"The Merger" A Legal Analysis
Part 2: Sports Law Attorney John Nucci gives us a rundown.
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Today At A Glance:
Parties involved with the framework agreement are set to arrive in Washington, D.C., for a public hearing on July 11th. Several scenarios are in play. One thing is almost certain — we won’t have a decision on the agreement for several months from Congress. Today’s newsletter provides a legal analysis of what to expect.
Read Time: 7 minutes.
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Hey Golfers —
Last Monday — I detailed how twenty professional golf tours worldwide would directly or indirectly fall under one entity in the proposed framework agreement between the Public Investment Fund, the PGA Tour, DP World Tour, and LIV Golf.
Early last week — the PGA Tour sent the five-page framework agreement to the United States Senate Permanent Subcommittee on Investigations. No Laying Up obtained the document and published it on their site.
I am not going to attempt to provide an opinion on the possible outcomes of the upcoming hearing — it is out of my area of expertise. So I am bringing in sports law expert John Nucci from Conduct Detrimental to give us the details.
Let’s tackle the timeline of events for important upcoming events.
The U.S. Senate Permanent Subcommittee on Investigations invited Yasir Al-Rumayyan, Greg Norman, and Jay Monahan to testify at a public hearing scheduled to take place on July 11th in Washington, D.C. The request comes in the wake of a Congressional probe into the surprise PGA Tour-PIF partnership.
The Subcommittee has requested a written statement from each party by July 7th. A request to attend a public hearing is not legally binding like a subpoena. Declining the invitation would further aggravate Congress — which is already skeptical of the deal. In a statement — the Tour has already responded that they “look forward to appearing” before the Subcommittee to answer questions.
The stated goal of the public hearing is three-fold.
Examine the circumstances and terms of the planned agreement between the PGA Tour and PIF.
Address how the new entity will be structured.
Analyze the expected impact of the deal on PGA Tour and LIV players.
We can expect the parties to attend the hearing on July 11th. However, we may not get much information from it, not necessarily because it is an effort to dodge questions or maintain secrecy, but rather because the concrete terms of the agreement have not yet been fleshed out.
One thing to keep an eye on. The Committee on Foreign Investments in the United States may review the deal. They evaluate mergers that could pose potential threats to national security.
How long could this process take?
Expect to see something in mid-2024. Congress is notoriously unpredictable and slow-moving. With that in mind — a Department of Justice review and any potential Congressional committee review could take upwards of a year. This is consistent with an anonymous PGA Tour executive saying the deal could take “at least a year.”
If the Department of Justice decided to sue to block the merger — it would be pitted against a sovereign wealth fund with seemingly unlimited financial resources. The PGA Tour and PIF won’t abandon their plans solely because the Department of Justice files a lawsuit to block the deal from happening.
Before November 2022 — the Department of Justice Antitrust Division had not successfully blocked a merger in court since 2017. They have caused parties to throw out their plans due to the hassle and costs of fighting the battle, but they rarely bring a lawsuit to block a merger to trial and then win.
There is a legal precedent in two professional sports instances.
NFL and AFL Merger
NBA and ABA Merger
In 1959 — Lamar Hunt formed the American Football League, which was intended to rival the National Football League. In its third season, the AFL grew quickly by targeting large cities with no NFL teams and smaller universities for players. Like LIV Golf, the AFL had a significant financial advantage over the NFL. Eventually, the two leagues would merge into the NFL in June of 1966.
Just like we are seeing today — NFL Commissioner Pete Rozelle had to appear in front of Congress’ Subcommittee on Antitrust to explain the terms of the deal. The merger was given the green light following the passage of a law by Congress that exempted the merged league from antitrust law sanctions.
Despite the similarities in these two stories, it should be noted that there is a foreign nation with whom the United States has a rocky history on the other side of this deal, not simply two US institutions. A Congressional exemption from antitrust law is nowhere on the horizon to help this deal get to the finish line.
Bearing even more similarities to the PGA Tour and LIV was the NBA-ABA merger. The ABA launched as a direct competitor to the NBA and introduced “flashy” new aspects to the sport, like the three-point line and slam dunk contest. The competition from the ABA increased player salaries across both leagues as they competed for top-end talent. After the NBA voted to merge with the ABA in 1970, the NBA Players Association filed an antitrust lawsuit to try and block the deal. Congress came close to passing a law that would permit an antitrust exemption similar to the NFL-AFL deal in 1972, but ultimately the litigation dragged on for six years until it was finally settled in 1976.
As mentioned previously, the PGA Tour-PIF partnership is a different situation since there will be no Congressional antitrust exemption in this case. It is also not out of the question that a group of players files an antitrust lawsuit to block the merger, which could drag the whole fight out even longer.
What happens if the merger is blocked?
The PGA Tour is vulnerable to this deal being blocked by either their own Policy Board or the DOJ — far more than the Public Investment Fund.
The Tour’s primary leverage was that the Saudis were on the verge of an adverse circuit court precedent that would have affected all its US business interests, not just golf.
If this deal is blocked — the PGA Tour is out on an island with little leverage.
They can no longer play the moral superiority card
They cannot compete with a sovereign wealth fund financially
They no longer have the leverage of a strong litigation position, which is a primary reason why the Public Investment Fund came to the negotiating table.
The PGA Tour's future depends entirely on this deal being approved. If it is, they’ll retain control, and we will probably see a fascinating product and some new developments in the game. If it’s not, the Tour may need to explore alternative funding to compete with LIV’s pockets.
One item to keep in mind. As a condition of entering into the framework agreement, the PGA Tour and LIV Golf voluntarily dismissed all litigation with prejudice. The “with prejudice” portion of that last sentence is critical. In a nutshell, this means that the litigation cannot be restarted, and the parties cannot file claims against each other based on any events that took place in the past.
One question I keep coming back to. Why didn’t the PGA tour look for investment from a different entity?
Surely — they could have. Was the value of the PGA Tour materially diminished by PGA Tour players leaving for LIV? The Tour reportedly spent $50 million in legal fees battling LIV Golf. Would an investor want to continue pumping money into litigation for a few years?
Have yourself a great Monday. Talk to you next week!
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At the risk of oversimplifying, if there is a successful anti-trust suit isn't it kinda' delaying the inevitable?
PIF has recognized that the PGA Tour enterprise is a worthwhile entity that it wants to own. Thus, like any other corp entity, they will either offer to buy or engage in tactics to reduce PGA Tour's ability to profitably operate. Sooner or later like any other corp takeover the deal will be done. The public can like it or not but should not be naiive to the certainty of purpose by PIF.
And the idea that PIF will be shunted to the background of influence regarding PGA Tour operations is utter nonsense. The threat is already established that PIF will have the power due to its financial position compared to anything that the PGA Tour will be able to muster. We're comparing the PGA Tour's $Million$ to PIF's $Billion$, like pea-shooters to nuclear weapons.
Once the deal is done, anything that doesn't please PIF will be reason enough to shut down the deal in favour of a new PIF owned, global golf tour - one that doesn't include current PGA Tour partners who will not be in any position to compete. This is a methodically thought out process where the financial ability of PIF to buy any entity it needs to remain the only game in town.
If the DOJ files suit, Saudi and the PIF will use FSIA (Foreign Sovereign Immunity Act) to avoid the discovery process in that case -- just as it did in the LIV/PGA Tour case. Congress should amend FSIA so that foreign governments and PIFs can't use it as a shield in commercial transactions.