Saudi Arabia, Kerry Packer and the art of shaking up a sport

Nearly half a century ago a wealthy Australian businessman took on the international cricketing establishment and within 18 months had defeated it. It’s taken the Saudis just less than a year to do the same to golf.

Kerry Packer’s tilt at cricket had a purely commercial motivation. He launched World Series Cricket in 1977 because he wanted the broadcast rights to Australian cricket, which he gained in 1979.

There are parallels between the power play Crown Prince Mohammed bin Salman just effected in the world of golf and what Kerry Packer did to cricket in the late 1970s.Credit: AP, AAP

The Saudis, when they created the LIV golf tour, had a dual purpose.

While there was, and is, an element of “sportswashing” of its human rights record to its gatecrashing of international golf, its ruler, Crown Prince Mohammed bin Salman, has embarked on an ambitious strategy to diversify Saudi Arabia’s economy away from its reliance on its vast oil revenues.

Sport is a key part of that strategy, with the Saudis’ $US650 billion ($980 billion) wealth fund – the Public Investment Fund (PIF) – ploughing billions of dollars into soccer, pro wrestling, Formula 1 racing (last year it considered a $US20 billion bid for that sport) and e-sports. It has earmarked nearly $US40 billion to become a major centre for gaming and has shown interest in buying into cricket and tennis.

The creation of LIV from a standing start has been the Saudis’ biggest, boldest and most expensive play and, with this week’s shock announcement of its merger with the US PGA and Europe’s DP World Tour, arguably their most successful.

The PIF disclosed in a court filing in litigation with the PGA earlier this year that it invested $US784 million in establishing its tour and organising the 14 events scheduled for its first year.

That doesn’t include the $US1 billion or so it outlaid for massive sign-on bonuses to players (several – including one to Australia’s Cameron Smith – of more than $US100 million) to prise them from the PGA.

All up, the PIF would have more than $US2 billion tied up in LIV but, in its first year, has had minimal, if any, returns on that investment.

It revealed in its anti-trust litigation against the PGA that its revenues were “virtually zero”. Its tournaments are broadcast to tiny audience on the CW Television Network, a second-tier broadcaster, and it has attracted largely modest crowds and minimal advertising and sponsorship.

When Kerry Packer took on the cricket establishment, he signed up almost all the game’s best players and had the strongest television platform in the country to broadcast and market his games.

With only a handful of the world’s best players and largely journeymen in its events, no meaningful broadcast or online presence, a format dismissed as gimmickry by most golfers, professional or amateur, the only thing the Saudis and Packer had in common was that they both had deep pockets. In the Saudis’ case, its access to funds was, in a practical sense, limitless.

The PGA, a non-profit organisation, had been forced to greatly increase its prize money and fiddle with its tour’s format to keep more of its top players from defecting. It was also involved in expensive and potentially risky litigation with LIV, and its banning of LIV players from most of its tournaments had stirred the interest of the US anti-trust regulators.

Its finances were being strained and, in a war of attrition, the Saudis could out-spend and outlast the PGA.

Saudi Arabia’s Public Investment Fund chairman Yasir al-Rumayyan with former US president Donald Trump last year.Credit: AP

While the PGA had tried to establish the moral high ground by highlighting the Saudis’ human rights vulnerabilities, in the end it was always about the dollars. It might be a non-profit, but the PGA is a very commercial organisation.

When offered a lot of dollars – it’s thought the PIF will initially invest as much as $US3 billion in the new entity that will pool the commercial operations of the PGA, LIV and DP World Tour – the PGA folded almost instantly.

While it will continue to administer its tour, the yet-to-be named commercial entity will contain all the golf-related commercial rights, including the broadcasting and sponsorship rights, of the three tours.

The PIF will contribute LIV, which is being valued, and then inject the difference between that valuation and the valuation of the new commercial entity to become a shareholder, with a stake thought to be about 30 per cent.

There is no doubt, with the capital it is contributing and its exclusivity over future funding, that the Saudis will control professional golf’s purse strings.

Its chairman, Yasir al-Rumayyan, will join the PGA board and chair the enlarged for-profit arm, while the PGA’s chief executive, Jay Monahan, will have that role within the enlarged business and remain commissioner of the not-for-profit administrative vehicle.

The PIF will also make a separate investment to become the tour’s major sponsor and a further investment to provide the capital for expansion.

Rumayyan has also said the fund, which will have exclusive rights and first rights of refusal to provide the entity’s future funding, is prepared to invest “whatever it takes” to expand the game and its revenues.

While Monahan has been at pains to stress that the PIF will be a minority shareholder and have only a minority of board members, there’s an old saying that “he who controls the purse strings makes the rules”.

There is no doubt, with the capital it is contributing and its exclusivity over future funding, that the Saudis will control professional golf’s purse strings.

In effect the PIF has bought, if not outright control, then disproportionate influence, bordering on control, of the professional game. The PGA represents its members – its players – and therefore the non-Saudi elements of the PGA’s governance structure are ultimately highly dispersed. It’s akin to the influence a 30 per cent shareholder would have in a listed company where there are no other significant individual shareholdings.

The deal the PIF struck with the PGA and DP World Tour is being described as a “framework agreement”. There is substantial detail yet to be determined, including how to deal with the monies owed to LIV players and whether the players who rejected the Saudis’ largesse and remained loyal to the PGA should be compensated.

The deal will require the PGA players’ approval – Saudi money will inevitably fix that – but also will have to run the gauntlet of competition regulators in the US, Britain and Europe.

Kerry Packer wrote himself into Australian sporting folklore with his cricket power play. Credit: Brendan Esposito

Their approval can’t be taken for granted. The PGA made it clear that one of the attractions of the merger of the tours was that it removed a major competitor. That’s a flashing amber light for the anti-trust regulators already looking into the previously competitive relationship between LIV and the PGA.

The European regulators are arguably even more aggressive on competition issues than the Americans. The inclusion of the DP World Tour means the deal will inevitably be closely scrutinised there, too.

The size of the Saudis’ chequebook will be irrelevant to the regulators’ assessment of the creation of a commercial monopoly in a professional international sport.

Packer ultimately transformed cricket, the business of cricket and its players’ livelihoods and helped turn a semi-professional game into a massive commercial business.

Golf at the top level is already a major commercial enterprise, with its best players (even those who didn’t accept LIV’s golden handshakes) already extraordinarily well-remunerated. Will the Saudis’ money similarly transform golf, or has it just bought the game?

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