Policy Jul 1, 2023
Will the PGA–LIV Golf Merger Pass the Antitrust Test?
“Statements that LIV has made about breaking up the monopoly of the PGA may come back to haunt them.”
For nearly a century, as far as professional men’s golf in America was concerned, the PGA was the only game in town.
So it was something of a jolt when a competitor, LIV, infused with cash by the Saudi Arabian government’s Public Investment Fund, launched in late 2021. The measures the PGA took to keep its golfers, including suspending players who joined LIV from the PGA tour, led to an antitrust lawsuit from LIV and an investigation by the U.S. Department of Justice into the PGA’s potentially anticompetitive behavior.
And then suddenly, in a dramatic reversal in June 2023, the two tours announced they were merging, with the nonprofit PGA tour continuing and its commercial rights being rolled into a new for-profit entity. This deal took the entire golf world by surprise and left players, sponsors, and fans wondering what exactly had happened and what it would mean for the future of the professional game.
It had been obvious since LIV started that the PGA saw it as a threat. So why did it decide to embrace the merger after a year of competing lawsuits where each accused the other of anticompetitive practices?
“Perhaps realizing the cost, uncertainty, publicity, and disruption of litigation forced both parties to cool their jets a little bit and figure out how to settle,” says Mark McCareins, a clinical professor of business law at the Kellogg School of Management.
Unfortunately for the LIV and PGA, the aftereffects of their litigation—and both congressional and DOJ investigations—are already underway.
“For them to shake hands and say, “We really didn’t mean it, we were just kidding,” and move on doesn’t work,” McCareins says.
McCareins described the antitrust implications of the deal and how it might affect players and sponsors if it goes through.
An antitrust controversy
It’s easy to see how both the PGA and LIV could benefit from the merger. LIV, which had struggled for publicity, would benefit from the PGA’s broadcast and sponsorship contracts, while the PGA would receive an influx of LIV cash. And one united tour could be appreciated by some fans, who would be able to see all their favorite golfers compete against each other again.
But the DOJ sees things a bit differently.
“The Department of Justice says, ‘You went from a monopoly market, with maybe one viable competitor, to a market now with no competitors. And we’re not going to let you do that,’” McCareins says. “And statements that LIV has made about breaking up the monopoly of the PGA may come back to haunt them.”
“Whether labeled a merger or a joint venture, the U. S. Department of Justice—and possibly the EU competition enforcers—will take a long, hard look at the deal.”
It’s possible, McCareins says, that LIV will attempt to justify the merger with a law known as the “failing company” defense, in which one company claims financial distress, which neutralizes a merger’s anticompetitive effects. After all, if the company were to go out of business anyway, the market would also lose the competitor. However, that defense is viewed with great suspicion by the federal merger enforcers.
Nobody knows how much money LIV has lost over the past two years. However, there have also been reports that the Saudi Public Investment Fund plans to invest billions of dollars into the new organization, and if that’s true, McCareins says, it makes any plea of financial distress seem fairly implausible.
“Whether labeled a merger or a joint venture, the U. S. Department of Justice—and possibly the EU competition enforcers—will take a long, hard look at the deal,” McCareins says. “Unless the PGA/LIV can convince the DOJ that the relevant market at issue is larger than professional tour golf, the transaction faces an uphill climb for approval.”
How would a merger affect golfers?
When LIV started in 2022, it lured over a number of golfers from the PGA tour, including Phil Mickelson and Dustin Johnson, with the promise of lucrative contracts (some as much as $100 million), fewer tournaments, and more prize money; last year, The New York Times reported, Johnson earned $35 million, compared with $75 million he’d earned over 15 seasons with the PGA.
The merger could mean fewer such contracts in the future, meaning golfers could lose out. Meanwhile, the golfers who stayed with the PGA feel that they have little to show for their loyalty.
As McCareins acknowledges, it’s hard to feel too sorry for millionaire pro athletes. Still, when the DOJ cracked down earlier this year on a proposed merger between the publishing giants Random House and Simon & Schuster on grounds that lack of competition would harm “high advance” authors, it didn’t distinguish between the Stephen Kings of the world (who stood to be harmed the most by the merger) and midlist authors with small advances. That, McCareins points out, sets a precedent: the DOJ will protect anybody, no matter how lucrative their employment.
If the merger is successful, golfers could be harmed in other ways, too. With the introduction of LIV officials into the governance of the PGA, McCareins suspects that the influence of golfers over the organization as a whole will be diluted.
The pros may look at this as a time to push back. PGA golfers may demand more freedom to participate in independent money-making events. “It would not surprise me,” McCareins says, “that if this deal goes through, that there isn’t some effort for the players to attempt somehow to unionize.”
And don’t forget that other parties would also be harmed by the merger, including vendors as well as sponsors and broadcasters. “The concern is that LIV provided some sort of opportunity for sponsors and broadcasters that had not worked with the PGA to hook up with a competitive golf venture,” McCareins says. “And now that opportunity would be lessened.”
Who else is involved?
Antitrust issues aside, there’s another reason why the U.S. government is unhappy with the deal and why the Senate is investigating. As Senator Richard Blumenthal wrote in his letter to PGA commissioner Jay Monahan requesting documents for the investigation, “PIF’s role as an arm of the Saudi government and PGA Tour’s sudden and drastic reversal of position concerning LIV Golf raise serious questions regarding the reasons for and terms behind the announced agreement.”
Some critics (including the PGA) have argued that the Saudi investment in LIV is a form of “sportswashing,” using golf as a distraction from the government’s human-rights violations. The Senate, however, is also concerned that the Saudi government might benefit from U.S. tax laws that make provisions for nonprofit organizations such as the PGA. The Senate investigation will look into the structure of the new PGA–LIV hybrid organization and how the PGA plans to maintain its tax-exempt status.
A lot of unanswered questions about the merger remain, but to McCareins, one thing is clear: “Sports is a big global business,” he says. “These groups are fighting over content capture, which is important for streaming and the networks. In many ways, the merger is really not about the players.”
Aimee Levitt is a writer based in Chicago.