Revisiting the USGA's FOX windfall income

What did USGA do with all that cash?

Recall that FOX paid $323 million in 2020 to extricate itself from a 12 year $1.1 billion contract to carry USGA events, including the US Open, between 2015-27.

It’s never a good thing when an organization is less transparent than it used to be which is where we find the USGA today. As a result, we don’t really know with certainty how effectively the USGA has been utilising the FOX cash. However the signs are not good which will be explored in this post.

Money in Sport’s interest in the USGA’s latest form 990 financial statements for 2023 was tweaked by its decline in revenues. How could that be with interest in the US Open in such great shape as a by-product of the turmoil between PGA TOUR and LIV Golf?

Financial income including stock trading, went into loss in 2023 which dragged the USGA’s overall revenues of $212 million below 2022’s revenues of $235 million.

Securities trading delivered a net loss of $43 million in 2023. Such a disastrous loss is spectacularly bad in a year when the S&P 500 gained 24.6%. Presumably heads rolled.

Drilling down on the USGA’s investment portfolio we find:

1. The USGA’s listed securities portfolio peaked at the end of 2021 at $754 million and ended 2023 at $644 million. We don’t really know what happened in between and what the current composition of the portfolio is because USGA elected to stop making its audited consolidated financial statements available on its website after 2020, despite continuing to claim otherwise on form 990:

   

   Form 990 (2023), Schedule O

2. The level of stock trading has been increasing significantly. In 2023, the USGA and its investment advisors played the stock market to the tune of half a billion dollars….$519 million to be exact. That’s over 2X the USGA’s operational revenues for 2023.

   

   Form 990 (2023), Part VIII

3. At the end of 2022 there was a $92 million unrealised loss on the USGA investment portfolio. By the end of 2023, the portfolio had swung into a $100 million unrealised gain, presumably much to the relief of USGA Executives.

Form 990 (2023), Part XI

The volatility in the USGA investment portfolio makes no sense for an organisation that should be primarily concerned with capital preservation when it comes to stewardship of its assets. The risks involved with such a high volume of stock-trading are mind-blowing. One wonders what type of mandate has been given to the investment managers by the USGA’s Executive Committee and how closely this is being monitored. The USGA’s Audit Committee should be apoplectic.

A reminder of USGA’s mission statement:

“THE UNITED STATES GOLF ASSOCIATION CHAMPIONS AND ADVANCES THE GAME OF GOLF. IT SERVES MILLIONS OF GOLFERS AND THOUSANDS OF GOLF COURSES BOTH WITHIN THE UNITED STATES AND AROUND THE WORLD THROUGH PROGRAMS AND SERVICES THAT PROMOTE A THRIVING, WELCOMING AND SUSTAINABLE GAME.”

….no, nothing about playing the stock markets instead of GTG!

Back to the earlier point about the lessening of USGA’s commitment to transparency. Executives will no doubt point to their glossy annual report which has a couple of pages on financial matters, including this on revenues:

$306 million of revenue in 2023?! That’s not a figure that readers of the USGA’s form 990 will be familiar with (the 990 shows $212 million). Add back the $43 million stock trading loss disaster and you’re still $50 million short of $306 million. There’s no attempt to reconcile this figure; just a vague reference in the fine print to results, “shown on a proforma basis”. ‘Proforma’ is doing some seriously heavy lifting here….

The last set of consolidated financial statements which the USGA made available for 2020 included this important disclosure about the FOX payment of $323 million:

The key section is, “At the discretion of the EC, in each calendar year starting in 2021, the USGA may release into operations an amount […] The EC may at any time redesignate or repurpose such funds.” In the absence of any disclosure on how the $370 million media rights reserve is being used each year, it becomes impossible to make sense of the USGA income statement.

It might just be a coincidence that the USGA stopped making its audited financial statements available after it received the windfall FOX income and created this Media Rights Reserve. Money in Sport doesn’t believe in such coincidences….