Dubai on Brink of Sovereign Default; Deep Implications for European Tour

A few months ago, I wrote a piece here at Waggle Room declaring the imminent death of the Race to Dubai.  It was seen as controversial by commenters that expected Dubai to recover from the global real estate bubble burst. 

In preview of the Dubai World Championship, we came back with a piece about how Dubai's development past and future are closely tied to golf.  In that piece, we mentioned Dubai's $20 billion bond program - funded largely by its UAE oil-rich neighbor Abu Dhabi - to help it continue to pay off its massive debt to other backers.

On Wednesday, Dubai-owned development arm Dubai World announced that it is seeking to defer debt payments for six months on its near $80 billion in total debt.  Dubai World is responsible for some $59 billion in liabilities.  Nakheel, the company that took over European Tour headline sponsor Leisurecorp, is on the hook for some $3 billion of that money.

Dubai World will also seek to restructure its debt with noteholders, who will certainly ask for other future guarantees in exchange for restructuring now.  But, the reality is that Nakheel will likely have to sell many of its physical assets to private entities in order to stay afloat.

The implications are clear for the European Tour, who staked much of its future on Dubai when it teamed up with then Lesiurecorp to begin the Race to Dubai - a five year deal valued at some $200 million.

In the wake of already announced cutbacks, the Race to Dubai and Dubai World Championship purse were cut by 25% but both purses were paid.  This news will likely stunt the future of both concepts in much the same way that the deep financial trouble of American automakers General Motors and Chrysler LLC resulted in their total withdrawl from sponsoring PGA Tour events.

Waggle Room contacted the European Tour seeking comment for this story.  A European Tour spokesman said, "We have no comment at this time other than that we will be announcing our full schedule for 2010 shortly."