The Unthinkable Has Now Become the Reality
In 2022, LIV Golf (“LIV”), financed by the Public Investment Fund (“PIF”), the sovereign wealth fund of Saudi Arabia, entered its inaugural season. When LIV announced its framework of investments and different style of play than the PGA Tour (“PGA”), skeptics came out of the woodworks to denounce the new golf entity. Prominent PGA players such as Rory McIlroy was at the forefront of the LIV vs. PGA battle, while other big names in the PGA like Dustin Johnson and Phil Mickelson were enticed by the money and defected over to LIV. Originally, PGA Tour Commissioner Jay Monahan stated that the golfers who are affiliated with LIV will not be able to renew their memberships for the 2022-23 golf season meaning they will not be able to compete in the season’s PGA Tour events. It appeared there would not be an amicable relationship between the long-established PGA Tour and the budding LIV Golf venture.
With all the information in 2022 about the PGA Tour essentially banning LIV-defected golfers from PGA Tour events, and the pending lawsuits between the two entities, it seemed unlikely that there would be a relationship between LIV and PGA.[1]That changed on June 6, 2023, when it was announced that there would be a PGA players meeting to discuss a potential merger with LIV or a way for the LIV defectors to gain their PGA Tour membership back.[2]This potential merger “shocked the golf world” and caused issue with several political leaders, activists, and families affected by 9/11.[3]Although a merger has been announced, the framework of how the two entities will combine is very undefined. At the outset, the first agreement was forthe PGA Tour, European Tour, and the PIF to pool commercial business rights into a separate for-profit entity to allow the PGA Tour to continue operating with its tax-exempt 501-c-6 status.[4] Another motivation that was part of the initial agreement was that all litigation from all prior suits between PGA and LIV will be dropped.[5] Although a definitive agreement and merge between the two entities is impending, it has already created controversy in the sports and legal world.
Looking more closely at the negotiations between the PGA and LIV, the deal appears to be more of a settlement than a merger or acquisition, and there are several obstacles standing in the way of a completed deal.[6] For example, if the deal is not completed by December 31, 2023, it can result in a collapse; the PGA Tour’s board could back out; the Justice Department could try to block the deal; and Congress wants the Committee on Foreign Investment in the U.S. to study the pact.[7] Additionally, the PGA’s 11-member board did not vote on the pact because details are still being negotiated and the framework consists of the bare minimum as it stands now.
Though not many details have emerged about the deal between the two golf entities, a “fair process” has been established for the LIV golf defectors to return to the PGA or the new entity, as it has been confirmed that everyone will combine under “one umbrella”.[8] The PIF Governor, Yasir Al-Rumayyan will be the chairman of the new entity called NewCo, and PGA Tour Commissioner Jay Monahan will be the Chief Executive Officer.[9] It was also established in the framework sent to the Senate that the PGA Tour will have a permanent controlling interest in the subsidiary’s board of directors, regardless of the PIF’s investment.[10] The framework of the deal was the focus of the Senate panel convened in July.
As a result of the announcement by LIV and the PGA about a merger, a Congressional hearing was held on July 11, 2023 to determine if any federal antitrust statutes are being violated.[11] Richard Blumenthal, the Chair of the Homeland Security Investigative Subcommittee, launched a probe into the controversial deal, but it is still unclear if the Justice Department would take any enforcement action.[12] Those called in to testify before the Senate House Security Permanent Subcommittee on Investigations included PIF Governor Yasir Al-Rumayyan, PGA Commissioner Jay Monahan, LIV Chief Executive and Commissioner Greg Norman, PGA Tour Chief Operating Officer Ron Price, and PGA Tour Board member Jimmy Dunne.[13] Among concerns that were presumed to be addressed during the hearing were concerns about the Saudi government’s role in the deal and risks posed by a government entity assuming control over the sport, how a non-profit (the PGA) came to its agreement with LIV, and how the new entity will be structured.[14] Along with having those questions answered, the hearing will also look to see if merger and acquisition statutes are being violated.
With the government scrutinizing this deal, it could be stopped if the Department of Justice (“DOJ”) or Federal Communications Commission (“FCC”) submit a “Second Request forInformation”, which stems from the Hart-Scott-Rodino Act of 1976.[15] This act essentially requires companies of a certain size to submit paperwork and other documents to federal agencies before a merger. If there is a competitive concern with the submitted documents, the DOJ or Federal Trade Commission can temporarily pause the merger and file a Second Request for Information. If the DOJ or FCC are looking into the merger and do temporarily halt the two entities from joining, there could be silence on the merger unless the PGA and LIV attempt to merge without getting government clearance, which can result in significant fines and a potential legal challenge from the DOJ or one or both of the parties voluntarily pull out of the proposed merger due to the legal costs.[16] The interest of the DOJ, FCC, and other government entities resulted in the Senate hearing earlier in July.
The biggest issue facing the potential deal between LIV and the PGA is if this merger would violate the 1914 Clayton Act, which is the primary federal statute that prohibits mergers and acquisitions that get rid of competition.[17]This deal is an “antitrust parlance as a two-to-one merger”, which compresses an “already concentrated marketspace from being controlled by two firms to one”.[18]The Justice Department already had an anti-trust investigation started into the PGA Tour, as well as anti-trust enforcers from the United Kingdom and Europe.[19]The most interesting part of this inquiry is that PGA Tour Commissioner Jay Monahan said the agreement with LIV was “intended to eliminate a competitor,” which is considered the largest violation of U.S. competition law.[20]However, Monahan and LIV reps are describing the deal more as acreation of new entity rather than a conventional merger in order to frame it in a way that would not violate competition law. There has been one instance where Congress allowed two separate leagues merge into one in 1966. In this case, the implementation of the merger relied on Congress’s decision to allow the American Football League and National Football League to come together to create the current National Football League. This deal was a clear violation of anti-trust law, but Congress passed a special exemption to let the merger through.[21] The decision to allow the PGA and LIV merger will most likely come down to the presented framework and the U.S. government’s willingness to have an American entity merge with a Saudi-Arabian entity.
Currently, it seems as though the original LIV defectors have no interest in returning to the PGA Tour, while the merger seems to be at a standstill. Important players in the golf world are in the same position they were a year ago, taking to the media to voice their opinions. There are several unresolved issues such as the viability of the LPGA and the current qualification status for amateur and college players looking for a way into the PGA Tour. As PGA Tour player John Rahm said, “[t]here are so many unanswered questions that at this point I wouldn’t want to waste time thinking about it because there is a lot of what-ifs and unknowns.”[22]
[1] Malloy, R (2022, November 10). Chipping away at the competition: LIV Golf presents an alternative to the PGA Tour. Cuttita Law.https://www.cuttitalaw.com/articles/chipping-away-at-the-competition-liv-golf-presents-an-alternative-to-the-pga-tour-1
[2] NCA Newswire. (2023, June 23). Scott at Centre of Crunch PGA Meeting as LIV Stars Set to Learn Fate over Merger Bombshell. FoxSports. https://www.foxsports.com.au/golf/pga-tour-2023-golf-news-liv-golf-cameron-smith-rises-to-world-no7-as-questions-loom-over-merger/news-story/4375fea4cb9ce31dc88a5c9eb3cdad4d.
[3] Garrity, K. (2023, June 18). Sen. Blumenthal: Hearing on Golf Merger Could Happen “Within Weeks. Politico.https://www.politico.com/news/2023/06/18/blumenthal-golf-hearing-pga-liv-merger-00102543.
[4] Balsamo, M. and Ferguson, D. (2023, June 19). Justice Department Looking into PGA Tour Deal with LIV’s Saudi Backers, AP Source Says. KSL Sports. https://kslsports.com/502268/justice-department-looking-into-pga-tour-deal-with-livs-saudi-backers-ap-source-says/.
[5] Id.
[6] Blinder, A., Hirsh, L., and Draper, K. (2023, June 27). How the PGA Tour’s Deal with Saudi Arabia’s Wealth Fund Could Collapse. New York Times. https://www.nytimes.com/2023/06/27/sports/golf/pga-tour-liv-golf-merger-obstacles.html.
[7] Id.
[8] Baldwin, I. (2023, June 27). PGA Tour and LIV Golf Agree to “Establish a Fair Process” for the Saudi-Backed Series’ rebels to RETURN as they Confirm They Will “Combine Under One Umbrella” in Framework Sent to U.S. Senate. Daily Mail. https://www.dailymail.co.uk/sport/golf/article-12237027/PGA-Tour-LIV-Golf-agree-establish-fair-process-rebels-return.html.
[9] Reuters. (2023, June 27). Framework of PGA Tour-LIV Golf Deal Released. Reuters. https://www.reuters.com/sports/golf/framework-pga-tour-liv-golf-deal-released-2023-06-27/
[10] Id.
[11] Balsamo, M. and Ferguson, D. https://kslsports.com/502268/justice-department-looking-into-pga-tour-deal-with-livs-saudi-backers-ap-source-says/.
[12] Id
[13] Concepcion, S. (2023, July 3). PGA Tour Officials Will Testify in a Senate Hearing on LIV Golf Merger. NBC News. https://www.nbcnews.com/politics/congress/pga-tour-officials-will-testify-senate-hearing-liv-golf-merger-rcna92370
[14] Reuters. https://www.reuters.com/sports/golf/framework-pga-tour-liv-golf-deal-released-2023-06-27/
[15] Edelman, M. (2023, June 21). What Is Likely Happening with the PGA Tour and LIV Golf Merger. Forbes.https://www.forbes.com/sites/marcedelman/2023/06/21/what-is-likely-happening-with-the-pga-tour-and-liv-golf-merger/?sh=7683eed23ed3
[16] Id.
[17] Cortellessa, E. (2023, June 8). How Antitrust Laws Could Kill the PGA-LIV Golf Merger. Time. https://time.com/6285954/pga-liv-merger-antitrust-law/
[18] Id.
[19] Id.
[20] Id.
[21] Id.