Par for the course – scouting out the PGA LIV merger
Prior to 2021, the global golf scene was largely dominated by the PGA Tour in the USA and the European Tour[1] in Europe.[2] ?Suddenly, along comes LIV, a controversial and disruptive new player in the golf industry, looking to change the landscape with a revolutionary format of golf, including: enormous signing bonuses; shorter format games with 54 rather than 72 holes; shotgun starts; team competitions; and ‘no-cut’ tournament designs.?Economic theory tells us that when a new player enters the market to challenge a monopolist for market share, we generally see higher product quality and lower consumer prices.?In the rest of this article, we take a dive into whether this was the case when LIV entered the golf market.
The PGA tour[3] responded to LIV’s entrance onto the golf scene by suspending PGA players who had signed contracts with LIV from PGA events.?Despite this, big names such as Dustin Johnson, Phil Mickelson, Cameron Smith, Bryson DeChambeau, and Brooks Koepka were still lured away to LIV by enormous payouts and a more favourable tournament schedule.
The entrance of LIV, and the loss of some of the PGA’s biggest players, prompted the PGA Tour to make some significant changes.?They announced the addition of four more ‘elevated’ events with a purse of at least $20 million each and no cuts.?This was a significant purse increase compared to the 2022 season where the Players Championship was the only event with a purse higher than $15 million.
Throughout the last two years there have been ongoing lawsuits between LIV (and its players) and the PGA. LIV attorneys claimed that the PGA Tour is abusing its market power to illegally suspend players and threaten the possibility of those players playing in future major tournaments. On the other side, the PGA tour filed a countersuit, claiming LIV is using its players and the game of golf to sportswash the recent history of Saudi human rights controversies and to further the Saudi Public Investment Fund’s Vision 2030 initiatives.[4] ?Earlier this year the European Tour won its legal battle against LIV when it was found to have “acted entirely reasonably in refusing releases” and that the regulations were necessary and proportionate to the continued operation of the professional golf tour.[5] ??
Despite the numerous legal battles and Saudi human rights controversies, in a remarkable turn of events, on 6 June 2023 the PGA Tour and the Public Investment Fund (LIV Golf) announced a landmark agreement to unify the game of golf on a global basis.?In other words, those who were once enemies are now proposing a marriage.
Competition authorities investigate large mergers of this sort to ensure fair competition and protect consumer interests (ensuring that the price consumers pay and the quality of product they receive is fair), as mergers can lead to dominant positions in the market, reducing competition and allowing firms to control prices and restrict consumer choices.?
The difficulty with the proposed LIV PGA merger, and sports markets in general, is that the definition of the ‘consumer’ and the ‘producer’ is not so clear cut.?There are many stakeholders who may be impacted by a structural change in the golf market and should all be considered.?One can almost view the golf ecosystem through the lens of a multi-sided market (similar to digital platforms) with there being multiple buyers and sellers and more than one transaction occurring at the same time.?
The below diagrams illustrate just a few of the many transactions that are occurring within the golf ecosystem and may be impacted by the proposed merger.
Where we saw evidence of the economic benefits of LIV providing a competitive constraint to the PGA, the proposed merger between the two organisations risks eroding these all together.?The golf market has gone from a monopoly to a new competitor fiercely challenging the monopolist to market share, and now back to a monopoly through the proposed merger.?So what happens now?
The proposed merger will increase the market power of the PGA, and this is expected to have an impact on the transactions in which they are both the ‘buyer’ and the ‘seller’, as well as further transactions occurring downstream.?For example:
It is clear that the interconnectedness of the golf ecosystem will result in all stakeholders being impacted as a result of the merger and any potential increase in the PGA’s market power, and that this should be taken into consideration by the Department of Justice (DOJ) in its upcoming antitrust investigation. ?
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Despite the risks brought about by an increase in the PGA’s dominance, many golf fans (and players) are supportive of the proposed merger as it presents the opportunity for the best players in the world to once again play against each other on the same stage, therefore increasing the quality of the competition within the sport itself.?The question is – where does this consideration fall within an economics antitrust analysis and how would this be measured?
Keep your eyes peeled for our next Summer Series article where we have a crack at answering this particular question.
[1] Currently known as the DP World Tour for sponsorship reasons.
[2] Noting that the PGA currently has a 40% stake in the European Tour.
[3] For the rest of this article we refer to the PGA Tour as both the PGA and European Tour collectively.
[4] LIV is financed by a Saudi wealth fund, the Public Investment Fund.
[5] ‘DP World Tour wins legal battle to impose fines and sanctions on members playing on LIV’ , Sky Sports (06/04/2023).
[6] In reality, LIV did not appear to be a strong competitor in the TV Broadcasting market as, despite their efforts, American sports broadcasters had little interest in airing LIV tournaments.?In addition to this, limited viewership numbers on the free LIV streaming options suggested not many golf supporters at home were interested in watching the LIV events either.?