LIV Golf/PGA - a hole in one or a de-facto killer acquisition?

Yesterday’s announcement that the PGA Tour will merge with LIV Golf has made headline news around the world.?For those of you who are not golf fans, here is a quick recap of why it has garnered so much interest – and why competition lawyers are taking note.

Background to the dispute

The LIV Golf/PGA Tour dispute concerns another ‘breakaway competition’ controversy not dissimilar to the Super League and International Skating Union disputes (although, it is interesting to note that golfers, unlike for example footballers, are independent contractors not employees).

The LIV is a golf league that was founded in 2021 and is financed by the Public Investment Fund (the sovereign wealth fund of Saudi Arabia) as a rival competition to the incumbent PGA Tour. Various PGA Tour players had ‘defected’ to the LIV under extremely lucrative contracts, which led to the PGA imposing sanctions (including suspensions and fines) for breaching the PGA rules. The LIV and various players had filed lawsuits against the PGA on the basis that the PGA’s rules were anti-competitive and the sanctions on the ‘defecting’ players were disproportionate.??

An excellent summary of the US antitrust litigation between the PGA and LIV Golf can be found in the ABA Antitrust Law Section's Our Curious Amalgam podcast (available here: https://ourcuriousamalgam.com/episode/218-liv-pga/ ) with Michael McCann and Kail Jethmalani .?

However, there is also a UK nexus to this dispute.?Earlier this year, from February 6-10 2023, there was an?arbitration ?involving various golfers who had participated in the LIV breakaway tournaments. This was held in London at Sports Resolutions, an independent provider of sport-specific arbitration services in the UK.

This arbitration involved a claim by 12 players who had been fined ￡100,000 and suspended for three tournaments by the PGA European Tour (currently called the ‘DP World Tour’). The penalty was imposed as a result of their participation in the inaugural LIV Golf tournament in London between 9-12 June 2022. The applicant players argued that the penalties violated restraint of trade, contract law and competition law in the UK.

The competition law ground was on the basis of the Ch1 prohibition in s2(1) of CA98.? However, the panel found that the penalties were “a facet of the competition between LIV and the Respondent for the services of particular elite players” and therefore they did not restrict competition by object or effect.[1] ?The panel also reached the view that the financial sanction on the players of ￡100,000 was not disproportionate (the fine was deliberately set at a sum just lower than the prize money available to the last place participant in a LIV event).?Ultimately, the arbitration panel rejected the claim, ruling in favour of the DP World Tour.

The outcome of the US dispute was looking less clear, until the stunning announcement yesterday from LIV Golf that it would end its litigation against the PGA Tour and instead planned to merge.?

A merger to end one antitrust fight, and start another?

It is difficult to credibly use the term “killer acquisition” for a company backed by the sovereign wealth fund of Saudi Arabia.?However, it is not entirely without merit.

In the original article to coin the phrase “killer acquisitions”, Cunningham et al (2018) describe a killer acquisition as a case in which the acquiring firm’s strategy is “to discontinue the development of the targets’ innovation projects and pre-empt future competition.”?As Cunningham et al explain, the theory is that an incumbent ‘kills’ or ‘mothballs’ the development or production of a product that poses a potential risk to its established product line.[2] ?Although the term was originally related to the pharma industry, it has been widely adopted across digital markets.

The emergence of LIV Golf as a competitor to the PGA has not been welcomed from all sides, for various reasons unrelated to competition law.?However, the emergence of a rival golf tour has led to some benefits including enhanced player prize pools and greater choice for both professional golfers and those who enjoy watching golf, i.e. sports consumers.?As a result, some US commentators have already noted that the proposed merger would “eradicate the competitive benefits of there being two large, national golf tours…[and] a combined professional golf entity would immediately garner an even greater share of the market for hosting professional golf events”.[3]

As set out in the OECD’s paper on killer acquisitions,[4] the difference between a killer acquisition theory of harm and a potential competition theory of harm “is that in a killer acquisition the merger creates an incentive, not only to remove the future competitive pressure applied by the product (which can be done by acquiring the product), but also to remove the product itself from the market.”

There is no confirmed indication of what the merged entity would look like, and, of course there will be many, no doubt credible, arguments about why this merger is good for sports consumers and the wider golfing community.?However, the head of Saudi Arabia’s soverign wealth fund was quoted in the FT yesterday as saying “Logically we should work together; we shouldn’t work against each other.”[5] ??So, it is reasonable to assume that, regardless of what the merged entity becomes, LIV Golf as a competing entity will no longer exist on the market.

It is already considered reasonably likely the US antitrust agencies will seek to review the merger. [6] ?Whether the UK CMA will do so remains to be seen.?But on the tail of a bitter antitrust dispute, this is one merger that will not fly under the radar.?

Sarah Long is a partner at?Euclid Law , a boutique competition law firm.?Views are entirely personal and do not constitute legal advice.??

#antitrust #golf #sportslaw #mergers #PGA #LIV

[1] See paragraphs 105-182 of the?decision .

[2] https://www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control-2020.pdf

[3] https://www.forbes.com/sites/marcedelman/2023/06/06/pga-tour-merger-with-liv-golf-should-cause-concern-for-antitrust-regulators/?sh=14afff772363

[4] https://www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control-2020.pdf , p31.

[5] https://www.ft.com/content/9f3f69d0-056a-4411-af3c-c5a8ca662059

[6] https://www.forbes.com/sites/marcedelman/2023/06/06/pga-tour-merger-with-liv-golf-should-cause-concern-for-antitrust-regulators/?sh=14afff772363