While on the subject of anomalous structures of professional sports leagues, let us look at the PGA Tour. As a non-profit organization, the Tour has endowed millions of dollars to many worthy causes - rather laudable accomplishments. As posted on its website, “PGA TOUR Commissioner Tim Finchem today announced a new TOUR-record, annual-charitable-giving contribution of approximately $123 million, surpassing last year's previous record of $114 million.” Further, the site states, “The PGA TOUR is a tax-exempt membership organization of professional golfers.” Also, the Tour states on its website, “The mission of the PGA TOUR is to expand domestically and internationally to substantially increase player financial benefits while maintaining its commitment to the integrity of the game. In addition to providing competitive opportunities for its membership, PGA TOUR events also generate revenue for charitable causes in their communities.”
Finchem’s latest pay packet is worth $4.5 million annually, so is he worth it? Prior to considering the direction of the Tour and the consequences such a future would have on its mission, players, charities, and role cultivating the game of golf, one must consider the context of Finchem through the lens of the Tiger Woods effect. Using back of the envelope calculation, it is difficult to measure the Tiger Woods effect relative to growth rates and scale of purse sizes, charitable contribution, and sponsorship opportunities. Comparative static and marginal analyses of television ratings of events in which Woods played versus the Tiger-less tournaments show a great disparity. It would be interesting to apply regression studies of trend growth in golf had Tiger Woods never existed to see how much impact he has had. One clear and true conclusion: Tiger’s presence has visibly and palpably made the Tour more marketable. However, because the Tiger era coincides with Finchem’s auspices of operations, and hence the two are not mutually exclusive, the causal relationship of Finchem’s stewardship to the level of giving warrants consideration.
Failure during a period of prosperity is rare. Finchem is no dummy, either, for his academic and professional credentials are rather estimable. Excluding the 4 Major championships, 4 WGC events, there were 38 events the PGA Tour uniquely sanctioned in 2007. Since Tiger plays the aforementioned eight and eight other times, Finchem and his staff must somehow convince thirty groups of sponsors to fund a multi-million dollar purse. Though other bankable commodities play the Tour, only Woods is undeniably special commercially. Given such constraints, Finchem has performed admirably in increasing the opportunity set of total tournaments thereby enabling players to play more as well as creating more channels for financial flows eventually going to charity.
However, using the following formula, $4.5M seems like a lot of money for staying out of the way while the bandwagon effect of sponsors queued for the possibility to land Tiger. Finchem’s salary is 3.7% of total funds disbursed to charity. Moreover, the mean per tournament, when dividing total funds raised by 38 tournaments, is $3,236,842. This strips out eight of the marquee events where Tiger would definitely pitch. Including them in the mix would lower the mean per tournament. Finchem could give away that much of his salary and still be paid 7 figures. Furthermore, Finchem earns, using 38 as the divisor, $118,421 per tournament. Given the scale and purpose of resource allocation, the compensation does not measure well against basic estimates of ethical or economic fairness. Though Finchem does indeed merit a high salary due to the prestige, power, and publicity of the post, he risks the long term health of the Tour in the post-Tiger era.
Partly due to its 501(c6) tax-exempt status, Finchem is free to propose his own pay scale pending approval of the PGA Tour Policy Board comprised of executive officers and player committee members. The office of commissioner has adequate incentive to maintain the status quo. Other non-profit organizations do spend much donated money on administrative costs, so Finchem does not behave differently when measured against other similarly structured groups. But as a firm strives to maximize profit, a non-profit outfit ought to seek to optimize the benefit, often measured in money, to society. Without showing the value added in terms of social benefit, Finchem is unjustified in paying himself so much money. Would so many sponsorship and enrichment opportunities been fully exploited had it not been for Finchem? An account is necessary to determine definitively. Insofar as Finchem is accountable to the Policy Board that approves his salary, what incentive does the board have of ratifying his salary? Or, what motives do the players have of not revolting and turning the Tour structure on its ear?
Mo’ money. A generous pension fund could not be administered and yield such returns, let alone be funded to its extant levels, through a taxable entity or corporation. As the vested interests have become more entrenched, opacity and minimal compliance are the norm and will continue as such until the market dries up. As long as the Tour acts in ways which conform to public standards of taste and acceptability, Finchem will escape criticism. Since too many grosser injustices demand more attention from regulators and consumers, Finchem will continue to capitalize - regulatory arbitrage of a sort – in a culture accustomed to mismanagement where not failing during prosperity is a sufficient criterion for commanding top pay.
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