Analysis of the PGA and LIV merger from an Anti-trust Law Standpoint

BACKGROUND

For the past several decades, the world of golf was overseen by The PGA Tour (“PGA”), which was the premiere organization that controlled, organised, and ran a series of golf tournaments (mostly in the United States of America) for professional golfers who subsequently earned their living by participating in these tournaments. However, in 2021, the scenario quickly changed with the introduction of the LIV Tour (“LIV”), a new professional golf tour financed by the Public Investment Fund (“PIF”), the sovereign wealth fund of Saudi Arabia, and controlled by PIF Governor Yasir Al-Rumayyan. In contrast to its counterpart, LIV has fewer and shorter tournaments of 54 holes rather than the traditional 72. This, coupled with significant monetary offers and larger purses for professional golfers, facilitated LIV’s success in taking a significant amount of talent from the PGA, including notable names of Cameron Smith, Dustin Johnson, Brooks Koepka and Phil Mickelson.

With the quick and powerful rise of LIV who lured some top golfers while simultaneously having gigantic financial backing, the PGA had to respond before it was too late. The PGA decided that “non-members who participated in an unauthorized tournament would be ineligible to compete in any PGA-sanctioned event for one year”. Following this, LIV as well as several former PGA golfers sued the PGA alleging anti-competitive practices for banning its players by virtue of deeming them as ineligible to compete in any PGA-sanctioned event for one year. The PGA countersued the same claiming that LIV was stifling competition and “sportswashing”. This saga went on for several months, and amidst the heated legal battle which had ensued, to everyone’s utter shock and surprise, the two organizations announced that they would merge into one entity, and that the expensive legal battle would subside. This was very sudden and unexpected, and only a handful of people knew of the ongoing talks between the two organizations.

Some news reports state that as per the agreement between PGA and LIV, the Board of Directors of the new entity will oversee and direct all the new entity’s golf-related commercial operations, businesses and investments. Mr. Al-Rumayyan will be the chairman, and Mr. Jay Monahan (Commissioner of the PGA) will be the CEO of this new entity, who have promised that the new entity will prepare a cohesive schedule of events that will be thrilling for all the fans, sponsors and stakeholders involved. PIF will initially be the exclusive investor in the new entity (and will have the exclusive right to further invest in the new entity, including a right of first refusal on any capital infusion, including into the PGA, LIV and DP World Tour), alongside the PGA, LIV and the DP World Tour. The PGA will appoint a majority of the Board and hold a majority voting interest in the combined entity. Thus, it appears that the financial and commercial interests are largely vested with the PIF, whereas the day-to-day operations and functioning of the new entity would be in majorly in the hands of the PGA.

Considering that the legal battles had already commenced prior to the proposed merger, antitrust violations body – the Department of Justice’s antitrust division (“DOJ”) had commenced its diligence on the PGA and whether its actions (against banning non-members, as abovementioned) could be deemed as anti-competitive in nature. Considering the strong possibility of the DOJ holding the said actions as violative of anti-trust laws on account of abuse of dominant position, the proposed merger may face a much greater scrutiny from the DOJ and corresponding antitrust regulators in other parts of the world where golf is played, as advocated by many powerful figures. This article aims to briefly ponder the nature and likelihood of such violations along with possible ramifications.

APPLICABLE ANTITRUST PROVISIONS AND ANALYSIS

Now that the two golfing behemoths have decided to become a single entity, Section 1 and Section 2 of the Shearman Act (“Shearman Act”) would be applicable to the new entity. Section 1 of the Shearman Act declares contracts or agreements formed in restraint of trade, to be illegal and punishable with monetary and criminal sanctions. Section 2 of the Shearman Act prohibits any attempt / act leading to a monopolization of trade or commerce as a felony and having similar consequences to that of Section 1 of the Shearman Act.?

To determine if the incorporation of the new entity would violate these provisions, the DOJ and other antitrust regulators would seek to understand the various competition law aspects in play. In the current case, the determination of the relevant market would be simple, that is, the market for men’s professional golf. The relevant geographic market would be professional golf played in the whole world, which again, would remain an easy point for the authorities to determine. It is key to note that?a league backed by a $700 billion backing from a sovereign wealth fund would virtually have no competitor. Now, it would be prudent to broadly enlist the issues faced by different stakeholders in the absence of a competitor, and defences of PGA and LIV, assuming the merger should be given the ‘green light’. They are as follows:

POTENTIAL ANTITRUST VIOLATIONS:

(i) Key concerns of golfers:

Golfers were paid a handsome sum by LIV, which was one of the reasons as to why many golfers switched from PGA to LIV. The PGA had raised the prize money in response to LIV’s enhanced monetary packages but were unable to sway these golfers from staying. Now post the proposed merger, first, the number of spots available for golfers have reduced since one competition is now eliminated. Second, the increase in pay by the PGA, which was only caused because of the stiff competition LIV provided, is now going to negatively affect the players, as the new entity has no incentive or need to increase monetary perks. Third, it would be interesting to see if the contractual obligations which golfers (with increased monetary perks in contrast to PGA) had signed with LIV, would continue to exist or would it be renegotiated / held invalid, in light of the merger. To take the reverse, huge inequality in monetary perks amongst similarly placed golfers may be alleged as unfair and arbitrary ‘discrimination’.?

(ii) Key concerns of other stakeholders:

Broadcasters, advertisers, and marketers would all be on the losing side of the spectrum of this proposed merger since the sources of revenue would drastically reduce. To substantiate, PGA and LIV as separate entities meant more tournaments, more varied audience and bargaining power while having the opportunity to align with the organization that matched the wavelength of each stakeholders’ corporate vision.?

(iii) Key concerns of fans:

Last but not the least, the fans too are affected negatively by the proposed merger. LIV’s arrival in 2021 opened the doors to a slightly varied golf format, with changes (as against PGA) in shotgun starts, fewer tournament holes, and eliminating mid-tournament player cuts. These changes had made the game of golf more interesting for spectators. However, innovation and modernization of golf may get stifled rather than advanced if the proposed merger was to go through.

(iv) Tax related issues:

The PGA is currently a tax-exempt entity (under Section 501(c)(6) of the United States Internal Revenue Code).?The PGA, per news reports, will continue to remain a tax-exempt entity. This may not be looked at in a positive light by the concerned authorities, especially post the influx of cash once the PIF is onboarded.

POTENTIAL DEFENCES CLAIMED BY PGA AND LIV

While it appears that PGA and LIV may not have a solid retort to all the abovementioned issues, they would most likely claim a special antitrust exemption, as was given by the Congress to the 1970 merger between the National Football League and American Football League.?

The PGA would also claim that the proposed merger is in the best interests of golf as a sport, as is already stated by Jay Monahan and Al-Rumayyan in several interviews. Their goal is unifying, promoting, and growing the game of golf around the world and offering the highest-quality product to the many millions of long-time fans globally, while cultivating new fans. The two organizations would demonstrate how these goals would be aided by the proposed merger.

CONCLUSION

Currently, very few details about the merger are made public, in the absence of which, it would be difficult to provide an accurate and thorough analysis and assess which way the antitrust authorities would go. That being said, it appears that the proposed merger is opposed by most stakeholders including fans for sentimental reasons. In the absence of an antitrust exemption as was provided to the National Football League and American Football League, this merger may not be accepted by the DOJ. Further, the deal could become complicated in the event antitrust regulators in Europe decide to intervene. The proposed merger will potentially face several challenges across various jurisdictions, and considering the time, cost, and loss of privacy associated with this process, one, if not both, of the associations may also decide to walk away. This tale will decide golf’s fate for the years to come.