Big business golf, a planned partnership between the PGA Tour and Saudi Arabia’s sovereign wealth fund, is not how big business is normally done.
There were almost no outside bankers or lawyers involved in the negotiations that led to a five-page framework agreement, and only a certain amount of input from the PGA Tour board. He initial pact it had few binding clauses and assigned no values to assets. The plan, which, as PGA Tour commissioner Jay Monahan put it, “take the competitor off the board” came as the tour was facing a Justice Department investigation into antitrust matters.
“In some ways this feels a bit more like a deal to me than an actual M&A deal,” said Suni Sreepada, a partner in Ropes & Gray’s M&A group, who said the lack of definitive deals made the road difficult. towards closing. .
“The fact that they were willing to announce it publicly means that the parties are quite committed to doing something,” Sreepada said. “But I guess that leaves us with the question of who has the influence right now. And how does this end up playing out?
If the deal is finalized, it will profoundly reshape the economic structure of golf, integrating the business ventures of the PGA Tour, LIV Golf and the DP World Tour, formerly the European Tour, into one new company. The wealth fund is in line to have significant influence over investments in the company, which Monahan is about to lead as chief executive.
Despite Saudi influence over the new company’s coffers, as well as a plan to have the wealth fund’s governor, Yasir al-Rumayyan, serve as the entity’s president, PGA Tour officials have insisted that the tour retains control of the competitions themselves. They also point out that the tour, which had previously condemned wealth fund money as tainted and immoral, will control most of the 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 the 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 yet unravel.
These are some of the hurdles the tour, whose board meets near Detroit on Tuesday, and the wealth fund will have to overcome during a process that could take months. If the deal is not finalized by December 31, it could collapse, leaving both parties to decide if they want to “return to operating their respective businesses.”
The PGA Tour board might balk.
The tour has an 11-member board that includes five players. Board Chairman 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 was made public.
The board must sign the agreement once pending details are negotiated. Although Herlihy and Dunne are expected to vote on the pact they helped create, most other board members have remained publicly silent or uncommitted.
“I told myself I’m not going to 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. At a press conference on June 13, Patrick Cantlay, another player with a board seat, said that “it seems that it is still too early to have enough information to handle the situation well.”
Beyond Herlihy and Dunne’s anticipated endorsement, Rory McIlroy, who sits on the board, has indicated his reluctant support for the deal, saying: “If you’re looking at one of the world’s largest sovereign wealth funds, would you rather have as a partner or an enemy?
Other directors did not respond to messages or could not be reached for comment.
Since many of the details of the deal are 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 into professional golf before the deal was announced, and antitrust investigators examined the tour’s closeness to other leading golf organizations and its efforts to discourage players from joining LIV.
The proposed partnership did not extinguish the department’s interest. In fact, it seems to have strengthened it.
Although the tour and the wealth fund have refused to characterize the transaction as a merger, antitrust experts say the 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 did successfully with JetBlue’s alliance with American Airlines.
Monahan stirred further doubt in Washington with his public observation 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 goal of the agreement, not, say, improving the sport.
But Monahan also said the deal would help create “a productive position for the game in general.” The tour is expected to focus on this in the coming months, arguing that by combining resources and mending the rift in professional golf, the proposed venture would offer fans the best of all worlds, including more competition between the best players in the world. planet.
The end of the tension could help persuade regulators to approve the deal, arguing that it is good for consumers.
“If I were the antitrust czar for life 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 has 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 been particularly good at policing competition between sports entities to make sure consumer preferences are respected.”
The department could also look at how the deal will affect professional golfers, given the Biden administration’s focus on workers. 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.
Although professional golfers, who often win millions of dollars in prize money and endorsements, may seem like a less sympathetic group of workers than others affected by corporate transactions, the department might be eager to build case law related to the employment consequences of the deals. .
Congress wants the Committee on Foreign Investment in the United States to study the pact.
The deal has been heavily criticized on Capitol Hill, and a Senate subcommittee has scheduled a hearing for July. But a Senate hearing can’t stop the deal, so some lawmakers have called for 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 review any transaction that could result in a foreign entity controlling a US company and threaten national interests. Control is interpreted broadly and may even exist in an investment for a minority interest.
A transaction involving golf courses would not appear to immediately trigger a CFIUS review; it does not involve critical technologies and most likely will not involve much sensitive personal data about US citizens. Janet Yellen, the Treasury secretary, said earlier this month that it was “not immediately obvious” that the deal involved national security concerns.
Demands for a review have not detailed specific concerns other than widespread disgust at a partnership between an American sports titan and an arm of a government “known for chilling dissent, jailing dissidents and enacting draconian punishments,” as the senator put it. Sherrod Brown, Democrat of Ohio. and Rep. Maxine Waters, D-Calif., put it.
But one possible reason to look at the deal has to do with real estate, as CFIUS can review deals involving property near sensitive military sites. One of the PGA Tour’s biggest assets that could be controlled by the new for-profit entity is the Tournament Players Club’s collection of more than 30 golf courses in the United States that are owned, licensed or operated by the PGA Tour. .