‘Who holds the leverage?’ How PGA merger with LIV Golf could collapse

Dearborn, Michigan: Golf’s big deal — a planned partnership between the PGA Tour and Saudi Arabia’s sovereign wealth fund — is not how big deals are ordinarily done.

There were almost no outside bankers or lawyers involved in negotiations that led to a five-page framework agreement, and only so much input from the PGA Tour board. The initial pact had few binding clauses and did not assign values to assets. The plan that would, as the PGA Tour commissioner, Jay Monahan, put it, “take the competitor off of the board” came as the tour faced a Justice Department investigation over antitrust matters.

“In some ways, this looks a little more like a settlement to me than an actual M and A deal,” said Suni Sreepada, a partner in the mergers and acquisitions group at Ropes & Gray who said the lack of definitive arrangements complicated the path to closing.

“The fact that they were willing to publicly announce it does mean that the parties are pretty committed to doing something,” Sreepada said. “But I guess that leaves us with a question of who holds the leverage at this point? And how does this end up getting fleshed out?”

If the agreement closes, it stands to reshape golf’s economic structure profoundly, bringing the business ventures of the PGA Tour, LIV Golf and the DP World Tour, formerly the European Tour, into a new company. The wealth fund is in line to have significant influence over investments in the company, which Monahan is poised to lead as CEO.

Despite the Saudi sway over the new company’s coffers, as well as the plan for the wealth fund’s governor, Yasir Al-Rumayyan, to serve as the entity’s chairperson, PGA Tour officials have insisted that the tour retains control over the competitions themselves. They also note that the tour, which had previously condemned wealth fund money as tainted and immoral, will control a majority of board seats.

‘If you’re thinking about one of the biggest sovereign wealth funds in the world, would you rather have them as a partner or an enemy?’

Rory McIlroy

“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 tour said this month.

Those assurances have done little to curb outrage over the pact, which could still fall apart.

Here are some of the obstacles the tour, whose board is meeting near Detroit on Tuesday, and the wealth fund will have to overcome during a process that could take months. If the deal is not done by December 31, it could potentially collapse, allowing both sides to decide whether they want to “revert to operating their respective businesses.”

The PGA Tour’s board could balk.

LIV Golf chief executive Greg Norman, Saudi Arabia’s Public Investment Fund governor Yasir al-Rumayyan and PGA Tour commissioner Jay Monahan.Credit: Getty

The tour has an 11-member board that includes five players. The board’s chairperson, Edward D Herlihy, and a member, James J Dunne III, were involved in the talks with the wealth fund, but others had little knowledge of the deal until the day it became public.

The board must sign off on the agreement once the outstanding details are negotiated. Although Herlihy and Dunne are expected to vote for the pact they helped create, most other board members have been publicly silent or noncommittal.

“I told myself I’m not going to be for it or against it until I know everything, and I still don’t know everything,” Webb Simpson, a board member who won the 2012 US Open, said in a recent interview. And at a news conference on June 13, Patrick Cantlay, another player with a board seat, said “it seems like it’s still too early to have enough information to have a good handle on the situation.”

Beyond the anticipated backing from Herlihy and Dunne, Rory McIlroy, who sits on the board, has indicated reluctant support for the deal, saying: “If you’re thinking about one of the biggest sovereign wealth funds in the world, would you rather have them as a partner or an enemy?”

Former US Open champion Webb Simpson and eight-time Tour winner Patrick Cantlay are both on the PGA board.Credit: Getty

Other directors have not responded to messages or could not be reached for comment.

With many of the agreement’s details still being negotiated, the board was not expected to vote on the deal on Tuesday.

The Justice Department could try to block the deal.

The Justice Department was looking at professional golf before the deal was announced, with antitrust investigators examining the tour’s closeness with other leading golf organisations and its efforts to deter players from joining LIV.

A huge crowd follows Cameron Smith at the inaugural Australian LIV event in Adelaide in April.Credit: Getty

The proposed partnership did not extinguish the department’s interest. In fact, it appears to have strengthened it.

Although the tour and the wealth fund have refused to characterise the transaction as a merger, antitrust experts say semantics may not matter. Even if the deal is structured as more of a partnership than an acquisition, the Justice Department could seek to block it.

Monahan stirred more doubts in Washington with his public observation that a leading rival would no longer be a threat. Antitrust lawyers said the department could interpret his remark as evidence that the elimination of competition is the aim of the deal, not, say, improving the sport.

But Monahan also said the agreement would help create “a productive position for the game at large.” The tour is expected to focus on this in the coming months, arguing that by combining resources and repairing the rift in professional golf, the proposed venture would offer fans the best of all worlds, including more competitions between the finest players on the planet.

‘If I were the lifetime czar of antitrust in the United States, I would ban the deal and tell them go back and compete.’

Stephen F Ross, sports law professor and former Justice Department employee

The end of the tension could help persuade regulators to approve the deal, reasoning that it is good for consumers.

“If I were the lifetime czar of antitrust in the United States, I would ban the deal and tell them go back and compete,” said Stephen F Ross, who teaches sports law at Penn State and worked for the Justice Department and the Federal Trade Commission.

But, he said, “the real world is that neither private litigation nor antitrust enforcers have ever been particularly good at policing competition between sporting entities to make sure that consumers’ preferences are respected.”

Congress wants the Committee on Foreign Investment in the United States to study the pact.

The deal has been loudly criticised in Washington, and a Senate subcommittee has scheduled a July hearing. But a Senate hearing cannot stop the deal, and so some lawmakers have asked a Treasury Department-led panel to intervene.

The Committee on Foreign Investment in the United States, or CFIUS, is an interagency panel that has broad latitude to scrutinise any transaction that could result in a foreign entity controlling an American business and threatening national interests. Control is interpreted broadly, and can exist even in an investment for a minority stake.

A transaction involving golf tours would not immediately seem to trigger a CFIUS review; it does not involve critical technologies and most likely does not involve much sensitive personal data about US citizens. Janet Yellen, the Treasury secretary, said earlier this month that it was “not immediately obvious” the deal involved national security concerns.

This article originally appeared in The New York Times.