This is Bloomberg Law with June Brusso from Bloomberg Radio.
Today's hearing is about much more than the game of golf. It's about how a brutal, repressive regime can buy, influence, indeed even take over a cherished American institution.
Democratic Senator Richard Blumenthal was one of the senators from both sides of the isle who grilled two PGA tour officials on Wednesday about the deal that shocked the golf world last month and why the PGA would merge with Saudi backed Live Golf, two leagues that were intense competitors, with lawsuits and countersuits, congressional lobbying, and a fight over golf's biggest stars. The answer appeared to be pretty simple money.
PGA board member Jimmy Dunn said, with its unlimited funds, Saudi Arabia's publican Investment Fund could end up owning golf.
They have an unlimited horizon and an unlimited amount of money.
So it isn't like the product is better.
It's just that there's a lot more money.
And the magic number is one billion dollars. That's the amount the PIF will invest in the new golfing entity. Republican Senator Josh Holly questioned the PGA's chief operating officer, Ron Price, about the tour's intense lobbying against Live in the lead up to the agreement.
But this is before you agree to take a billion dollars from the same people that you were lobbying against a year ago.
Senator, we faced the choice. One was to allow professional golf to be taken over and operated by the Public Investment Fund of the Kingdom of Saudi Arabia. The second was to allow the PGA Tour to continue to lead it.
Joining me is an expert in antitrust law, Harry First, a professor at NYU Law School. Harry, the answer to every question about the why of the deal was one word. Money. That the PGA simply couldn't compete against Saudi money. Is that a defensible reason for a merger?
I'll unpack what you've said with the caveat that the only golf that I ever do is mini golf.
I don't even do that, So so.
The purpose is money a b PGA couldn't compete against the money. And the third thing is therefore they have to merge. Okay, so we'll take the three things. First, money is behind everything. Oh I'm shocked. I'm shocked that people could change their position when offered enough money. So I'm not shocked. And you know, a lot of it is about the money. There's a heavy emotional overlay on this, obviously, but at the heart, from the PGA's point of view, it is about money. You know, what is it from
the saudi'st point of view? So maybe it's reputations, Maybe it's also money. Maybe they think professional sports are good investments. There are a lot of people who think that a lot of people have made a lot of money off of professional sports. They're trying to diversify their economy, so maybe that people have, of course described sportswa washing idea. They're gonna, you know, change their image. They think they're going to change their image this way. I don't know
who's telling them that. It's a long road for that, but they're doing very well, thank you, ma'am, with their bad image. As it is, Saudi Aramco is the second largest company in the world, only behind Apple. And how do they have all this money to invest? Where did it come from? Oil? And who has bought the oil? Since the Opec oil cartel was formed. We have so money. Yes, second, PGA can't compete. So that's what competitors always say when they're faced with a new competitor that is well financed.
But you know, firms always say that they would prefer not to compete because competition may force them to do things they would prefer not to do, like pay their players more money, come up with things that might be enticing to people who watch golf who have only been offered one monopoly view of the sport. They might have to think of new ways to present their tournaments. They may have to actually compete. So can they or can't they? Part three Merging to stop competition is not a defense.
It's called the worst defense. It we don't get more competition by having less, and it's a bad argument. It's bad. Interestingly in light of the case the Northeast Alliance so called between American Airlines and Jet Blue, where we're having trouble competing against each other and Delta. So they said, oh, let's stop competing against each other and get bigger so they can overtake Delta, and the district court just said,
that's not the kind of competition. The Sherman Act is talking about you know, we're talking about competition, and anti trust laws are indifferent as to who wins the marketplace. Besides that, so the three parts money is motivating things. Of course, the desire to escape competition maybe motivating the PGA, but it's not the kind of motivation that presents it any trust defense. So if we use the straight anti trust lens, they have some high legal hurdles to surmount.
And Live Golf has spent a year litigating and claiming that the PGA tour is a monopoly. In the complaint to use the word monopoly more than forty times in one hundred and eighteen pages. And this combination would create an even larger monopoly. So how do they fight that? Do they just ignore their prior arguments?
Well, but if someone say foolish consistency is the hobgoblin of little minds, Yeah, they're not consistent. The question is who's going to challenge them. So the PGA does monopolize professional golf. There is no other so far as I know, no other professional golf tour monopolies are allowed if they succeed on their own skill, industry, and foresight and don't
do anything to exclude competition. What actually had gotten the PGA into potential trouble was when they said to their golfer, as well, you want to go play in some live tour golf tournaments, he ain't ever going to play in a PGA tour anymore. We will exclude you. Well, that's potentially a violation of Section two of the Sherman Act, which is monopolyzation engaging in exclusionary behavior to maintain your monopoly. So yeah, I got understand why the Live Tour sued
them and why the players suited them who were adversely affected. So, yes, they're monopoly. Will they become a bigger monopoly? So this is where it's hard to know exactly because we don't really know how this is going to shake out, how it's going to be structured. So they haven't agreed to a final deal. They don't want to call it a merger, they want to call it a joint venture. It's I have a feeling by the end they're just going to
call it an investment. So whatever they call it is, you know, a lot is going to turn on how it's structured and whether there is an agreement for the Live Tour to be discontinued. So you know, in a merger two firms become one and they don't compete against each other, or a joint venture two firms become one. So if that's the outcome that's negotiated, they are they have a big any trust problem. And I'll put to the side of the moment. Who's going to do something
about it? That's the next question. But as a straight matter of anti trust and putting aside the identity of the parties, and you know, the flags being waived in the hearings Center Bloomenthal and the takeover of an American institution apparently perfectly willing to be taken over, none of that matters from the point of view of the any trust laws. The identity good, bad, and different of the owners of assets are irrelevant. It's the market outcomes that
are key. And you know, the Saudi's own lots of things, and apparently we don't get quite as upset when they buy refining assets, oil refining assets, you know, when they buy all sorts of things. So I can understand the emotion of this and maybe wanting to do something about it. But from any trust laws, that really is irrelevant.
Does it fit anywhere else. I mean, why is in sciphius The Committee on Foreign Investment in the US investigating this?
This is supposed to be national security, I you know, golf.
Apparently, though, Senator Ron Wyden, who's the chair of the Senate Finance Committee, is investigating the deal for national security implications due to the PGA tour's potential ownership interests in real estate near US military facilities.
Remember when the Japanese wanted to take over Pebble Beach. I mean, we've had other outside whos wanting to take over key kinds of things like that. There was an uproar. I don't think Syphius was invoked, and there was some talk, as I recall, about, you know, the strategic location of these calfboards. I mean, give us a break. I mean, the PGA doesn't own real estate. So I'm not even sure what Senator Widen's talking about. Maybe he's I had
some idea there. But we have enough problem trying to apply Siphius to industries that are not defense, you know, military defense, but are economically important. So we're down the rung from that. I mean, golf is golf? Come on?
The Justice Department apparently has been investigating the PGA over possible anti competitive practices for about a year. I mean, does that mean it's not going anywhere if it's a year in already and they haven't done anything.
First of all, there was ongoing private litigation, so I don't know how deeply involved in an investigation, and Just department's been stepping back. The Just Department could rationally say, we have a lot of work. There are these huge mergers, there are a lot of strains on our resources. Private parties are pursuing the any trust claims and have you know, good reasons to do that and are interested. We can be more observers, maybe gather some information, but not front
burn or now. Once the litigation settled, which it did recently as part of this framework agreement to which the parties have apparently entered sort of an agreement to agree, and PGA and Live Tours withdrew their litigation and apparently the players did as well. So that would be reason to step up Justice Department scrutiny because there's no now no one on the field, and you know, a straight antitrust metric is, you know, what's the impact on the economy, Well,
golf's impact isn't small. So what's their revenues? Over a billion dollars a year for the PGA. So maybe they've stepped up their inquiries. I mean, I don't think it's a moth balled inquiry. I think they're active. But presumably they're also waiting to see what the form of this whatever it is, is going to take, because that will determine,
you know, how the Justice Department will proceed, if at all. Again, now, what I don't know is whether there's pressure on the Justice Department and a trust division from other parts of the administration that I don't know. And this is a possible explanation for why it's slow. You know, that's just possible. The only reason why I raise it, and the only fact I have is the Justice Department has not tackled Opek, even though there are good arguments for why I could.
There have been for many years and it hasn't happened. So obviously, the relations with the Saudis are an important diplomatic issue.
So, Harry, the Justice Department opposed that Penguin Random House deal on the grounds that it would hurt authors. So do you think here they'll look at the player compensation.
It's a natural This is why, from the Justice Department's point of view, take the Saudis out of it. There are sort of free good reasons markers on this case for going ahead. One is the recent win against the airlines that I mentioned, very strong opinion in favor of the Justice Department's position. This looks worse because the alliance between American Airlines and Jet Blue wasn't an agreement to monopolize the market. There was still another competitor here, there's
no other competitor. There's an agreement to quash the other competitor, if that's what it turns out to be. So that's the first. Second marker is the Justice Department always insists on relatively narrow markets that can form to how commercial realities are. So golfing rights, the rights to broadcast, and whatever other rights are sold separately from other sports. Apartment has always taken the view that, you know, sports sort of stand on its own, and individual kinds of sports
stand on its own. So pro football is different from college football. So that's number two. And you've mentioned number three, which is the Justice Department's concerned for labor markets. Of course, it's always a little irony that the working man. That's just Department's standing up for. Are you know, authors with million dollar advances and golfers you know who get million dollars payout on winning golf tournaments, but are labor markets
and clear potential impact. In fact, that's what in a sense has driven this rivalry is a competition for players, and how do you compete for players? You're back to what was that first word you mentioned begins with.
An m money.
Money, money, money, So yes, you're right. Certainly the Justice Department has been stressing and the Bied administration that we haven't paid adequate attention to impact on labor markets.
So apparently the PGA and PIF have removed a clause called a non solicitation clause in which they agreed to stop poaching players. What impact does that have?
There was this no solicitation agreement for the rest of the live tour, they couldn't solicit PGA tour members I guess vice versa. So they agreed to remove that restriction. They are not bound by this no solicitation thing. But in the end, the idea is to put them all, as the agreement says, under one roof. So lifting this now is fine for now, but meaningless for the long run because they're all going to be in the same corporation.
You know, it's not even clear you know, what's going to be called a live tour and they haven't negotiated this. I guess what's going to remain of that or whatever. But whatever it is, they're all going to be managed by the same company. They're not going to compete.
I don't think this is your area, but I'll ask you anyway. So, the PGA is currently a tax exempt nonprofit and it wants to keep that nonprofit status, and will it be able to once it's funded by one of the world's biggest sovereign wealth funds, and Blumenthal said it raises questions about whether a foreign government may indirectly benefit from provisions in US tax laws mean to promote not for profit business associations. So do you think it's tax exem status is in jeopardy?
So your first premise is correct, partly an area of expertise for me, although you know more about it from what you've asked me than I do. But my guess is that however they structure this, they'll structure it in a way that's most likely to retain the tax exem status. I'm ensure that sufficient amounts are paid out to charities. I mean, presumably people put money into not for profit companies.
That would be an issue for their tax advisors to make it happen, and if they can't deal with the consequence.
I always appreciate your insights, Harry, thanks so much. That's Professor Harry First of NYU Law School.