multimillion dollar purses, will be carried on ESPN, and Kidd says he would like to see USPGT events on ESPN2 if FSN doesn’t renew.
“The mountain to get over was TV,” Kidd says.
It was The Golf Channel deal that secured one of Kidd’s primary financial partners. That contract was “the single greatest reason we decided to finance the company,” says Larry Ditkoff, director of research for Southridge Capital Management LLC.
Kidd says it has become too expensive for most companies to sponsor events on the PGA Tour. He contends Greens Worldwide provides an affordable alternative for companies that want access to golf’s TV audience.
“They know there’s nobody at the events,” Kidd says. “They are trying to reach their consumer through media, and they can’t quite frankly spend the money that it takes to become a PGA Tour sponsor. There are a lot more smaller companies than there are big ones, and that’s who we’re going for.”
The responsibility of securing TV and sponsorship deals falls to Phillip Bough, the USPGT’s 41-year-old London-born commissioner. Bough, who previously worked for Jack Nicklaus Productions and European Tour Productions, negotiated the tour’s three-year TV production and marketing deal with Winnercom. The company is responsible for selling sponsorship packages, including TV, pro-ams and hospitality, which Kidd figures will generate $8.28 million for the USPGT next year.
In July, Bough also partnered with Global Media Fund, a media firm that helps its clients, often emerging companies, secure sponsorships in exchange for equity deals. Next year, Global Media has been charged to sell title sponsorships for 10 USPGT events, each for $100,000 in cash or $150,000 in shares of the sponsor’s stock. (USPGT is due full payment 60 days before the event.)
However, it will take more deals to make up the potential revenue shortfall that could derail the company. Kidd expresses little concern, saying it is normal for start-up operations to incur losses.
“We’re prepared to lose $5 million next year,” he says.
For now, some players are thrilled with the opportunity to compete for bigger purses. But how long will the honeymoon last?
Sometimes an entrepreneur must fail before he can succeed. What Kidd says he learned from the ASGA Tour folding was that he relied too much on sponsors and a player participation model.
“I knew there had to be a better way,” he says. “(My new model) is the culmination of stepping in holes, falling off cliffs, and learning from past mistakes.”
His newest venture picks up, essentially, where his old one left off. Kidd was then taking ASGA public, but his financing plans came to an abrupt halt on Sept. 11, 2001. Wall Street commitments dried up, forcing Kidd to rely solely on sponsors, who defaulted on payment. But Kidd never gave up on his original investor plan. He founded a new private entity in January 2005, which became the U.S. Pro Golf Tour, bought certain assets and liabilities of the defunct ASGA and began looking for a “shell corporation” as a means to go public quickly.
Greens Worldwide, which began operating putting courses in July 2003, fit that bill. The company had become inactive, but still had value as a public entity, making it desirable to Kidd. Otherwise, he says, he would have spent 18-24 months taking USPGT public at a cost of $1 million. Merging with the existing public entity provided a shortcut to investor capital.
In June 2005, Kidd entered into an agreement offering $100,000, a $250,000 note and 1 million shares of USPGT for 8 million shares of Greens Worldwide, which gave Kidd and his partners 82.2 percent ownership of the company. Known as a “reverse acquisition,” the deal called for Greens Worldwide’s directors to resign, and Kidd and his crew took over the company on July 11, 2005. (As a newly installed director, Kidd issued millions of shares to himself and approved a salary that has reached $240,000 and a signing bonus of the same amount, according to SEC filings.)
Although the company had no assets and no collateral, being public gave Greens Worldwide instant value. As of Oct. 19, the company had a market capitalization of $9.38 million.
Kidd followed this move by preparing a defense for what he calls the most asked question of mini-tour operators: Where is the money going to come from if you run short?
His answer: Equity firms.
So far, USPGT has received
$3.4 million in convertible debentures from the NIR Group, a New York-based hedge fund with assets of $2 billion. But some of its potential funding from NIR is off limits unless Greens Worldwide’s stock increases in value. (NIR has 15 million warrants to purchase shares at 50 cents each and 6 million warrants at 75 cents each. While the stock traded as high as $4 in March, it bottomed out at 23 cents this month before rebounding to 41 cents as of Oct. 19.) Greens Worldwide received $1.25 million in debt financing from two private funds; it had not filed its 8-K at presstime.
Kidd’s other backer is Southridge Capital. Over the next five years, it has committed to provide as much as $50 million in exchange for Greens Worldwide shares the company has an option to sell. Thus far, Greens Worldwide has used a $165,000 convertible note, which it already has repaid, but has avoided using Southridge Capital’s money.
“As a private entity, who in the world is going to give you
$50 million, and what are they going to get for it,” Kidd says. “These people are investors. They’re doing it to make money, and they hold something they think will appreciate over time.”
But Kidd is saving those funds as a last resort.
The type of financing deal Kidd structured is sometimes referred to as “a death spiral” because it increases the float of the stock on the market, which can trigger more selling than buying, diluting the stock’s value. Death spirals are regarded as one of the last options for small, undercapitalized companies that cannot obtain financing from more conventional sources, according to investment experts.
Kidd, however, chuckles at the mention of the term.
“When your stock starts declining like that it becomes what is called a falling sword and nobody wants to catch a falling sword,” Kidd says. “But we’re not a falling sword. We have a good story to sell.”
When Kidd tells that story he is quick to mention Donald Trump. In May, the USPGT co-sanctioned the Trump Million Dollar Invitational. Kidd calls the five-year partnership that makes Trump the title sponsor of four USPGT majors a defining moment.
But here, too, appearances are not what they seem: Trump isn’t paying to be the title sponsor; rather USPGT is giving Trump cash and stock for use of his name and facilities (see sidebar, p62).
In many ways, Kidd is asking everyone to take a flyer with him. That’s evident in the “soft-dollar contractual agreements” he has formed, which offer millions of shares of Greens Worldwide stock of negligible value rather than cash.
To build its regional network of “feeder” tours, USPGT first bought the New England Pro Golf Tour from its founder, Brian Hebb, for restricted stock in Greens Worldwide valued at $1.45 million and warrants to purchase another
1 million shares at various exercise prices. Then the USPGT acquired the Texas-based Tight Lies Tour
in June for $200,000 in cash and $900,000 in stock, with additional payments and warrants in 2007.
As part of its regional network, USPGT also has created the Players Tour in Florida and California and recruited respected mini-tour operators – Ken Kennerly and Mike O’Leary – to run them.
The empire-building doesn’t stop there. The mission of Greens Worldwide is to become the largest publicly traded multiple sports holding company in the world. The strategy, if fully executed, is designed to enable the company to bundle sports sponsorships and media opportunities across multiple sports platforms, delivering more value to sponsors and partners.
To execute this plan Kidd bought an advertising agency, TV production company, golf school and a semi-pro football league. But some of these agreements have fallen apart. Greens Worldwide rescinded deals with Crowley Advertising, Worldwide Media and Marketing Group and the American Indoor Football League, according to SEC filings.
It also terminated its deal with the North Carolina-based Tarheel Tour, citing an inability to complete due diligence. Tarheel officials, however, tell a different story; they say they withdrew from the deal because they didn’t have confidence in the Greens Worldwide business plan.
For the six months ended June 30, Greens Worldwide reported revenues of $1.1 million and a net loss of $8.7 million. Purses for USPGT events were promised to be held in escrow prior to the commencement of tournament play. Greens Worldwide hired a New York-based law firm, McLaughlin & Stern, to handle and disburse all prize monies within a week of an event’s conclusion. But Kidd says his tour members decided at a meeting that a third party wasn’t needed, and he canceled this arrangement after one event. Instead, USPGT holds purses in its own escrow account.
Nevertheless, that move has
raised eyebrows as has a
concession from the New England Pro Golf Tour, the one regional circuit the USPGT operated this year. It did not have funds to pay the purses of four events (Captains Open, Bonjour Quebec, Pine Hills and the Greater Atlantic City Open), according to an e-mail obtained by Golfweek and sent by Kidd to tour members. At the time, checks already had fallen three events behind schedule.
Kidd, however, says Greens Worldwide has since mailed the final checks. Blaming Hebb for this problem, Kidd terminated his contract, and the USPGT filed a complaint against him for breach of fiduciary duty. Hebb counters that he resigned, and says he will “vigorously defend” himself against the USPGT’s allegations. Hebb has filed a suit of his own against Kidd, Greens Worldwide and the New England Pro Golf Tour.
There have been other glitches, too. The USPGT canceled one of its 10 events and moved another from Atlanta to Chattanooga, Kidd says, to better woo a potential sponsor.
According to Kidd, the cancellation occurred because the sponsor didn’t approve of the host site, Barton Creek Golf Club in Austin, Texas. Kidd says the USPGT agreed to compensate Barton Creek as if it had hosted the tournament. Furthermore, he says, the purse was rolled over into future events and players’ expenses and entry fees were refunded.
“We’re a developing tour,” Kidd says. “Sponsors tell us what they want. So we may change courses, cancel events, move an event if it makes sense to do that.”
But not everyone was satisfied with that answer. The First Tee of Austin was supposed to be a beneficiary
of the Barton Creek event. Its volunteers had rescheduled appointments and canceled vacations to support the tournament.
Other charities have had issues, too. The tour’s contribution to the Rappahannock chapter of the American Red Cross in Fredericksburg, Va., was paid nearly four months after the tournament was played. The same holds true for the The First Tee of Cook’s Creek, in Columbus, Ohio, which hosted an event in July and received payment Oct. 10.
Such a track record, observers say, may derail the USPGT before it ever gets off the ground.
“Texas is a big state but it’s little when it comes to the golf community,” says Jennifer MacCurrach, executive director of The First Tee of Austin. “They’re not going to last long when the model relies on so many volunteers and then you disappear.”