The golf big deal – a proposed partnership between the PGA Tour and Saudi Arabia’s sovereign wealth fund – is not how big deals are normally made.
Almost no outside bankers or lawyers were involved in the negotiations that resulted in a five-party framework agreement, and the board of the PGA Tour provided limited input. The original pact contained few binding clauses and assigned no value to assets. The plan, which, as PGA Tour commissioner Jay Monahan put it, would “take the competitor off the board” arose as the tour faced a Justice Department investigation into antitrust matters.
“In some ways, this looks to me more like an agreement than an actual M&A deal,” said Suni Sreepada, partner in the mergers & acquisitions group at Ropes & Gray, who said the lack of definitive agreements paved the way for the made graduation difficult.
“The fact that they were willing to make this known publicly means that the parties are quite determined to take action,” Sreepada said. “But I think that begs the question, who is influential at this point? And how is that ultimately fleshed out?”
If the agreement goes through, it will fundamentally change the economic structure of golf and combine the businesses of the PGA Tour, LIV Golf and the DP World Tour, formerly the European Tour, into one new company. The wealth fund is likely to have a significant impact on investing in the company that Monahan will lead as CEO.
Despite Saudi influence over the new company’s coffers and a plan for the governor of the wealth fund, Yasir al-Rumayyan, to serve as chairman of the company, PGA Tour officials have insisted that the tour take control of the competitions themselves keeps. They also note that the tour, which previously condemned wealth fund monies as tainted and immoral, will control a majority of seats on the board.
“We are confident that as everyone involved learns more about how the PGA Tour will manage this new venture, they will understand how it will benefit our players, fans and the sport while protecting the American institution of golf,” it said in the tour this month.
Those assurances have done little to stem outrage over the pact, which could still fail.
Here are some of the obstacles the tour, whose board of directors meets near Detroit Tuesday, and the wealth fund will have to overcome in a process that could take months. If the deal isn’t finalized by December 31, it could potentially fall through, leaving both sides to decide whether to “return to operating their respective businesses.”
The PGA Tour Board of Directors may object.
The tour has an 11-member board of directors, which includes five players. Board chairman Edward D. Herlihy and a member, James J. Dunne III, were involved in the talks with the wealth fund, but others were little aware of the deal until the day it became public.
As soon as the outstanding details have been negotiated, the board must sign the agreement. Although Herlihy and Dunne are expected to vote for the pact they helped create, most other board members have remained publicly silent or noncommittal.
“I’ve told myself that I’m not going to be for or against it until I know everything, and I still don’t know everything,” Webb Simpson, board member and 2012 US Open winner, said in a recent interview. And at a press conference on June 13, Patrick Cantlay, another player with a seat on the board, said: “It seems like it’s too early to have enough information to get a good handle on the situation.”
Beyond the expected support from Herlihy and Dunne, Rory McIlroy, who sits on the board, has indicated he’s reluctant to support the deal: “If you’re thinking about one of the largest sovereign wealth funds in the world, you’d rather have them as a partner.” or enemy?”
Other directors did not respond to messages or were unavailable for comment.
As many details of the agreement are still being negotiated, the board did not 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. Antitrust investigators investigated the tour’s proximity to other leading golf organizations and its efforts to discourage players from joining LIV.
The proposed partnership has not quenched the department’s interest. In fact, it seems to have strengthened her.
Though 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 as a partnership rather than an acquisition, the Justice Department could seek to block it, as it did successfully with JetBlue’s alliance with American Airlines.
Monahan raised even more doubts in Washington when he publicly commented that a leading rival would no longer pose a threat. Antitrust lawyers said the ministry could interpret his comment as evidence that eliminating competition was the goal of the deal, not improving the sport.
But Monahan also said the agreement would help create “a productive position for the sport as a whole.” The tour is expected to focus on this in the coming months, arguing that by pooling resources and closing the divide in professional golf, the proposed venture would offer fans the best of all worlds, including more competition between the world’s best players.
The easing of tensions could help convince regulators to approve the deal on the grounds that it’s good for consumers.
“If I were the lifelong czar of antitrust law in the United States, I would ban the deal and tell them to go back and run,” said Stephen F. Ross, who teaches sports law at Penn State and works for the Justice Department and the The federal government worked the trade commission.
But, he said, “the reality is that neither private litigation nor antitrust authorities have ever been particularly good at monitoring competition between sports companies to ensure consumer preferences are respected.”
Given the Biden administration’s focus on workers, the department could also look at how the agreement will affect professional golfers. In their successful attempt to block Penguin Random House’s takeover bid for Simon & Schuster, the department’s antitrust authorities cited the potential impact on authors’ compensation.
Although professional golfers, who often earn millions of dollars in prize money and sponsorship money, seem to be a less sympathetic group of workers than others affected by corporate transactions, the department may be keen to build case law on the labor ramifications of deals.
Congress wants the US Foreign Investment Committee to consider the pact.
The deal drew loud criticism on Capitol Hill and a Senate subcommittee has set a hearing for July. But a Senate hearing can’t stop the deal, and so some lawmakers have asked a Treasury Department-led panel to step in.
The Committee on Foreign Investments in the United States (CFIUS) is an interagency body that has broad discretion to review any transaction that could result in a foreign company controlling a US company and threatening national interests. Control is interpreted broadly and can even apply to an investment in a minority interest.
A golf travel transaction apparently would not immediately trigger a CFIUS review; This is not critical technology and most likely does not contain much sensitive personal data of US citizens. Janet Yellen, the Treasury Secretary, said earlier this month it was “not immediately obvious” that the deal would raise national security concerns.
Calls for a review included a general reluctance to partner with an American sports giant and an arm of a government “known for curbing dissent, jailing dissidents and imposing draconian penalties,” according to Senator Sherrod Brown, a Democrat from Ohio, made no specific concerns, and Rep. Maxine Waters, a Democrat from California, put it.
However, one possible reason for reviewing the deal involves real estate, as CFIUS can review agreements involving land near sensitive military sites. One of the PGA Tour’s largest assets that could be controlled by the new for-profit entity is the Tournament Players Club collection of more than 30 golf courses across the United States that are owned, licensed or operated by the PGA Tour.