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I was in Barcelona today watching the world famous FC Barcelona win in front of their home fans. Being on my own, I headed back to the hotel after the game and caught the PGA Golf Championship on the screen in the hotel bar. With nothing better to occupy my mind, I started wondering how a golfer actually gets started on the professional tour.
After some googling and a conversation with Claude AI, I discovered a high-risk, suburban investment world, behind the wannabe pro golfer that hadn’t crossed my mind. I thought it was worth sharing.
Pro golf operates on a very simple premise: perform well in tournaments and you get paid, otherwise you eat noodles on the way home. Flying to events, accommodation, tournament entry fees and caddy costs add up to a significant sum for a golfer trying to make the leap from amateur to paid professional. Unless you have a wealthy family willing to bankroll your first couple of seasons to the tune of a few hundred thousand dollars, the question is: what do you do?
Apparently, your local high-end golf club is a hotbed of venture capital for the budding golfer. He forms an LLC and pitches his potential to the club’s more affluent members and their business contacts, people who have watched him develop as a player. He offers them shares or units in the LLC, with a percentage of his future winnings as the incentive. A playing day with him if he makes it big can sweeten the deal, and hopefully he can persuade ten or so individuals to contribute $20,000 each as seed money for his first few tour seasons.
The contract typically runs in two phases. During the payback period, investors claim a substantial slice of weekly winnings, often 50% to 80%, until the initial capital is recovered. After that it converts to a long-term minority royalty, perhaps 10% to 15% of total career earnings over five to seven years. That includes the rather lucrative corporate logos you see stitched onto every shirt and hat on the broadcast.
If your player catches lightning in a bottle, earns a Tour card and wins something significant, the return on that initial $20,000 can be quite extraordinary. You also get to watch your investment on television every weekend, which is not something you can say about most equity positions.
The reality of professional golf is considerably less romantic. The vast majority of touring professionals never make it, circulating on regional satellite tours where first prize barely covers the hotel bill. An injury, a loss of form, or simple burnout sends the entire enterprise bust.
There is no collateral to recover and no secondary market where you can cut your losses and pass the shares to someone with more optimism than sense. It is illiquid, high-risk, and ultimately a binary bet on a single human being’s athletic ability over the next decade. Which is, I’ll concede, a rather elegant description of a very bad investment.
Next time you are at your local club, keep your ears to the ground. You never know, the nex tRory McIlroy might be making his pitch. But if you are anything like me, you are an index investor. You will be sticking to a disciplined, diversified, deeply unsexy basket of global equities, and declining on this occasion to put $20,000 on whether a 23-year-old from Scottsdale can hold his nerve on a Friday evening cut. I have to say, it’s a nice dream, though. Right up there with having a low handicap…I’d even settle for a decent swing.
Mark,
I’m catching up on my HD reading.
Fun article, keep writing :)!
…and a bit jealous of your soccer (ah, football) and PGA championship solo day…sounded very fun to me 😉
All I can say is keep dreaming. In the long run you will do much better with the S&P5oo Index. Enough said. Nice to dream though!
This discussion reminds me a bit of my sister’s long “career” in competitive ballroom dancing. I have it in quotes because she was not a pro dancer; she had a day job that supported the dancing.
She started by taking lessons in a local studio when she was still in high school. When she left town for college about 70 miles away, she’d come back a couple of weekends a month so she could dance. It actually was a ballroom dance connection that helped her get the job that turned into her career after college. A guy she met there was a mucky-muck at Charles Schwab in San Francisco. She was a history major, but he thought she was smart and that her history degree meant she could probably read and write, and they’d train her to do specific things. She spent over 25 years at Schwab in various jobs.
She continued with the dancing after college, commuting to the South Bay for coaching and practice. Started competing at great personal expense. Lessons, practice time, entry fees, travel costs, and oh—the costumes, which even back then were custom-made and ran into the thousands. She used most of her disposable time, energy, and money on this hobby/passion.
In 2002, she met the guy who became her husband and dance partner at the same studio she’d been practicing at for years. They were very good and won a couple of national titles in their age group and went to worlds. They also competed abroad, especially at one big comp in England every year.
By 2014, she’d developed various knee and foot ailments from the decades of dancing, and they decided it was time to retire. She and I always joked that our respective hobbies (mine was having kids!) were exhausting and expensive, but we’d still do it all over again.
My parents won local dance competitions in the Boston area when they were young and danced until they died. We have a picture of them doing so at their 50th anniversary. You should see the smiles on their faces. My wife loved dancing with my father. Me, errr not so much.
My wife’s friend runs a small home business making and altering Irish dancing costumes. They’re not cheap — but given the hours she puts into crafting them and hand-applying all the sequins and embellishments, it’s easy to see why. I’m just very grateful my girls never caught the Irish dancing bug when they were young!
My girls were singers, not dancers. In high school, my older daughter got into the madrigal choir, which required a renaissance costume. I paid $1500 for a local seamstress to make it for her. This was back in 2004! I was quite relieved when her younger sister chose the jazz choir instead. That outfit only cost $200.
Interesting. I wonder, do other sports work similarly? Tennis, horse racing, etc.?
I have a friend who is a professional poker player. I have a similar investment in her. She uses my capital to enter tournaments and I share proceeds with her 50/50. She uses her own money for cash games. Many professional poker players have “syndicates” like golfers do.
That’s so cool. I love a poker session with a few friends! Although we keep it very low stakes as we’re all a little bit tight lol
A friend of mine owns a 10% share in a few racehorses. He’s a retired university professor and treats it as a bit of fun — it gets him to the big race meets around the UK a handful of times a year for a boys’ weekend with a few mates. I’m not entirely sure how the jockey arrangement works for syndicate ownership like this, though I know they don’t employ one full-time.
Most of these aspiring golfers play junior golf which involves travel to tournaments, lessons from teachers, and other expenses. If they are good enough, they play college golf on scholarships. They spend a lot of time practicing. A woman who worked for me, her ex-husband was an aspiring pro, and he practiced his short game 4 hours every day. You have to really love the game to spend all the time it takes to develop your game.
There are some really good golfers who never make it to the big time.
I went to high school with a guy who regularly got permission to skip class and compete in All-Ireland and UK amateur youth golf competitions. He was a genuinely exceptional young golfer, and I always assumed he’d turn pro. We lost touch during university, but I’ve since looked him up — and there’s no trace of him on the European Tour, youthful dreams are made to be broken.
Mark,
I’m willing to bet that these “investors” see their money as a gift, and for them it would be the equivalent of us giving 2K with the hope that a local they most likely know makes the big time. If they do I’m willing to bet those same investors attend several tournaments a year to cheer on their “investment”. They can also brag that they personally know a PGA professional. The potential return is just a bonus.
I’d agree with you on that, David. It must be quite something for those investors who had the foresight, or the luck, to back a young golfer who went on to make it at the top level.
Totally agree. This is a “fun” investment, a flyer with no real expectation of return, like buying a share in a racehorse. You get the thrill of participation and the hope of contributing to a great success down the road, and if you’re lucky you get to see “your” golfer play on TV some Sunday. It’s got to be like watching “your” horse run in the Preakness. But I strongly doubt anybody makes such an investment expecting anything more than that.