Gulf’s Titanic deal sparks anger on Capitol Hill

One of golf’s greatest tests begins on Thursday, when the US Open kicks off at Los Angeles Country Club. It may be an easier lift – it will certainly be a shorter one – than the test coming up in Washington.

Last week’s abrupt announcement that the PGA Tour will commit to Saudi Arabia’s sovereign wealth fund and the LIV Golf league is provoking US officials in a way that could be as predictable as it is persistent in the coming months.

Antitrust experts are urging the Justice Department to consider filing a lawsuit to consider the agreement, which calls for the merging of LIV’s and the PGA Tour’s businesses into one new company, if the deal closes in the coming months. months is closed. Lawmakers are complaining that the Florida-based PGA Tour is doing business with a branch of the Saudi state that was outright condemned until last week. Political strategists are scrambling to shape the perception of a deal negotiated in secret that was immediately criticized upon release as a well-heeled exercise in hypocrisy and money laundering.

Whether the commotion will be anything other than a few news cycles of fuss — think a successful attack on the PGA Tour’s tax-exempt status — may not be clear for months. But a week into golf’s latest maelstrom, a deal that could ultimately prove lucrative for players and executives already promises a thriving era for lawyers, lobbyists and political sound bites.

Although golf was under pressure within the Justice Department, where antitrust regulators were eyeing the PGA Tour, last week’s announcement brought the uproar to Capitol Hill.

In the House, Representative John Garamendi, Democrat of California, quickly introduced a bill to revoke the PGA Tour’s tax-exempt status. And in the Senate, Connecticut Democrat Senator Richard Blumenthal announced Monday that a subcommittee he chairs will investigate a deal he says “raises concerns about the role of the Saudi government in influencing this effort and the risks involved.” of a foreign government entity taking control of a cherished American institution.”

That there would be a battle was never in question. The main issue to be resolved in the short term was who exactly would pick which fights.

The gulf side of the battle consists of two forces with formidable records in decades in Washington. While Saudi Arabia has had many bipartisan tangles, the kingdom’s officials and allies have often enjoyed an unusual rapport with their American counterparts, as evidenced by a visit by Foreign Minister Antony J. Blinken last week. And the PGA Tour usually found the capital a source of courtesy, especially when its supporters helped short-circuit a Federal Trade Commission investigation in the 1990s.

The problem for the wealth fund and tour is that Washington also has a bipartisan affection for legislators who impersonate sports executives and poke fun at real executives, both in public and in private. It may be good policy to be angry with the commissioners who are more mocked than many elected officials, and Congressional hostility making headlines may complicate the golf industry’s quest to sell the deal to the public – and there then pass.

The tour and endowment fund can take some comfort in history, suggesting that a successful attempt by Congress to thwart the deal directly is unlikely. However, The Hill could still try to make the trade painful after a spirited public hearing or two. A change to the tour’s tax status, as envisioned in the bill introduced in the House, could cost it millions of dollars a year because it is structured as a “business league” exempt from taxes under section 501(c)(6) of the tax authorities.

Groups such as the PGA Tour have fought legal headaches around their tax-exempt status in the past, with one attempting to end the practice of disappearing sports leagues from a 2017 tax assessment at the last moment. In the past 18 months, years after the NFL and Major League Baseball relinquished their exempt status, public records show the tour has spent at least $640,000 on lobbying, much of that work related to “tax laws that affect on exempted organizations”.

As part of his investigation, Blumenthal on Monday demanded documents related to the tour’s tax-exempt status and, in his letter to the tour, questioned whether the deal would allow a foreign government to “benefit indirectly from provisions in U.S. tax laws which are intended to promote non-profit business associations.”

Oregon Democrat Senator Ron Wyden, who chairs the Senate Finance Committee, was similarly outraged that the tour had “moved itself to the top of the leaderboard in terms of the most questionable tax exemptions in professional sports.”

But Wyden has also suggested the deal should meet resistance from the Committee on Foreign Investment in the United States, a committee led by the Treasury Department that examines the national security implications of foreign investment in real estate and U.S. businesses. .

Whether there are serious national security concerns about a golf tour deal, or whether the commission will review the agreement at all, is unclear. Janet Yellen, the Treasury Secretary, said last week that it was “not immediately clear” to her that the deal concerned national security. But Wyden, who is planning a congressional investigation of his own, has expressed interest in the department’s investigation into whether the deal could “give the Saudi regime improper control or access to U.S. real estate,” most likely through the Tournament Players Club collection of the tour. golf courses.

And those are just the spats that have erupted since last Tuesday.

At the urging of LIV’s lawyers, Justice Department regulators spent months investigating whether the PGA Tour’s tactics to discourage players from defecting to the Saudi Arabian-backed league were illegal, and whether the tour’s coziness with other leading golf organizations, such as the Augusta National Golf Club, the host of the Masters Tournament — in violation of federal law. Far from dispelling doubts about golf, the deal only intensified them and perhaps even armed the department with a new lever: suing to stop the pact, which the Tour and the wealth fund say amounts to a merger.

“In general, we want to encourage parties to resolve their disputes out of court, but that doesn’t mean settlements are immune from antitrust,” said Henry J. Hauser, a former Justice Department antitrust attorney who now practices is with Perkins Coie, one of the capital’s best-connected firms. “If companies try to resolve a legitimate dispute by agreeing on common terms that suppress competition, that could be a problem.”

The Justice Department declined to comment.

The tour is moving aggressively to curb Washington’s irritation, going so far as to seem to suggest that Congress and other parts of the federal government could have done more to help it reject a Saudi challenge.

While we are grateful for the written messages of support we received from certain members, we were largely left to fend off the attacks, ostensibly due to the complex geopolitical alliance of the United States with the Kingdom of Saudi Arabia. Arabia,” the PGA said. Travel Commissioner, Jay Monahan, wrote in a letter to lawmakers last week. “This jeopardized the very real prospect of another decade of costly and distracting litigation and the long-term survival of the PGA Tour.”

In the penultimate sentence of his letter, Monahan described the tour as “an American institution,” much as Blumenthal would on Monday. But like many executives before him, Monahan finds Washington always keen to scrutinize American institutions, especially when it comes to sports.

He may eventually discover that the screaming has only just begun.

Lauren Hirsch reporting contributed.