How the PGA Tour’s deal with Saudi Arabia’s wealth fund could collapse
Golf’s big deal — a planned partnership between the PGA Tour and Saudi Arabia’s sovereign wealth fund — isn’t how big deals are usually done.
Almost no outside bankers or lawyers were involved in the negotiations that led to a five-page framework agreement, and only limited input from the PGA Tour board. The first pact had few binding clauses and did not assign values to assets. The plan, which, as PGA Tour Commissioner Jay Monahan put it, would “get the competitor off the board,” came as the tour faced a Justice Department investigation over antitrust issues.
“In some ways, this looks more like a settlement than an actual M&A deal,” said Suni Sreepada, a partner in the mergers and acquisitions group at Ropes & Gray, who said the lack of final settlements made the path to closure difficult. .
“The fact that they were willing to announce it publicly means that the parties are quite committed to doing something,” Sreepada said. “But I think that leaves us with the question of who is in power right now? And how is this ultimately worked out?”
If completed, the agreement will profoundly reshape golf’s economic structure, bringing together 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 poised to have significant leverage over investments in the company, which Monahan is about to lead as CEO.
Despite Saudi rule over the new company’s treasury, as well as the plan for wealth fund governor Yasir al-Rumayyan to serve as chairman of the entity, PGA Tour officials have insisted that the tour lose control of the competitions itself. They also note that the tour, which had previously denounced wealth fund money as tainted and immoral, will control a majority of board seats.
“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,” said the tour 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 meets near Detroit on Tuesday, and the endowment fund will have to overcome in a process that could take months. If the deal isn’t finalized by December 31, it could potentially collapse, leaving both parties to decide whether to “get back to running their respective businesses.”
The PGA Tour board could refuse.
The tour has an 11-member board with five players. The chairman of the board, Edward D. Herlihy, and a member, James J. Dunne III, were involved in talks with the wealth fund, but others had little knowledge of the deal until the day it went public.
The board should sign the agreement once the outstanding details have been negotiated. While Herlihy and Dunne are expected to vote for the pact they helped make, most of the other board members have publicly kept quiet or noncommittal.
“I told myself I wouldn’t be for 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 press conference on June 13, Patrick Cantlay, another player with a board seat, said “it seems it is still too early to have enough information to properly control the situation.”
Aside from the expected backing from Herlihy and Dunne, Rory McIlroy, who sits on the board, has indicated his grudging support for the deal, saying: “If you’re thinking of one of the largest sovereign wealth funds in the world, would you prefer to think of them as a partner or an enemy?”
Other drivers did not respond to messages or were not available for comment.
Because many details of the agreement are still under negotiation, the board was not expected to vote on the deal on Tuesday.
The Justice Department could try to block the deal.
The Justice Department looked into professional golf before announcing the deal, with antitrust investigators investigating the tour’s affiliation with other leading golf organizations and efforts to deter players from joining LIV.
The proposed collaboration has not extinguished the importance of the department. In fact, it seems to have reinforced it.
While the tour and wealth fund have declined to characterize the transaction as a merger, antitrust experts say semantics may not matter. Even if the deal is structured more like a partnership than an acquisition, the Justice Department could try to block it, as it successfully did with JetBlue’s alliance with American Airlines.
Monahan raised more doubts in Washington with his public remark that a leading rival would no longer be a threat. Antitrust lawyers said the department could interpret his comment as evidence that eliminating competition is the deal’s goal, not, say, improving the sport.
But Monahan also said the deal would help create “a productive position for the game as a whole.” The tour is expected to focus on this in the coming months, arguing that by combining resources and bridging the gap in professional golf, the proposed venture would offer fans the best of all worlds, including more competitions between the best players in the world. world.
The end of the tension could help regulators approve the deal, reasoning it’s good for consumers.
“If I were the lifelong czar of antitrust in the United States, I would ban the deal and tell them to 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 enforcement have ever been particularly good at monitoring competition between sports entities to ensure consumer preferences are respected.”
The department could also explore how the regulation will affect professional golfers given the Biden administration’s focus on employees. In their successful effort to block Penguin Random House’s takeover bid for Simon & Schuster, the department’s antitrust regulators cited the potential effects on author compensation.
While professional golfers, who often earn millions of dollars in prize and sponsorship money, seem to be a less sympathetic group of employees than others who are affected by corporate deals, the department would like to build case law regarding the labor consequences of deals.
Congress wants the United States Foreign Investment Committee to study the pact.
The deal has been loudly criticized on Capitol Hill and a Senate subcommittee has scheduled a July hearing. But a Senate hearing can’t stop the deal, which is why 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 investigate any transaction that could lead a foreign entity to control a U.S. company and threaten national interests. Control is interpreted broadly and may even include an investment for a minority interest.
A transaction involving golf travel does not appear to immediately trigger a CFIUS review; there are no critical technologies involved and most likely not much sensitive personal data about US citizens involved. Janet Yellen, the Treasury Secretary, said earlier this month that it was “not immediately clear” that the deal related to national security concerns.
The demands for a review contain no specific concerns, other than a general distaste for a partnership between an American sports titan and an arm of a government “known for cracking down on dissent, jailing dissidents and carrying out draconian punishments” , as Senator Sherrod Brown, Democrat of Ohio, and Representative Maxine Waters, Democrat of California, put it.
But one possible reason to scrutinize the deal concerns real estate, as CFIUS may review agreements related to real estate near sensitive military sites. One of the largest PGA Tour assets that could be managed by the new for-profit entity is the Tournament Players Club collection of more than 30 owned, licensed, or operated golf courses across the United States by the PGA Tour.