The Challenges Facing the PGA-LIV Merger, Explained

The PGA Tour and Saudi Arabia-backed LIV Golf appear to be moving toward the final merger agreement they announced in early June. Yet specific details remain unclear. Both parties agreed to dismiss the two lawsuits against each other this week, ending a battle that had forced the PGA Tour to reportedly spend nearly $50 million on legal bills.

But now the PGA Tour and LIV are facing legal and political scrutiny that could sink it before it happens.

What is the Justice Department investigating?

The Justice Department’s antitrust division has reportedly decided to investigate the merger on antitrust grounds, and getting a clean signoff from the competition authority may not be easy.

Antitrust lawyers and analysts cite several potential problems with the deal: 1) public statements and legal filings before and after the merger announcement suggesting golf has a monopoly problem, 2) the lack of an antitrust exemption for the sport, and 3) evidence suggesting the deal could lessen competition in relevant markets.

Before the deal was announced, there had been a lot of monopoly talk from the parties involved. “The Tour has evolved into an entrenched monopolist with a vice-grip on professional golf,” LIV Golf players alleged last year in one of the lawsuits included in week’s motion to dismiss. “As the Tour’s monopoly power has grown, it has employed its dominance to craft an arsenal of anticompetitive restraints to protect its long-standing monopoly.” And while executives with the PGA Tour and Saudi Arabia’s Public Investment Fund (PIF)—the kingdom’s parent company over LIV—may now view those allegations as water under the bridge, they’ll likely give competition enforcers pause when reviewing the merger. The DOJ already has a separate antitrust investigation underway into the PGA Tour concerning its suspensions of LIV players last year.

“We are confident that once all stakeholders learn more about how the PGA Tour will lead this new venture, they will understand how it benefits our players, fans and sport while protecting the American institution of golf,” the PGA Tour said last week. But proving the newly formed company, “NewCo,” will not function as a monopoly after merging with its one serious competitor may be a tough sell. 

“Based upon the information that’s publicly available, I think the chances of the DOJ blocking this merger is rather strong,” Marc Edelman, a law professor and sports and antitrust law specialist at Baruch College, tells The Dispatch. “Two-to-one mergers are the most heavily scrutinized type of mergers in the United States because not only do two-to-one mergers generally substantially lessen competition, which is the standard under which mergers are reviewed, but they go even further, and either create a monopoly or strengthen a monopoly that already exists.”

Even after the deal was announced, the PGA Tour bungled its messaging on the competitive effects: The league initially described the deal as a merger before trying to distance itself from that language. Commissioner Jay Monahan also said the quiet part out loud when discussing the deal, explaining how beneficial it would be “to take the competitor off the board, to have them exist as a partner, not an owner.” 

“It’s not going to play well for the companies if the DOJ were to bring a suit,” Geoffrey Manne, president of the International Center for Law and Economics, tells The Dispatch. “What most would matter from that statement is ‘hey, look here’s really strong evidence the PGA certainly thought [LIV and PIF] were an important competitor going forward.’” 

All those factors underscore another problem for NewCo: Golf lacks antitrust exemptions. “When the AFL and NFL merged … they needed an explicit antitrust carve out from Congress because otherwise, it would have been illegal,” Matt Stoller, director of research at the American Economic Liberties Project, tells The Dispatch. “The precedent here is not good for the PGA Tour and LIV Golf.”

In addition, some observers see the past year of LIV and the PGA Tour dueling as improving competition across the golf marketplace. The PGA Tour increasing its purse prizes appears to demonstrate how players benefit from two separate leagues. But combining the two would return pro golfers to where they were before with a single dominant league. “The Tour’s monopsony control of the purchase of services of professional golfers for elite golf events allows it to compensate players at substantially lower levels than professional golfers would earn in a competitive market, without risk of losing players to other promoters,” LIV’s antitrust suit against the PGA alleged last year. (There are reports of plans to provide some PGA Tour golfers with equity in NewCo, which could boost player compensation, but Edelman argues the plans are “not relevant from an antitrust perspective.”)

In response, the PGA Tour and LIV could potentially argue that post-deal, ease of entry in the market will keep it competitive—but antitrust lawyers are skeptical that argument would be persuasive in this case. “Given the amount of money it took for LIV to be able to enter and gain traction in this marketplace, it seems very unlikely that there would be ease of new entry,” Edelman tells The Dispatch.

Could the Saudis drop the deal before it’s blocked?

If the Justice Department determines there are competition problems, a full investigation and suit to block the merger could spook either the PGA Tour or, more likely, the Saudis. The PIF and its governor, Yasir Al-Rumayyan, were previously on a path to be forced to submit to discovery and depositions—which may have partly inspired the merger and accompanying agreement to drop the ongoing litigation. (The New York Times has filed a motion attempting to unseal the litigation records.) No sovereign wealth fund, least of which Saudi Arabia’s, wants to air its dirty laundry for all the world to see. 

But Congress appears intent on doing just that. Democratic Sens. Richard Blumenthal and Ron Wyden both launched inquiries into the deal last week. The Senate Permanent Subcommittee on Investigations, led by Blumenthal, will hold a hearing next month on the deal and has invited Monahan, Al-Rumayyan, and LIV Golf CEO Gerg Norman to testify and may issue subpoenas to compel witness testimony.

Wyden, meanwhile, sent a letter to Monahan last week raising concerns about the tax-exempt status of both the PGA Tour and the PIF, the potential national security risks of foreign investment in PGA Tour real estate near military installations, PGA Tour executive compensation, and even a potential conflict of interest for PGA Tour Board Chair Ed Herlihy: The law firm Herlihy is a partner at is serving as a legal adviser to the tour on the transaction.

The senator also said he intends to introduce legislation to revoke the PIF’s sovereign wealth fund tax exemption. “It’s widely understood that the Saudis rip Americans off at the pump and funnel their oil profits into various efforts to launder the reputation of their violent authoritarian regime, but at a minimum, there’s no good reason to help them along with a taxpayer subsidy,” he said.

Other lawmakers are pushing for the Committee on Foreign Investment in the United States (CFIUS)—a body that reviews international transactions for potential national security risks—to also examine the deal. Rep. Maxine Waters and Sen. Sherrod Brown sent a letter to the Treasury Department last week requesting CFIUS review.

Few lawmakers have voiced support for the deal, indicating an uncertain road ahead for professional golf. But it will certainly be an eventful season for golf observers such as Chad Mumm, executive producer of Full Swing—Netflix’s golf docuseries. “If I turned this script into Netflix at the beginning of the year and said, ‘This is what Season 2 is going to look like,’ they would have tossed it back and said, ‘This is too fake,’” said Mumm. “This is proof that real life is always going to be stranger and more interesting than fiction.”