Salaries in non-profit golf organizations

Something which really gets me hot around the collar is seeing large salaries in non-profit, and thus non-tax paying, entities such as the US PGA Tour, the PGA of America, and the USGA. The whole purpose of non-profit entities, in the USA at least, is to provide good for its customers and the society as a whole. Non-profit entities are not given preferential tax treatment to enrich its employees.

Now, do not get me wrong, I do believe employees of any entity should get paid a good salary to live on. With for-profit entities that salary can be given very generously based upon what the compensation committee for the board of directors agrees to. However, non-profit entities should not have the luxury to pay their employees excessively high wages.

Some people agrue that salaries in non-profit entities should be in par with for-profit entities as it compares to a company's revenues, or better so its profits. I would agree with that argument if non-profits paid taxes and thus showed their REAL profit.

As well, it would be a suitable argument if non-profit entities really had the correct talent to compare to the for profit corporate world. How many times is it the 'good-ole-boy' network that gets non-profit executives hired, especially in the golf world? Most of the time the hiring decision is not based upon a person's talents or skill level in this industry.

I would buy that argument as well if other employee layers in a non-profit got paid a healthy amount as compared to the entity's executive level. But that is not the case. Employees below the executive level in non-profits get paid considerably less as it compres to the executive level. It is the executives that get a huge amount of the change as it compares to the overall salary costs of the non-profit entity. Look at all of the volunteers which the US PGA Tour uses on a weekly basis at their tournaments. They get $0 while Tim Finchem gets paid close to $3 million per year (including bonuses).

One of the reasons you see non-profit entities give huge salaries is that they are not suppose to show a profit. So non-profit entities increase their costs so to make their net profit line item on their tax return be $0. The easiest cost to increase is the salary line item, and they take advantage of that more often than not.

Executives in for-profit entities that make no profit for their companies are not rewarded with large salaries and bonsuses. A non-profit makes no profits. So why should they award their executives for making no profits? For-profit entities do not do so. Many times executives that earn no profit for their company and shareholders get fired shortly after reporting those results (note: the year-over-year trend also matters, not just one year's results).

That said, take a look at the highest salaries in the "non-profit" golf for 1998 and 2003.

Golf's Non-Profit Executive Wages

	Name	Title & Organization	1998
1	Tim Finchem	PGA Tour Commissioner	$2,180,913
2	Jim Awtrey	PGA of America CEO	$841,905
3	Charlie Zink	PGA Tour Exec. VP, CFO	$777,759
4	Ed Moorehouse	PGA Tour Exec. VP, Chief Legal Officer	$771,609
5	Paul Bogin	PGA of America COO	$676,800
6	Jesse Holshouser	PGA of America CFO	$519,303
7	Jim Ritts	LPGA Commissioner	$489,216
8	Ron Price	PGA Tour Sr. VP, Finance/Admin	$385,174
9	Donna Orender	PGA Tour Sr. VP, Television	$384,513
10	Bill Calfee	PGA Tour Exec. VP, Competitions	$338,126

Source: Golf Digest 1998 (1998 IRS Form 990s, filed by organizations)

	Name	Title & Organization	2003
1	Tim Finchem	PGA Tour Commissioner	$3,801,259
2	Charlie Zink	PGA Tour Exec. VP-Co COO	$1,156,308
3	Ed Moorhouse	PGA Tour Exec. VP-Co COO	$1,156,291
4	Donna Orender	PGA Tour Sr. VP-Strategic Development	$723,043
5	Ron Price	PGA Tour Sr. VP-CFO	$708,056
6	Jim Awtrey	PGA of America CEO	$662,751
7	Henry Hughes	PGA Tour Sr. VP	$571,138
8	David B. Fay	USGA Executive Director	$563,348
9	Bill Calfee	PGA Tour Sr. VP	$488,164
10	Jeff Monday	PGA Tour Sr. VP	$481,579

Source: Golf Digest - June 2005 (Alan P. Pittman)

Finchem's 2003 salary would have ranked him 6th in the US PGA Tour money leaders list for that year.

To understand the operational size of the US PGA Tour, they had revenues of $634 million in 2000, while it have profit of $0.

As Alan Pittman has said over the last couple of years in his Golf Digest articles, Finchem's salary is 1/3 of what the NFL Commissioner (Paul Tagliabue) and NBA Commissioner (David Stern) earn. However, that does not make the executive compensation structure of the US PGA Tour right. In 2001 the median pay for a non-profit CEO with a budget greater than $50 million is over $250,000 (source: 2001 GuideStar Nonprofit Compensation Report). That is less than 1/10th of what Finchem made in 2001.

Now ask yourself, do these executives in golf's non-profit entities deserve that much compensation when the entities they work for are not paying taxes?

Investment vs Sponsorship

Many of us confuse sponsorship of a golfer with providing financial assistance for a golfer. Let's make it clear, sponsorship and investment are two totally different arrangements which should be understood carefully.

To make the point, you never hear a bank "sponsor" a person when they provide a home mortage to that person. Rather a bank provides "financing" in the form of a financial instrument called a home mortgage.

The word "sponsor" should be used when a golfer is provided money to endorse a product or play their equipment. The golfer can then in turn use that money from his or her sponsorship agreement to fund his or her professional golf dreams. A sponsor pays the golfer money and the golfer provides a service in return for being compensated accordingly. The service which the golfer provides in return for the compensation can be in the form of marketing or endorsements. It does not entail the golfer paying money in return for being compensated. That sponsorship agreement has nothing in the contract about where that money can be spent in terms of the golfer's "operations".

Whereas, when a person provides money to help a golfer with funding operating expenses, that is a financial "investment". The "investment" agreement will have erms which dictate where funds can be spent as it relates to the golfer's operations.

An investment agreement has pay back terms since the investors want to know the exact terms of how they have a chance to recover their investment in monetary terms. Sponsorship agreements do not have monetary "return" terms as the company in which the golfer enters into the agreement with has non-monetary goals for the amount of money they are compensating the golfer. They have ideas outside of the terms within the agreement about how they will benefit from paying the golfer money.

Both sponsorship and investment agreements are similar in that most have date terms of when the agreement ends or when the milestones should be achieved.

They are the same in that both have terms of what services each party should provide in order to be in compliance with the agreement. And terms what to do if one of the parties is not in compliance for what their responsibilities are as it relates to the agreements.

As well, in general, the type of agreement between the parties involved will determine which types of laws govern the contract. Security laws govern a financial (investment) agreement. A sponsorship agreement is governed mainly by corporate law. Security laws are more strict and defined as compared to the general corporate laws.

Here are specific definitions of each:

investment (the act of investing | investing): to commit (money or capital) in order to gain a financial returnlaying out money or capital with the expectation of profit. (source: dictionary.com)

sponsorship (the act of sponsoring | sponsoring): One that finances a project or an event carried out by another person or group, especially a business enterprise that pays for radio or television programming in return for advertising time. (source: dictionary.com)

Note how the definition of sponsorship relates to advertising and not specifically for funding operations.

To conclude, and reiterate, we should not use the word "sponsor" for when a golfer is provided funds for playing professional golf. Rather, we should use the words "investment" or "financial backing" when investors or financial institutions provide funds for a golfer's endeavors to play professional golf.

Looking at the Gi Money Leaders List

GolfInvestors has a lot of compiled figures based upon the raw tournament results which get lost in the web site. This is true regarding the topic which I talked about last week, the Golf CLi. In keeping with the same theme this week and in the effort of providing an another glimpse into different facets of GolfInvestors, let's look at the Gi Money Leaders List. This list can be found at the following link on the GolfInvestors web site:

GolfInvestors > Players > Money Leaders

This list of money leaders is a little different than the money leader lists you will find on individual PGA tour web sites. One of the reasons is that the compiled earnings figure looks at the earnings from players based upon which tour sancationed the tournament. It does not consider if the player is a member of that tour or not.

As well, you will see a discrepancy in the earnings figure based upon different exchange rates used as we store results from tournaments played around the world and have a pay out in currencies other than the US dollar. We use the exchange rate as of the date of the last round of the tournament, and usually use the rates which are posted on the oanda.com web site.

Basically what you are seeing in the Gi Money Leaders List is a compilation of all of the earnings for a player based upon all of their worldwide earnings, but all in US dollars.

Below I have put together some interesting information which this list can show you.

Who has won the most money this year worldwide?

Tiger Woods has a commanding lead in the money list with having won $8.61 million worldwide. He has played in 18 events this year and is averaging $478,000 per tournament. On top of that he has won 5 events. This means he wins 28% of the time -- he would probably think this should be 100% of the time, as he thinks he can win every tournament he plays in, or he would not play in the event. As for top tens, he has placed in the top ten 11 times, which is 61% of the time he plays.

Coming in 2nd is Vijay Singh with $7.46 million earned from 25 events. Singh averages $298,000 each time he plays and has won 4 times this year, which is 16% of the time. However, what is impressive is that Singh has placed in the top ten 16 times of the 25 times he has played. As a percentage, that is 64% of the time he plays. That percentage is similar to Woods, however, Woods plays a lot less than Singh.

I would say Singh's efforts in the "top ten" category is worth more since the more times you play, the more chances you have to not place in the top ten. Singh and Woods probably do not think that way, as they are saying the more chances they have to play, the more chances they have to place in the top ten.

Phil Mickelson rounds out the top 3 in the money list with having won $5.63 million this year. He averages $296,000 each time he plays in a tournament. He has won 4 times, which is 21% of the time he plays. He has placed in he top ten 9 times this year, which is 47% of the time.

[ You can see this information by sorting by 'Earnings' in descending order ]

Who has won the most tournaments this year?

Interesting enough it is not Tiger Woods. Rather it is Annika Sorenstam, having won 7 times compared to Woods' 5 tournament wins. That is right, the Gi Money Leaders List includes female golfers.

Sorenstam' winning percentage is 50% compared to Woods 28%. That means Sorenstam wins ever other tournament which she plays (as it relates to an average). That, might I say, is a wonderful percentage.

Sorenstam is ranked 16th in overall earnings, having won over $1.9 million this year.

Then you have Mickelson and Singh who have both won 4 times this year, with Jason Gore, Hale Irwin, Retief Goosen, Adam Scott, and the injured Ernie Els each bagging 3 wins this year. The 3 wins for Gore got him promoted from the Nationwide Tour to the US PGA Tour.

[ You can see this information by sorting by 'Wins' in descending order ]

Who has placed in the top ten the most this year?

Singh has the distinction of having 16 top tens in the 25 tournaments he has played in. As mentioned above, he places in the top ten 64% of the time.

Mark McNulty and Kyeong Bae have placed in the top ten 12 times. McNulty plays on the Champions Tour and Bae plays on the Women's Futures Tour. With having played 16 tournaments, being in the top ten 12 times means Bae places in the top ten 75% of the time.

[ You can see this information by sorting by 'Top Tens' in descending order ]

Who has played the most tournaments this year?

John Elliott has played in 30 tournaments, is ranked 144 in the Gi Money Leaders list, and has earned $63,625.

Ted Purdy is next with having played 29 tournaments, is ranked 8th in the Gi Money Leaders list, and has earned $1.78 million. He averages $61,298 per tournament, has won once (EDS Byron Nelson Classic back in May), and has placed in the top ten 2 times (6.9% of the total events he has played in).

[ You can find this information by sorting by 'Events Played' in descending order ]

Also of note, for this year alone over $380 million has been distributed in earnings to players for tournaments finished to date.

The Golf CLi

With GolfInvestors' primary activity being a stock market a lot of people do not realize that GolfInvestors has data on tournament results and indexed articles for the past 5 years that can help them better select golfers that will do well in a given golf tournament. As a result of this data we have created the Golf Confidence Level Indicator (CLi).

The purpose of the CLi is to provide users with a rank of golfers in a tournament's field based upon computed CLi figure. The golfer with the lowest CLi in the field is supposedly to have the best chance of playing well in the tournament.

The formula used to compute the CLi uses results of the player in that tournament for the past xx years and the results of the golfer for the prior xx weeks leading up to the tournament. The data mainly includes scoring averages and money earned.

Let's make it clear, the CLi is not an exact science at this time as we continue to refine the formula used to compute the CLi. So at this time it should just to be one of the tools users should use to whittle down their selection of golfers they want to put on their "team" for the selected tournament. So rather than having to pick from 156 players each week, users can select from the top 10-15 candidates.

To explain one of the ways to use the CLi ranking let's look at some real data. This week the US PGA Tour is in Canada playing the Bell Canadian Open, with the European PGA Tour in Germany playing the Linde German Masters. The top 15 players based upon CLi rankings for each tournament is as follows:

US PGA Tour: 2005 Bell Canadian Open

	Player	CLi
1	Vijay Singh	2.30
2	Justin Rose	5.00
3	Craig Stadler	8.65
4	Loren Roberts	10.55
5	Scott Verplank	11.85
6	Pat Perez	12.85
7	Joey Sindelar	14.00
8	Robert Allenby	14.30
9	Stuart Appleby	21.60
10	Brandt Jobe	21.65
11	Jonathan Kaye	22.15
12	John Rollins	22.80
13	Bob Estes	23.05
14	Jesper Parnevik	24.25
15	Chris DiMarco	30.25

European PGA Tour: 2005 Linde German Masters

	Player	CLi
1	David Howell	4.05
2	Retief Goosen	7.65
3	Niclas Fasth	9.35
4	Paul Casey	10.25
5	Miguel Angel Jimenez	13.55
6	Michael Campbell	15.20
7	Padraig Harrington	15.50
8	Bradley Dredge	15.75
9	Raphael Jacquelin	17.80
10	Henrik Stenson	18.60
11	Ian Poulter	18.90
12	Brett Rumford	19.25
13	Mikael Lundberg	20.20
14	Ricardo Gonzalez	22.05
15	Emanuele Canonica	23.75

What do these two lists mean? They are saying that the best chance of playing well in these two tournaments lay in the hands of Vijay Singh for the Bell Canadian Open and David Howell for the Linde German Masters. It does not mean these players have the best chance of winning, just playing well.

For example, let's look Pat Perez in the Bell Canadian Open. His CLi is 12.85 and he is ranked 6th in the CLi ranking for the tournament. This is basically saying that 65% of the time he will place better than 12.85th place, which is the 6th best average amongst the players in the tournament's field.

[ Note: Why 65% of the time?...because we have not refined the CLi enough to justify it being higher at this time. Over time we should be able to feel more confident in the CLi formula as we refine it. ]

You can view the Golf Cli rankings for the current week's tournaments each Monday on the GolfInvestors site by going to the Field Analysis page for the selected tournament. For example, here is the link for the Field Analysis page for the Bell Canadian Open this week:

2005 Bell Canadian Open Field Analysis

The GolfInvestors site posts the Golf CLi for tournaments played each week for most the major tours.

If you do not want to mess with the complexity of the GolfInvestors site, and you just want to look at the US PGA Tour and European PGA Tour sanctioned tournaments, you can view the dedicated Golf CLi web site at golfcli.com. The CLi rankings for the current week's tournaments are posted on the golfcli.com web site each Tuesday.