By Kevin Kullmann and Jack Sibel
In 2022, LIV Golf Investments, a new golf league backed by the Saudi Arabia Public Investment Fund as the majority stakeholder (the “PIF”), entered the market for elite professional golf events in direct competition with the PGA Tour (the “PGA” or the “Tour”). After the Tour threatened to expel players if they joined LIV Golf, LIV Golf and eleven LIV Golfers filed an antitrust lawsuit against the Tour in August, 2022. After a long, costly litigation that yielded little progress for either side, to everyone’s surprise, the PGA and the PIF announced that they agreed to drop the litigation and enter into a partnership in June, 2023. Under the framework agreement announced, the PIF could invest at least $1 billion — and potentially much more — into the Tour. A December 31 deadline has been set to reach a definitive agreement, although there’s nothing stopping the two sides from pushing that date back. This partnership has been referred to as a proposed merger and has been a topic of great controversy in the world of professional sports.
During the last week of August, 2023, the University of Miami School of Law hosted a one-week course analyzing the legal issues arising from the litigation, and the subsequent proposed merger, between LIV Golf and the PGA Tour. The course was taught by professors specializing in the fields of sports law and antitrust law: Professor Peter Carfagna and Professor Michael Kelly. The class was broken up into three parts: (i) the antitrust litigation between the parties; (ii) the PGA Tour Policy Board’s decisions related to the litigation and settlement; and (iii) the fallout and options for professional golfers moving forward.
Specifically, in Part I, the class studied the Draft FTC-DOJ Merger Guidelines along with circumstances surrounding the proposed merger, including the former antitrust litigation between the parties. The class conducted a simulation with the Former Deputy Director of the Bureau of Competition at the FTC, Professor John Newman, as the judge whereby the students engaged in oral arguments regarding whether the DOJ should approve or oppose the proposed merger.
Section 7 of the Clayton Act prohibits mergers and acquisitions where “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” While students in favor of the merger emphasized that the PGA of America boasts 28,000 professionals, the class generally defined the relevant market as elite professional golf services. Students in opposition of the merger argued that the PGA Tour and LIV Golf retain effectively 100% of the elite professional golfers worldwide, so the merger would create a complete monopsony in the market. In light of the Biden administration’s focus on monopsonies in the labor markets, the class concluded that the proposed merger likely creates a monopsony in the labor market for elite professional golfers and is presumptively unlawful.
In defense of the merger, students representing the golf leagues argued that the PGA Tour was a failing firm. The PGA faced insolvency if it continued to compete against LIV. The ongoing talent drain via increased competition has hindered the PGA’s ability to secure a full field of golfers, let alone a captivating one. Since 2021, the PGA has spent about half of its $300 million reserves on two pro-player changes to compete with LIV. First, the PGA aggressively increased purses to keep elite golfers, yet still fell well short of the purses offered by LIV. Second, the PGA initiated the player impact program (“PIP”) to disperse millions into the hands of its most publicly impactful players. Yet, due to the PGA’s increased spending from COVID-19 ($75 million) and litigation ($40 million annually), somewhere between a couple million to $50 million is a reasonable estimate for the PGA’s Reserve Fund. Given that the annual legal expenses likely exceeded the reserves, the PGA could no longer compete without sending itself into financial ruin.
Therefore, the students generally agreed upon a resolution whereby the merged entity (“NewCo”) would voluntarily recognize the golfers as a bargaining unit. This would allow a player’s union (notably absent from professional golf) and consequently a collective bargaining agreement (between the new union and merged entity) to develop more seamlessly. As a result, the DOJ could uphold the merger and avoid responsibility for potentially bankrupting the beloved PGA Tour, while mitigating the threatened anticompetitive harm to player contracts and working conditions.
Part II consisted of an exploration of the organization and governance of LIV Golf and the PGA Tour and whether the actions relating to the proposed merger by the PGA Tour Policy Board and Commissioner Jay Monahan were compliant. The class analyzed a hypothetical involving potential liability for the commissioner and the PGA Tour under the ultra vires doctrine of liability for non-profit organizations. The class concluded that Commissioner Monahan and several members of the PGA Tour Policy Board may be liable for unilaterally agreeing to drop the litigation with LIV Golf and enter into the proposed merger without proper approvals by the PGA Tour. However, the liability of the Commissioner and the Policy Board members depends on the PGA Tour Bylaws and governing documents. As such documents are not available to the public, the potential liability depends on whether their actions exceeded their authority granted under such documents.
Lastly, Part III of the course covered the fiduciary duties of agents and expanded on Part II by focusing on how players may address their grievances and adjust to the changes in the professional golf landscape. The class discussed the law of agency and how agents of LIV and PGA Tour golfers should advise their clients regarding potential options moving forward. Building on the hypothetical in Part II, the class conducted a final mock trial for a hypothetical litigation involving a PGA Tour golfer who was harmed by the PGA Tour decisionmakers’ alleged ultra vires acts. The golfer, John Rahm, alleged that he was offered $400 million dollars to join LIV Golf, but the Tour’s unlawful actions ended this possibility while further suppressing his wages. The simulation included a third group of students representing LIV Golf in defense against the impleader claim by the PGA Tour that LIV Golf caused the alleged ultra vires acts by tortiously interfering with PGA Tour contracts. In fact, LIV Golf convinced multiple PGA Tour golfers to join LIV Golf in breach of their contracts. Analogously to the arguments by LIV Golf in the former antitrust litigation, the students argued that the contracts were void because the contracts contain unlawful restraints of trade, so tortious interference did not occur. Further, they argued alternatively that any tortious interference did not proximately cause the unforeseeable ultra vires acts by the PGA Tour members.
Ultimately, as all of the parties to the hypothetical litigation are stakeholders in the proposed merger, rather than insulting their business partners, the class shifted into settlement discussions regarding the best plan of action moving forward for NewCo. As the current primary focus of the PIF seems to be the acquisition of control within the professional sports industry, regardless of the cost, LIV Golf can likely afford to compensate the top professional golfers in order to avoid further conflict. Accordingly, the students agreed to settle the dispute with the PGA Tour and LIV Golf, on behalf of NewCo, agreeing to compensate Rahm the salary originally offered by LIV Golf using PIF funds. Further, to prevent similar issues in the future, NewCo would allow for the players to have more control over the governance of NewCo, specifically, as suggested above in Part I, through the collective bargaining between NewCo and a new players’ union.
