[MUSIC] All right welcome back. We're privileged today to have golf industry expert Dave Leitner. You have his bio and we won't burden our recording with that. Welcome to our remote students. Dave's going to give us an encyclopedic 360 look at the golf industry. I can't think of anybody better to tell us about it, Dave. We're just now studying it in the context of this course. Why don't you give us a little background on how the PGA Tour works, the Senior PGA Tour, your clients span across both tours. The Web.com is here in Cleveland this week, at Lakewood. How does qualification for the Tour work? How does one of your clients maintain eligibility to participate on the Tour? Let's pick somebody like Jordan Spieth, for example, who's a new up and coming star on the Tour. >> So, thank you, Peter. Jordan Spieth is a 20-year-old kid. He won his first tournament when he was 19 years old. And he is a true superstar in the making. He was 19. He went to Texas for a year and then just decided it's time to turn pro. And you just can't do that. You can't just say it's time to turn pro and click it off and on. It's a process. But for Jordan Spieth. Because he was a pretty marketable and well known potential superstar in golf. You're allowed seven sponsor exemptions. So your agent goes to the Tour events and says, "Hey this guy would like to play." And most of the events want him there so in that process he earned enough money to earn his Tour card for next year. So that's very unusual. I think in the history of the Tour, there has been eight or nine guys. Tiger, Phil, Justin, Leonard, as you might imagine. Who have earned their card that way. Most of the process, you go through Tour school and, and that's a whole other burden, going through Tour school. So once you get there, once you get your card its a fantastic career. It's just a hard process to get there. >> I remember back in the day with Tiger after he won, I think it was his third in a row amateur title, when he was in Stanford turning pro, he needed the same kind of sponsors exemptions or else he would have had to go to Q school. >> Yeah, exact same process and he actually came the same way. He earned enough money to get his card in those seven events and then he gets unlimited exemptions and you go forward. Nowadays, you win certain events, you get your exemption. But if you win an event you get a two year exemption. Which allows you to play in any event you want for two years. So its important to do that. >> Just jump to the ladies side. I know that LPGA is important to me as a board member. Lydia Ko turns pro at the age of 15 or 16. How does, how do the eligibility rules work over there? Seems quite young, a waiver required number one and then what other qualification requirements? >> That's a harder question, because they changed the rules for Michelle Wie. For example, the Tour put in rules that an age requirement for the LPGA tour. So they didn't want 16 year olds coming out and ruining their childhood and turning pro right away. But they made an exception with Michelle Wie and they did the same thing. Or they're going through the process with the same thing with Lydia Ko. She's since then won an event so it's almost a given that they're going to just make a special exception and give her status. >> Just so we're clear when she was playing before as an amateur, this question's been asked, she did win a tournament or two. But as long as she didn't accept the prize money she could still be a amateur. Could still have gone to college. >> Right, she can go, she can compete. You know, Michelle Wie was playing against men on the men's tour. She can go and she can compete as an amateur, but she couldn't win the prize money. So it's still, the tournament, chairmen let them into tournaments because they're an attraction. So it's, it's great for TV. It's great for the people. It's great for the fans. But amateurs can't win money. >> Can't win money or you destroy your eligibility. Let's stay with a Spieth for example. Now, we've studied product endorsement deals. On course, off course deals, without getting any confidences. How important is it that he have the right equipment? And how is that suitability clause driven with somebody like Spieth, who's starting to really go to the top of this game? >> Yeah, he's a good example because, so when he first came out he played Titleist equipment his whole career. And luckily, Under Armour came right out and wanted to sponsor him. So, and they paid him a lot of money. Like, I'll just give you ratio of a normal deal. Webb Simpson's a client of ours. He makes a really good clothing deal contract. Jordan Spieth got paid four times what Webb Simpson did because he was the future of golf. And there's really two times you get paid in golf. It's when you have potential and are just coming out of college. And then, when you win your first major. And the rest of the time you're getting, kind of bonus contracts, or kind of minimum contracts. He was the future of golf. Under Armour paid him. So he didn't have to go, I'm going to go switch clubs to go chase the money. He said, I'm going to stay with Titleist. And, as you're doing contracts, that is, there's two or three very, very important clauses within a a golfer's club equipment contract. And the suitability clause is very, very important, because if you can't play the equipment, your career is derailed. So you have to have the flexibility to move in and out of a contract if you can't play the equipment. >> There's the range of clauses that we would deal with together for many years. Let's start with must use, must use this club, no matter what. You get paid the maximum for that Dave. Is that a clause you recommend or would allow a client to sign on for without any tweaking rights? >> Yeah, you almost never. And as an agent, you would never do it. We've had clients who have overridden us and said, "oh, I can play anything," and have tried this and it didn't work. And then we find out a year and a half later that they're breaking up the contract. because they're, they're playing something that they can't possibly compete with against the other people. So yes, the must uses have to go. As an agent again you are trying to get as flexible a contract as you can. But most of suitability best efforts is a clause that we probably accept because that's pretty broad. >> Reasonable professional judgment suitable for use in professional competitive play. Those are the clauses I think we used to recommend. >> Right. That's right. >> Okay, then how about the use and the wearing of the clothing? With this big Under Armour deal, we talked about this. Must he be all Under Armour all the time, wherever he goes? In the back yard, he's practicing chipping and putting. Hypothetically, we're not getting into this agreement. >> Yeah, it's not far from that now. Your typical golfer is going to do a lot of corporate appearances. In the old days, that used to be 50% of your income. Now it's a much smaller piece because economics have changed. Prize money has gone through the roof. Curtis Strange in 1988 was the first person on tour to make $1 million. You know, now they make $10 million bucks a year in prize money. The Fed-Ex bonus is $10 million so you can make $20 million bucks. So, the clothing manufacturer like to wear it, they'd like to have you in pajamas if they could. >> [LAUGH] >> Reality is, most of it is golf related. >> Activities. >> Yeah, golf related activities, so certainly when you're on tour you have to wear whatever your contract informs. Jordan is head to toe which means everything has to be under armor, and now it's on his hat so its everything those are your couple main. Main endorsement pieces is the hat because of visibility on TV, bag because of visibility on TV. But again, clothing is pretty much everywhere you go, you have to wear that brand. Because that's what they're paying you for. >> Well, let's switch to McIlroy whom you don't represent, but we both know from public reports how his deal works. He's very clean. It's all Nike all the time, was paid 20 million a year, reported, for five years. so that takes away all of their advertising opportunities. On his clothing, on his bag, etc, is that the way a clean head to toe deal would work? >> Yeah, and most clothing deals, you try to keep other pieces. Your left arm, your right arm, the back of your collar now, you see a lot of Netjets on the back of people's collars. So there's all kinds. Anywhere. We don't want to get clients to look like racecar drivers or like racecars. But that's kind of where you're going to. John Daly looks like a race car when he's out there playing because he's got so many brands all over the place. But Nike is very adamant about keeping everything clean. They won't allow another company, certainly not a competing company. touching their brand. So hat is clean, shirt is clean, everything is clean. Bags clean. There's different pieces of the bag. You can put an endorsement on the bottom of the bag but they pay for that. So I'm okay with that. If they're going to overpay and for the cleanness of all the other and take everybody else out, that's fair. >> Going to the financial management side which your so expert at talk about John Daly. Recent reports: admits to having lost 30 to 40 million in gambling. We study athletes going broke across the whole spectrum, of all the professional sports. What's the best advice you would give the next John Daly who's now poured through at least $30 million it would now appear by his own admission. >> The one I'm really interested in is the Phil Mickelson insider trading. Iif any of you have seen the "30 For 30" - Broke, it's fantastic. If you haven't seen it, you have to go see it. And it's about athletes and their money. And the stat that came out of that which didn't surprise me. But it's staggering. Is 78% of the football players who retire, two years after retirement are broke. Or file for bankruptcy. I mean, that's just staggering. The problem is with football players they have four years. That's your average career life, is four years. Golfers make the same mistakes, but they spread it out over 40 years. They can play from 20 to 60, so it's not like they're a smarter group of athlete. They just have more time to make up for the mistakes. I started in football when I started at IMG and within six months I kind of realized this wasn't a real job because it was so hard. Golf, if you're going to pick a sport to be associated with in the financial area, golf by far is the best area because you get 40 to 45 years to deal with. >> You get this question all the time. For the students, do you put them on an allowance? John Peel Gooda already spoke to this with football players. Do you say the rest is going into a savings account? We need to start planning for your retirement right on day one? >> You know, I go back. I go the other way. Our model is that we pay their bills, we get all their income. So we try to take all the financial decisions away from them. And help them with that. So we know exactly what they're doing. If I can get these guys to save 35 to 40% of their income. Which shouldn't be a problem. I start with that goal. So if they're saving 40% of their income, I don't care if they have a big house or if they have three cars. If they're not saving 30% of their income they're doing something wrong so you have to fix the guys who are not saving enough money. And then again, you give somebody 30 years to do that and save 30% of their income. They're going to have more money than they know what to do with. >> Yeah. That's the goal. Pretty much what John said. So now let's go to the morals clause. That was next: morals clause is within these agreements. Phil Mickelson publicly under investigation for insider trading. The way morals clauses work in these endorsement agreements. KPMG's must be getting kind of nervous. >> Barclays and KPMG are both very sensitive to this issue. So yeah, they are. It's interesting what I've been able to hear from the inside world. Billy Walters, who is the gambler in Vegas, is the interesting wild card. because when people make sports books, he's the one guy that they fear. He calls himself a gatherer. He's not a gambler. He's not a bettor. He gathers information. That doesn't do Mickelson's case very. >> Right. >> Much good because that's exactly what they're kind of insinuating in this case. So it's going to be interesting to watch this thing go. >> They say the way that individual bets can change the line. >> Yeah, yeah. >> He, he can move the line. One of the few people. >> But going back to the moral clause. Conviction of a felony and indictment. Where do you like to draw the line? I think I know, but it's tougher and tougher after Tiger right? >> It is, it is. When they were redoing Tiger's before the events ,and not just one, Before the events, they were renewing their contract with AT&T and Tiger's agent said, "this isn't your average guy. We don't want the morals clause, he's going to do nothing wrong." And AT&T was adamant just because they have to protect themselves. They kept it in the contract and thank goodness they did because they separated themselves quickly from him. So obviously the purse, the company paying lots of money needs protection for themselves and the agent. Or the player try to get as loose a morales clause as possible. >> Leverage determines the outcomes. >> Yeah. >> Now, talk about the long trajectory, Dave, of the golfer's career. Is there, is it all just about winning? I hate to pick on Tiger, but if he just could start winning again, would all be forgotten? This "Tiger effect" still in play in the game when he's winning? Do the ratings go up or is that now starting to fade? >> This years Masters is a perfect example, he didn't play he's hurt it was ratings were down. And I hate to, I actually look at this Tiger every sport needs a black hat and a white hat. And without the black hat out there. There wasn't as much interest in the Masters anymore. So you have Tiger vs Mickelson. As the good vs evil. And you have LeBron vs the rest of the league. It's good vs evil. >> [LAUGH]. >> So the sports need the black and the white hand so part of it is Tiger is, still a big draw. It is a bit concerning if you fast forward and look forward 20 years from now or 10 years from now. What's going to happen when he fades away a little bit. >> We need a Jordan Spieth, we need heroes is what you're saying. >> Yeah, we need heroes, but you still need the conflict too. And I don't know where the conflict comes from. Golf's pretty squeaky clean sport. >> We talk about this trajectory, and again, only public record stuff, but my mind goes immediately to David Duval. Who was number one in the world, had some injuries, shot a 59 if memory serves, at one point. I think you still represent him, or have worked with him all these years. So without getting into any confidences. How is David doing, and what kind of advice are you giving him at this point? I think he's still competitive, right? >> He's trying, and he's trying really hard. He realizes that this is the one thing he's very good at, still. He still wants to do it. He still wants to be competitive. But he still too young to just quit and go do something else. And the problem when you're dealing with somebody's finances, standard of living becomes just what that is. You spend x amount of dollars and when you make 10 million bucks, your standard of living goes up to we'll call it five. You're still saving a lot, but you have a standard of living. The problem with David Duval: when his standard of living went up and his income was 20 million bucks a year. It did not matter he was saving enough. As soon as his income went to 0 and it literally went 0 for 10 years. He was still spending 5 million bucks a year. So that's the problem you're dealing with. Athletes who don't think. Who think basically they can earn this amount of money for the rest of their lives. And that's just not a possibility. >> And then we, we go to the big three, you know, and Palmer, Player, Nicklaus. Which have been able to transcend the winning and the losing over the years. Arnold through his licensing deals, through the umbrella deal. I think he's still reported as being one of the highest paid, royalty licensing. Is that where you would hope most of the golfers could end up? With other sources of income that don't depend on success, Dave? >> Yeah, it's interesting. Again, Nicklaus and Palmer were the black and white hat, a little bit in their time. And Palmer's done it all with really conservative investing and licensing. Iin the race, he's so much further ahead than Nicklaus. Because Nicklaus tried to do it with investments thinking he was smarter than everybody else and, and his investments are well known failures. So while it was the end of the tortoise and the hare race, Nicklaus kept running ahead and falling back. Because of his investment failures and Palmer just kept plodding along. And, yes, so you want your income stream. You want your legacy to keep generating some income stream. I think I read the other day that Michael Jordan, who hasn't played in, I don't know what it is now. He still makes $100 million a year from, from Nike royalties on the new Jordan shoe. Which is just unbelievable so. >> And, and Gary Player has tried he's tried to put logos out there and all the rest. And one of the greatest players in the history of the game again without disclosing any client confidence. Just still is out there playing a lot of exhibitions and doing a lot of golf course design. >> Yeah, it's different. He hasn't been able to capitalize as much as Palmer and Player have but or Palmer and Nicklaus have. But yeah, he probably still makes more of his money getting on the road and doing appearance days. Versus having the income stream from brand licenses. >> Doing his 100 push ups and sit ups and more per day. >> Yeah. [SOUND]
