As TPC Scottsdale readies for another Phoenix Open, a new Maricopa County Superior Court case challenges the city's taxpayer support of the event. Could public money be buried beneath the greens?

Open Secret

Written by Jimmy Magahern Category: Valley News Issue: January 2017
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Deep Impact

The overall profitability of major sporting events cannot be measured by ticket sales alone. Using a formula that accounts for hotel stays, restaurant visits and other tourism revenue, ASU’s W.P. Carey School of Business produces a so-called gross state product (GSP) report for big-ticket sports events. The top five in Metro Phoenix history:

• Super Bowl XLIX (2015): $720 million
• Super Bowl XLII (2008): $500 million
• College Football Playoff (2016): $273 million
• Waste Management Phoenix Open (2016): $222 million
• Fiesta Bowl (2016): $169 million

'Every year around this time, half a million people descend on TPC Scottsdale – a vast, impeccably groomed golf course off the Loop 101 – for the world-famous Waste Management Phoenix Open. Known as the “people’s open,” it is currently the most-attended tournament on the PGA Tour and one of the most profitable, raking in millions of dollars in revenue for its Florida-based course operator, the PGA Tour, which in turn funnels a generous portion of the gate to Phoenix-area charities through the Valley-based business fraternity that sponsors the tournament, The Thunderbirds.

Now, perhaps inevitably, that success has led to resentment – manifested in an obscure but long-running court drama with money at its core.
According to Valley investment analyst Mark Stuart, the course’s owners lose unrealized profits from the event each year. Stuart says he has good reason to be concerned, since he – as one of Scottsdale’s roughly quarter million residents – is effectively one of those owners.

“The vast majority of people in the Valley think that [it] is a private golf course, or part of the Princess hotel,” he says. “It’s not. The TPC Scottsdale is entirely owned by the City of Scottsdale.”

And the city is getting a raw deal, according to Stuart. For the privilege of running one of the most profitable municipal golf courses in the country – and staging the Phoenix Open itself – the PGA Tour pays Scottsdale 12.5 percent of TPC revenue (up from 10 percent prior to 2014, when the current contract was negotiated), and an additional two percent of the Open’s merchandise sales and food and beverage revenue. The city insists that’s fair, given the robust tourism business the event brings in. “An economic impact study performed after the 2012 event estimated the regional economic impact in excess of $200 million,” says Scottsdale city attorney Bruce Washburn.

But Gene Krekorian, a land use economics consultant retained by Stuart to appraise the arrangement, says those terms are far below what golf industry analysts consider fair market compensation for operation agreements. “Percentage rent paid at other facilities would suggest a fair, competitive rate of 20 percent or higher,” he says.

Moreover, Scottsdale – not the PGA Tour – pays the TPC’s operating costs, which include general maintenance and upgrades. Taxpayers don’t directly carry the burden of those costs. They’re covered by the city’s “bed tax,” generated by tourists who stay in Scottsdale’s hotels, and from lease revenue paid by the Fairmont Scottsdale Princess, which also sits on the land. Nevertheless, Stuart contends the PGA Tour is contractually obligated to pay those costs – an effective loss compounded by the unfavorable lease agreement.

After the Scottsdale City Council approved an amendment to its contract with the PGA Tour in late 2012 to funnel $15 million in taxpayer money into course renovations, Stuart and Scottsdale medical device engineer John Washington filed a lawsuit against the city in Maricopa County Superior Court. (Washington has since withdrawn himself from the suit, citing disagreements over representation.) The case, which is scheduled to go to trial in early 2017, charges that by short-changing the public to the advantage of the PGA Tour, a non-profit company that operates 34 TPC Network courses around the U.S., the city is violating key provisions in both the Arizona Constitution and the city’s charter. The Scottsdale city attorney’s office declines comment on matters of pending litigation.

Washburn strongly disputes Stuart’s claims, pointing out that he’s ignoring the bigger picture. “Economic experts hired to evaluate this agreement have concluded that the city is receiving value in excess of five times the amount the city paid to the contractors to upgrade the facility,” he says, citing the course’s high rating and attendance records.

Ultimately, Stuart hopes to see a payday, too, by invoking Arizona’s little-known “bounty statute” that awards citizens who recover public money for the state 20 percent of the recovered funds. TPC honchos hope that’s one putt that doesn’t pay out.