Net Loss?

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Will the L.A. Tennis Open find a new title sponsor or a deep-pocketed buyer?

The 86-year-old L.A. event is on the block. The Association of Tennis Professionals men’s tournament at UCLA, called the Farmers Classic for the past three years, is soliciting buyers who would be willing to bring it back next year. Its organizers, the non-profit Southern California Tennis Association, say that the event has lost money for four consecutive years. And next year, the tournament faces an additional challenge because its two main sponsors did not renew their contracts.

“We had excess dollars at one time, but the economics have gotten away from us,” said Bob Kramer, executive director of the L.A. Tennis Open and son of tennis champ Jack Kramer. “Most people would’ve shut this down two years ago.”

The SCTA could shut down the tennis event if it can’t get a buyer or sponsor. But the organization believes the tour date has some value and will find a buyer, although perhaps at a discount. Ideally, any buyer would keep the event in Los Angeles, but the organization would let it leave if there were no other option.

Since 2009, Kramer said the tournament’s $3 million in annual costs ran a deficit of about 15 percent because of declining sponsorship money and falling ticket sales. The losses were covered by reserves that were built up in better days, when American stars such as Pete Sampras and Andre Agassi played annually.

Ticket sales account for between 40 and 50 percent of the revenue. Sponsorships account for about 40 percent with concessions and merchandise accounting for the balance. At one time, ticket sales alone generated about $1.75 million, but last year that number fell to just $1 million.

Although the tournament is televised on Tennis Channel and ESPN, it’s not enough of a draw to command any money for domestic broadcast rights. (Foreign broadcast sales bring in a tiny amount.) Instead, the tournament buys air time and sells just enough advertising to cover the television cost.

Meanwhile, sponsorship dollars dropped by a third in 2009 and are in danger of another major decline. Title sponsor Farmers Insurance Group and presenting sponsor Mercedes-Benz chose not to renew their three-year contracts that ended this year and the event has been unsuccessful finding new corporate partners for 2013.

From the past

The tournament is one of the longest running continuously held sporting in Southern California. Past winners include Kramer’s father, Jimmy Connors and Arthur Ashe, who won his last career title in 1975 when the event was at Pauley Pavilion.

The event moved in 1984 to its current home at UCLA’s tennis center, which was built for the 1984 Olympics. The university does not charge any rent. It receives a portion of the event’s profits, but does not cover any of the losses. When the event was making money, Kramer said the university received about 30 percent of the annual profit. He estimated that the tournament has made profits of about $6 million to $7 million since moving to UCLA.

He runs the event with two other full-time employees at an office on the UCLA campus. At tournament time, the event is staffed with dozens of volunteers and part-timers.

Kramer points to the economic crash in 2008 as the point when financials for the event took what look like an irreversible decline. Its title sponsor at the time, Countrywide Financial Corp., became a symbol of the economic collapse that took place. Countrywide was acquired by Bank of America Corp., which chose not to continue the sponsorship. In 2009, the tournament proceeded without a title sponsor, but Farmers stepped in as presenting sponsor. The next year, the organizers worked out three-year deals with both Farmers and Mercedes-Benz.

For Farmers, the tournament was a success, but it has decided to put money toward a different project: Anschutz Entertainment Group’s potential football stadium in downtown Los Angeles.

“We enjoyed our professional tennis relationship with the Farmers Classic. Going forward, we will concentrate our Southern California sports sponsorship dollars on Farmers Field, which we expect will soon bring professional football back to Los Angeles,” said Mark Toohey, a spokesman for Farmers.

Officials at Mercedes-Benz did not return calls.

A combination of a lack of American stars to draw in fans and sponsors and a tough economy have made a tennis tournament a harder sell.

These days, the top stars – Roger Federer, Rafael Nadal and Novak Djokovic – are international players who skip this event in favor of European tournaments. And anyway, they would demand appearance fees that can reach seven figures.

“Players today are getting triple what the top stars got in previous generations,” said Kramer.

The tournament continues to spend money to attract players, such as Andy Murray and Juan Martin del Potro. But travel to Los Angeles is a major commitment for international players who may choose to rest and stay closer to home no matter the price in order to prepare for events that are more important to their careers. And there are always conflicts: This year, the tournament ran at the same time as the London Olympics.

That’s a major issue, said Gus Sampras, president of Pure Sports Management based in the South Bay and brother of tennis champion Pete Sampras. He said that scheduling demands are tough on the top stars. He had personal experience with that as a manager of several professional tennis events including a women’s tournament in Manhattan Beach.

“After Wimbledon, players want to go home for a few weeks,” he said. “Everyone wants the top players in their city, but there’s only one Roger Federer and everyone wants him. He picks the calendar that works for him. That’s where a sponsor can come in and build a relationship with players.”

The women’s event that Sampras managed had been scheduled in Manhattan Beach until it was bought by AEG and moved to the Home Depot Center in Carson in 2003. AEG decided to sell that event in 2009 after struggling to find a title sponsor and draw fans. It was purchased by Octagon in McLean, Va., which moved it to La Costa Resort in Carlsbad and has since signed Mercury Insurance Group in Los Angeles as title sponsor of the event.

Another tennis tournament sale took place this year. Sharks Sports and Entertainment in San Jose sold its pro tennis event in Memphis to a company that will move it to Rio de Janeiro. It will replace the Memphis event with a tournament it owned in San Jose.

“We were made several offers on our Memphis property,” said Michael Lehr, executive vice president at Shark. “We looked at what made sense for operating the tournaments and were able to make a deal that was good for us and the buyer. It’s a challenge of the times we live in now.”

L.A. Tennis Open would have been willing to sell a minority stake to an investor in prior years, but Kramer now thinks that the best option is to look for a sports management company or wealthy investor who will take a majority interest in the event.

The investor will need to absorb losses in the short term but ideally would keep the event in Los Angeles while forming a long-term business plan. Companies such as Octagon, AEG or CAA Sports have the infrastructure in place to sell sponsorships and attract top talent.

The buyer would not only have already established relationships with players and sponsors, but would see value operating the tournament as it has been run in past years. Kramer said that a recent outside appraisal of the event put its value at about $3 million.

“There are a handful of buyers out there, but it has to be a long term play,” said Sampras. “A company could reinforce a portfolio of properties. It has to get through the next few years, but then it will own the only professional tennis event that exists in Los Angeles.”

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