Live and Let LIV? The Golf Merger, Competition, and Human Rights

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Emily Manning:  Hello everyone, and welcome to this Federalist Society virtual event. My name is Emily Manning, and I’m an Associate Director of Practice Groups with The Federalist Society. Today, we’re excited to host a discussion titled, “Live and Let LIV? The Gold Merger, Competition, and Human Rights.”

     

      We’re joined today by Asheesh Agarwal, Professor Jodi S. Balsam, Matt Perault, and our moderator today is John T. Delacourt, Deputy General Counsel and Vice President of Health, Regulatory, and Commercial Operations and Biotechnology Innovation Organization.

 

      If you’d like to learn more about today’s speakers, their full bios and be viewed on our website, fedsoc.org. After our speakers give their opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we will do our best to answer as many as we can.

 

      Finally, I’ll note that, as always, all expressions of opinion today are those of our guest speakers, not The Federalist Society. With that, thank you for joining us today. And, John, the floor is yours.

 

John T. Delacourt:  Thank you for that introduction, Emily. And I would like to give a one housekeeping reminder, which is about the Q&A that Emily mentioned. We will be using the Zoom function. So if you have questions, please don’t wait until the end. Please contribute those as soon as they occur to you, and we will try to address them as we move along.

So Emily gave a little bit of an introduction for our speakers and noted that their full bios are available. So I won’t say too much more about that other than to note their connection to the subject matter.

So I’m going to start by introducing Asheesh Agarwal and Matt Perault, who are both authors of a recent article—also had the title “Live and Let LIV.” And so I commend that article to everyone, which it gives an in-depth discussion of the legal and human rights issues. So we’ll be hearing their perspective as we move along.

And then also, I wanted to add to Jodi Balsam’s bio the fact that she is currently the legal commentator for the Golf Channel. So she’s been steeped in this case from the beginning and has been very helpful in providing us with updates as we go along and I understand will also provide us with some updates today.

So before we jump into the discussion and the question and answer back-and-forth, Jodi wanted to provide an overview which I think will be helpful to us as panelists and also to the audience. So I’ll turn it over to you, Jodi.

Prof. Jodi S. Balsam:  Thanks, John, and thanks to The Federalist Society for hosting this event. So I’m just going to give a little bit of background about the various phases of the LIV Golf/PGA Tour relationship. I’m going to start with the legal phase and then move us into what we’re now in, which is the political and commerce phase of their relationship. But it’s important to know the legal phase as background for where we are now.

In 2022, the Saudi Arabian Sovereign Wealth Fund launched LIV Golf. It’s a professional golf tour. It’s a different product, though, than the golf you watch offered by the PGA Tour and the other more traditional professional golf tours. It’s team golf. There’s guaranteed money. They’re only playing 54 holes, 3 days of competition rather than 72 holes, 4 days. That’s where you get the name “LIV'' from. Fifty-four Roman numeral is L-I-V.

So this competition launches in 2022. What it needs to get a foothold and the attention of golf -- professional golf audiences is elite players to sign on. And they managed to get that to happen through paying bonus -- upfront signing bonus, and guaranteed money in the tens, millions, even hundreds of millions of dollars to individual players.

The PGA Tour then suspends from its event any golfer who takes that money and plays for LIV Golf because that would violate the PGA Tour’s conflicting events and media rights regulations: regulations that promise the PGA Tour exclusivity from the golfers who play in its tournaments in a given year.

What happens next is 11 of the golfers who signed on with LIV and now are barred from playing for the PGA Tour bring an antitrust lawsuit in August of 2022, arguing that the PGA Tour’s regulations and suspensions of those players are illegal exercises of monopsony power. They make a failed bid for a temporary restraining order, compelling the PGA Tour to allow them to continue to participate in those events at the same time that they’re playing for LIV.

The judge finds that the players have not identified sufficient irreparable harm to justify a TRO, and the case proceeds. Most of those golfers drop out of that lawsuit over time, and the LIV Golf entity takes over as lead plaintiff, now focusing on Section 1 antitrust claims, that the Tour is colluding -- the PGA Tour is colluding with other industry participants, hosts of the four major golf tournaments, official sponsors, the Official World Golf Ranking organization, all trying to throw up roadblocks to LIV’s success.

Now, around this time, Department of Justice also gets involved. The Antitrust Division initiates an investigation that questions whether the PGA Tour’s regulations of its players, as well as its communications, its relationships with the other significant actors in the golf ecosystem, violate the antitrust laws. This investigation has had moments of activity, but it’s largely been quiet the last few months. The litigation, on the other hand, proceeds at a furious pace, with the judge insisting on an early trial date.

And so roughly from September of 2022 to June of 2023, the PGA Tour answers. It counterclaims for tortious interference with a contract that LIV Golf induced Tour members with millions of upfront payments to breach their contractual obligations to the Tour. It tries to add the Saudi Public Investment Fund as a counterclaim defendant. Pretrial then gets bogged down in efforts to obtain discovery from the Saudi PIF, first as a nonparty, and then later as a counterclaim defendant.

And what happens? The sort of signal event that I think leads to them settling this lawsuit and the framework agreement we’re going to discuss in more detail is that the district court orders the Saudis to produce that discovery. They appeal that to the Ninth Circuit. The Ninth Circuit’s ruling was pending when the Saudis decided not to take the risk that they would get an unfavorable holding under the Foreign Sovereign Immunities Act, and they agreed to settle the lawsuit in June of 2023 with the PGA Tour.

This was a shocking announcement at the time, given the allegations that had been lodged against each other: the LIV Golf entities on the one hand arguing that the PGA Tour was abusing its monopoly power to the detriment of golfers and fans, the PGA Tour accusing the LIV Golf entities of sport washing. But the litigation ends with a complete dismissal with prejudice and a framework agreement.

In the framework agreement, very few solid commitments are made. One is that neither party may refile this lawsuit. It is a dead letter, and both the Tour and PIF can revert to operating their respective businesses if their deal to join in some sort of partnership fails for whatever reason, either regulators, disapproval, or the party’s failure to agree on the details.

All litigation is dismissed, including the Ninth Circuit’s appeal on the Foreign Sovereign Immunities Act claims, and the parties are now in negotiations to reach a definitive agreement with a deadline of December 31, 2023. That deadline may be extended by the parties’ mutual agreement, and most likely it will be given that we have a different geopolitical situation at the moment that might interfere with the negotiations. And there’s been significant pushback from the golfers and from Congress.

Just a word about the definitive agreement concepts. If the agreement were to go forward, what was mapped out in the framework was that the PGA Tour would continue to hold a controlling interest in -- with its commissioner to be the CEO in the ultimate combined entity and that the Saudi Public Investment Fund’s Governor, Yasir Al-Rumayyan, would be chairman of the board of that entity. LIV Golf would not be guaranteed to survive, and it would be unlikely to do so in its current format, although the parties would try to present some version of team golf in whatever the new PGA Tour would look like.

The parties were also supposed to cooperate in a definitive agreement to gain Official World Golf Ranking points for those LIV events. Well, at the moment, the Official World Golf Rankings has ruled on a prior petition by LIV alone to rank their events and has denied that status. So the LIV Golf events are in an even more tenuous position at this moment, especially with the definitive agreement being potentially delayed by months, if even years.

The other main provisions of the agreement included at the time an agreement from the two parties not to recruit or poach each other’s players, but Department of Justice scrutiny of that provision convinced the parties to abandon it. What followed next, while this negotiation was launched, was a Senate hearing sponsored by the Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations. Those happened over the summer.

They included witnesses on behalf of the PGA Tour. They have subpoenaed but have not yet secured an appearance by Saudi PIF witnesses, and they questioned why the PGA Tour needed Saudi money, would sell out to a foreign interest, would allow the takeover of an American sport by a Middle Eastern country seeking to sportswash its human rights abuses.

Those hearings have largely been an exercise in political grandstanding. Nothing concrete has come out of them, but it’s an open set of hearings expecting to hear from more witnesses alongside a Department of Justice investigation making a lot of similar inquiries, although focusing on the antitrust issues as opposed to the commercial or political issues that were raised in the Senate hearings.

And the latest development is, as I mentioned, that just last week, the Official World Golf Ranking Organization denied world ranking points to LIV Golf events. That format, according to the OWGR, does not permit the kind of competition that is rankings worthy. It’s a limited and fixed field. Forty-eight players are recruited for the entire season. There’s very little chance of them being relegated or denied a spot in the prize money. The 54 holes with no cut and the team format are not of the level of competition that the Official World Golf Ranking seeks to recognize.

And the impact is already evident. In the 2022/2023 LIV Golf season, 12 of the top 50 players in the world defected to LIV Golf. They enjoyed significant attention because they were featuring some of the stars of professional golf. This season, of the 50 top players ranked in the world, only 2 of them are participating in LIV Golf. That’s because all of the players who had defected have now sunk so far in the rankings that they no longer are considered to be amongst the most elite golfers, despite the fact that their golf playing talent is still present.

And that means that, over time, you’re going to find less appetite amongst professional golfers to want to play on the LIV Golf tour. So that’s where we are today, and perhaps we’ll circle around at the end what we think we know about where the current negotiations are and whether the parties will reach that December 31 deadline.

John T. Delacourt:  Well, thank you very much, Jodi, for that summary. There was a lot in there and a lot that we can talk about. Before we move on to the more general discussion questions, we do have one question from the audience. It’s very discreet that I wanted to pose to you and I guess to the other panelists as well, is -- so the question is about the release, I guess, in the agreement that calls for -- well, that stipulates that whatever else happens, whether this agreement goes through or not, whether they’re able to reach a consensus, that this lawsuit will not be reinstituted.

So what exactly is the scope of that? I guess the question is not so much the technical details. We could all go and look at the agreement and try and figure that out. But what would be your expectation? Certainly, there were antitrust claims, and those would seem to be precluded. But there are a host of other issues that it seems could be raised. So would you expect litigation to reemerge in the event that these negotiations are unsuccessful?

Prof. Jodi S. Balsam:  Well, the release was pretty comprehensive. It cancels any possible claim based on all activities the parties engaged in up to the date of the withdrawal of the lawsuit with prejudice. I believe that’s mid-June 2023. Could there be future litigation? Yes. LIV Golf potentially could bring a new antitrust lawsuit based on post-dismissal conduct—anything that’s happened since mid-June 2023, which, by the way, includes the Official World Golf Rankings decision to exclude LIV Golf from its rankings.

However, to that point, although the PGA Tour and its sister tour, the DP European Tour, are members of the Official World Golf Rankings Board of Directors, they both recused themselves over a year ago from participating in any deliberation over LIV Golf because of the lawsuit. That’s sort of a potential area for future litigation.

Another potential area for future litigation is from the individual golfer plaintiffs. I mentioned that there were 11 of them at the outset of the lawsuit and that they had each voluntarily withdrawn over the course of the discovery phase. Well, all of those withdrawals were without prejudice to refiling. And, of course, any golfer who has not been part of the lawsuit in any respect could bring a future lawsuit under antitrust or other grounds.

John T. Delacourt:  So I think we can move on to the other issues. So the first question I wanted to ask is really whether antitrust is the best tool for resolving this issue. I mean, even from your explanation, which was very comprehensive, you can see that there are a number of other considerations. There are political considerations, economic. There are a number of other parties involved besides just the two golf leagues.

So one thing that antitrust practitioners hear and they get a little jaded with is this notion that we’ve got a new industry or a new set of players. And antitrust, just it never conceived of this type of situation, so it’s not the right vehicle to address these concerns. And so I wanted to throw that out as the initial question.

Have we finally found that case? And is really the distinguishing feature here that one of the parties to the proposed merger is in fact a nation state that has substantial resources to bring to the table, such that they -- if you were to set them loose again to compete against each other, the PGA Tour would be essentially competing with a party that has unlimited funding? Is that a situation that’s unique here, or is that a situation that the antitrust laws are equipped to deal with?

Asheesh Agarwal:  Well, John, I’ll take that one. I do think that antitrust scrutiny is appropriate here. And I know that you’ve done a lot of work in this area trying to push back on antitrust immunities and the idea that some industries are so unique or special or have state actors involved, that they should be immune from antitrust scrutiny. Antitrust law is, at its best, is generally applicable, and it looks at what’s in the best interest of consumers. And I think golf, sports—generally, really, any industry—should be subject to that sort of scrutiny.

Taking a step back, I think that this shows, really, the competition works. LIV’s entry has prompted a lot of innovation and what has been a very staid sport. You have things like staggered start times, shorter tournaments, team formats, all things that may or may well not -- may or -- appeal to consumers or may ultimately fall flat. But you are seeing some innovation in the golf space, and I think that’s a good thing.

Now, to your question, John, about this -- the fact that PIF is backed by the Saudi Investment Fund, that LIV Golf is backed by the Saudi Investment Fund and how does that change the analysis, I think the short answer is that it really shouldn’t, but it could.

So the argument that the PGA has made is that, “Well, gosh. We can’t possibly compete with the almost limitless pockets of the Saudi wealth fund, and they can pay hundreds of millions of dollars to top golfers like Phil Mickelson, and the PGA can’t possibly compete. And over time, the PGA’s star power is going to bleed away to the Saudis. I think that’s what’s known as the failing firm defense or the flailing firm defense.

Now, I think it’s going to be hard for the PGA to make that case persuasively to the Justice Department because I think you would typically need a much longer track record of the PGA really struggling financially as an entity. We haven’t really seen that yet. LIV hasn’t been around for that long. And yes, LIV has managed to sign a number of top golfers but certainly not all of them. The PGA, certainly to all intents and appearances, seems to be doing just fine, even with the competition.

Having said that, there is another notion of just looking at the structure of the market and projecting outwards a few years. So the assistant attorney general for the Justice Department’s Antitrust Division, Jonathan Kanter, likes to talk a lot about market realities. And when he talks about market realities, what he really means is he doesn’t like the structure of a marketplace. He doesn’t think there are enough competitors in that marketplace, and therefore, he's going to -- the Justice Department is going to try to initiate a lawsuit, even in the absence of any sort of cognizable antitrust harm.

Well, here, however, I think the market realities do suggest that maybe some sort of merger could actually make sense because you could be seeing -- consumers want to see the world’s best golfers compete against each other as part of the framework agreement. There certainly was a commitment made to trying to keep some of the innovations from -- that LIV Golf has introduced to the sport.

And you also have the promise potentially of some of this wealth fund money going to higher player salaries—which is of particular interest to the Justice Department these days—going in to new facilities, more tournaments. So I do think there is a pro-competitive story that can be told.

John T. Delacourt:  Right. Well, there’s certainly more that can be said on the antitrust side. But let’s circle back to some of these political concerns. As Jodi conveyed in her summary, there’s a lot more going on here than merely the antitrust claims. There are political considerations. She talked about some of the concerns raised by Congress and various other political actors.

So, at this point, how much of an impact is that likely to have on the success or failure of the framework agreement? And I think, in particular, if you’re looking at this transaction, it’s not unfamiliar to have national security issues or concerns associated with a merger. That’s happened in a lot of different industries—something as obvious as the defense industry, but also high-tech other things.

But the human rights element and the kind of perception of concern about the Saudi regimes maybe questions about their record there also looms large. So is that something that is likely to -- well, it certainly is likely, but to what degree is that likely to influence the action of, say, the Department of Justice?

Matt Perault:  Well, I think it does loom large. And your earlier question was about what is the right framing of analysis, or what’s the right lens to look at this through. I think looking at this in terms of foreign investment, in terms of human rights implications, I think those are helpful lenses to look at the deal and look at the competition through. But I think those lenses have basically been misapplied in this case for a few different reasons.

So there are two main accusations that have been leveled against LIV and the Saudi government that deal with human rights and political issues. The first is that Saudi Arabia has a problematic human rights record, and therefore, it shouldn’t be permitted to operate a golf tour in the United States or invest heavily in a golf tour in the United States. And the idea, as Jodi said in her opening, is if it’s allowed to do this, it will sport wash its human rights record away.

The second main accusation is that Saudi Arabia will use its investments in golf to exert undue influence on the United States. And this influence is inappropriate or problematic because of Saudi Arabia’s human rights record.

So, given those accusations, I think you would think a couple of things must obviously be true. It must be true that we discourage engagement in markets that have problematic human rights records. You might think it would be true that we don’t allow foreign governments with problematic human rights records to invest in the United States, and we really don’t like it if they have a controlling state.

We don’t permit Saudi Arabia specifically to invest in American institutions, and we don’t permit Saudi Arabia to invest in sports. Maybe all of those things should be the rules of the game, but they’re not. Those expectations aren’t consistent with current law or current practice. Businesses operate all the time in markets with problematic human rights records. Think of all the U.S. companies currently doing business in China, including chip companies, that in the last couple weeks have been speaking very publicly about the concerns that they have about U.S. export restrictions and the impact that will have on the businesses they do in China.

There are a set of principles commonly known as the Ruggie Principles, the UN Guiding Principles on Business and Human Rights, that were designed specifically to govern businesses operating in markets where there are human rights risks that emerge. And those principles do not recommend disengagement. They are pro-engagement, and they specify the conduct that businesses must engage in when they are operating in a particular market.

It’s also true that foreign businesses and foreign governments invest all the time in the United States. We actually have a dedicated process that reviews these transactions called the Committee on Foreign Investment in the United States. And it’s also true that Saudi Arabia invests routinely in the United States. There are deep investments in American universities. They gave millions of dollars to MIT, for instance. MIT actually had a formal process for reviewing those investments, and it found that they should -- that MIT should keep those investments and that they would go on to cultivate future investments. And it’s also true that Saudi Arabia invests in other sports, like soccer.

So these rules that are now being applied to Saudi Arabia in the golf context aren’t the rules that we apply to Saudi Arabia or other countries in other contexts. But then I think the next question that we have to ask ourselves is, in other contexts, what are the best practices that businesses use when they do engage with these types of governments? The businesses just sit on their hands.

And this is a part of the conversation, I think, that really has been remarkably absent in the debate. It’s not the case that we expect businesses to disengage, but it’s also not the case that we expect them to sit on their hands or that we tolerate them sitting on their hands. So there are two components of what we would expect businesses to do or how we would expect the U.S. government to respond. And I’ve alluded to both already.

So the first is that the Ruggie Principles specify that businesses need to operate responsibly. What does “responsible” mean? Responsible means that they have to do human rights due diligence. So they have to do things like conduct human rights impact assessments and look at the impact of the operations of their business on human rights and then come up with plans to mitigate those potential risks if they exist. We haven’t heard LIV or the PGA indicate that they would put these practices in place, and I think they should.

The second is that we have CFIUS, the Committee on Foreign Investment in the United States. And if we think there is a real national security risk here, then we would ask CFIUS. CFIUS would initiate an investigation to review the transaction and to determine if there is risk, and if so, what should be done to mitigate the risk. Among the remedies available to CFIUS is actually to bar a transaction entirely, so it would prevent the deal that Jodi has just described.

So we have tools and I think potentially fairly aggressive strong tools that we can use if these concerns do exist. My frustration about watching the process unfold is that we have spoken of this as if it’s exceptional, as if Saudi Arabia is exceptional, as if sports is exceptional, and it’s not. We should expect the same things of this deal and this process that we expect in other contexts and other industries.

John T. Delacourt:  Thanks for that, Matt. That’s very helpful. And it is correct that there’s a lot of foreign investment, including by countries, which the U.S. has issues, both here and abroad. But I want to stick with this topic just because it dovetails with the conversation we were having as we were doing prep for the panel, and also, it dovetails with the question that was just asked.

So certainly, one of the things, Matt, you raised is that there would be some scrutiny of the record of certain countries given their investment practices, and that would be under the Ruggie Principles or other frameworks that are put in place to make sure that everybody is comfortable with the human rights issue. But that is coming to the forefront now because of the renewed situation in the Middle East, the current conflict between Hamas and Israel.

And so the questioner posed a question -- noted—and I will assume that the facts as posed by the questioner are correct—that recently, there was an issue where the NHL, the National Hockey League, was contacted by parents of hostages taken by Hamas that were very concerned about the investment of the Qatar Investment Authority in some NHL franchise.

And so it seems that this issue has not only already arisen with respect to foreign investment but specifically with respect to foreign investment in sports. So where do we perceive this coming out with respect to a potential Saudi investment in the PGA Tour or ongoing relationship as a full partner going forward?

Prof. Jodi S. Balsam:  I would just jump in here and give a little bit of background about sports league ownership policies. So each of the major sports leagues in the United States have their own set of policies as to who may become an owner of a team in that league. And I’ll give you an example.

The league that I worked for, the NFL, does not allow investment through private equity funds and has minimum majority -- majority ownership minimum investment requirements that basically make it impossible for a foreign investment fund to come in and own a team. And, in fact, they also have other restrictions against foreign investment.

The NBA, the NHL, soccer, boxing, they all permit private equity investment. And as a result, the Qatari sovereign wealth fund has passive minority investments in some NBA and NHL teams. So, for example, the Washington Wizards counts the Qatar Investment Authority amongst its minority owners.

This is happening against the following developments in the wake of the Hamas atrocities. So immediately afterwards, amongst the very first private actors to take a stand with Israel and to condemn the Hamas attacks were almost every single major sports league and all their individual teams. In fact, a few days after the attacks, in my sports law class, I posed to my class, “Why is it that every major sports league is coming out so vocally and taking these stands?”

And I got some interesting responses about how sports are unique and are exceptional, at least in the minds of the consumer, as a civic institution, as an entertainment product with which they have some unique affinities or allegiances. And how is this going to redound against the fact that their partners now—the Qatar investment fund, for example—have taken the opposite political positions? What do you do when virtually every single sports league and team and even the PGA Tour has issued statements saying that they support Israel and they are now in business with Israel’s enemies?

Matt Perault:  Yeah. I think it’s an interesting point about how the current developments in the Middle East might affect the deal. If the parties wanted to walk away from each other, that seems fine to me. That’s two private parties who might have decided that, because of the developments, they are no longer interested in doing business together. That seems like one set of things.

It’s a second set of things to consider, “Well, what role would the U.S. government play in potentially blocking a deal or potentially denying the ability of a foreign government to invest in an American business?” And again, I think we should look to the tools that we currently have.

So from Kitchi’s (sp) question, it was a little unclear to me exactly what the risk would be—like exactly what is the human rights risk, exactly what is the national security risk. But I think that we would hope, if there are serious risks in either component, that if it was a national security risk that there would be a CFIUS investigation and that CFIUS would take action if there was a national security risk. I think a human rights framework that requires the parties to do serious due diligence and then, in some cases, be transparent about that due diligence is a really robust one in part for transparency reasons.

But I think also, the reason I think that the Ruggie Principles are pro-engagement overall as opposed to oriented or disengagement is that it might actually be the case that engagement ends up getting us, in some ways, to a better outcome on human rights. I don’t want to be Pollyanna about that. I don’t want to say that if the public investment fund invests in golf that, all of a sudden, the human rights record of the Saudi government is going to change dramatically.

But it does seem like -- Kitchi’s question was about scrutiny. It seems like there might be opportunities, more opportunities for scrutiny, more opportunities to request that these businesses engage in the kinds of human rights practices that we expect from businesses throughout American society and that that process might actually surface some information or might surface some changes in behavior that might be beneficial. I’m not optimistic that disengagement would change conduct in any way.

Asheesh Agarwal:  Well, and to Matt’s point, it is the official policy of the United States government to encourage trade with Saudi Arabia. The Biden administration, the Trump administration before that, signed trade deals. President Biden went to Saudi Arabia and famously did his fist bump with the Crown Prince or encouraging the Saudis to increase oil production.

Jodi mentioned how it’s tough to do -- how do you do business with your enemies? Well, prior to the mosque attacks, certainly, the chatter was about some sort of peace deal or normalization deal between Israel and Saudi Arabia. And, in fact, there’s chatter and speculation that maybe the timing of the attack was in part to try to derail that.

So to further Matt’s point, a full geopolitical discussion is probably beyond the scope of this panel. But certainly, I think it is true to say the United States, as a nation, is encouraging trade and deeper relations with the Saudis. Is there something unique about golf and the PGA that would make those investments somehow tainted? Unclear. At the Senate hearing that Jodi referenced, Senator Johnson from Wisconsin said pretty clearly, “Well, we’d rather they invest their money here than elsewhere.” And I think there is certainly a lot of sentiment in support of that position.

Prof. Jodi S. Balsam:  I agree that it’s unclear what the impact of the conflict will be on whether the Saudi PIF continues to want to invest in the PGA Tour or the PGA Tour wants to accept that investment. I mean, unless the conflict widens or the Saudi role changes, I don’t see it being a huge impediment.

But that said, just last week, one of the Qatar oligarchs who invest regularly in sports withdrew a multibillion dollar offer to buy an interest in Manchester United right after the Hamas attack. Manchester United, people may know, is owned by the Glazer family, an observant Jewish family. I don’t know whether the withdrawal from that deal -- which side it came from.

I don’t know whether it had anything to do with Arabs and Jews not wanting to be partners. But that is a post-Hamas attack development that most observers attribute to the current conflict. And now that Man U is back on the market with other bidders coming in, by the way, at much lower valuations than the Qatar sheikh was willing to offer.

John T. Delacourt:  Before turning back to some of the technical antitrust issues, I would like to follow up on this, as a number of you have mentioned the congressional hearings. And I think they were already -- many aspects of them were very animated discussions about concerns with Saudi investment and strong opinions on both sides.

If there were to be -- if that hearing had been held, say, post the Hamas atrocities, do we expect that it would have been different? And do we expect that the pressure against the transaction would have been greater?

I mean, at this point, part of the problem is that it is a specific transaction involving a specific government, Saudi Arabia. On the other hand, the contours of this conflict are still evolving, and it’s difficult to tell where anyone stands. Nevertheless, I think that would have been featured prominently in the hearing and probably not in favor of the transaction.

Asheesh Agarwal:  Well, that’s certainly a possibility, John. But again, the public reporting on this has been that if there’s a nation state that’s behind the attacks, it’s Iran, not Saudi Arabia. And, obviously, Saudi Arabia is an opponent, a rival of Iran, so it’s unclear how all that would shake out.

I will say, though, switching gears slightly, that certainly congressional pressure can affect the dynamic. If we’re talking about a Justice Department potential lawsuit in the mid-1990s—and Matt and I talk about this in our article—there was a lot of interest at the Federal Trade Commission, actually, in investigating, and ultimately a lawsuit recommendation was apparently issued against the PGA for some of the similar sorts of practices that we see now—the exclusive contract prevented golfers from playing elsewhere.

A full-scale lobbying campaign resulted in lots of congressional pressure on the FTC not to bring that suit, including a letter signed by something like 20 plus members, including the Senate minority leader at the time, Bob Dole. There were efforts to educate members of Congress about the importance of golf to communities by taking them to play on Augusta and some of the nation’s most prominent golf courses. And that pressure campaign may or may not have had an impact, but ultimately, the FTC did decide to reject the suit recommendation and didn’t file suit.

So is that going to -- is congressional interest going to affect what Justice Department does, what the Biden administration does? Hard to say, but I certainly would not underestimate the ability of the PGA to get the ear of policymakers.

John T. Delacourt:  Yeah. Let me follow up on that with my next question. And certainly, there’s politics that are going to influence this decision one way or the other. Certainly, the international scene and national security issues and concerns about terrorism, all of those are figuring very large and in the forefront of our minds.

But there’s a different type of political pressure that was already present with respect to the Justice Department’s investigation. And that was the very, I think, clear approach that the Biden administration had signaled that they wanted to take with respect to competition issues. And that makes it a little difficult for them to be in a position, I think, to clear this transaction or to indicate that they’re okay with a merger that seems to be, in many ways, in direct conflict with some of their priorities. I think it’s already been mentioned about the non-compete clause that was proposed for the framework agreement and then had to be rejected and removed in face of DOJ objections.

But just to summarize some of the key points, there was a Biden administration executive order that specifically talked about no-poach or non-compete agreements. That was a priority for the Department of Justice and for the FTC. And so it does seem that it would be hard for the Department of Justice to then sign off on a deal, a primary benefit of which is to end the competition between these two leagues for the top golfers that led to a bit of a war with respect to -- a bit of an arms race, I should say, with respect to salaries. And there were some eye-popping headlines about that, about golfers being offered $25 million and more to sign with LIV Golf.

So tie that to some of the public statements that were made both when this was a -- when the private lawsuit was going on and then later in support of the merger and you have some statements that, while it’s not unusual in the antitrust context for some of the parties that are trying to sell the transaction to say things that then create problems for the antitrust, those working to achieve antitrust clearance, this is kind of an extreme case, right?

Right in the press release announcing the merger, you had them saying that one of the goals was to unify the game, right? So that sounds kind of conflict from an antitrust perspective. And then you had the commissioner of the PGA Tour, Jay Monahan, coming right out and saying that one of the big opportunities was to take the competitor off the board.

So with this kind of background, do you think the Department of Justice is that they are kind of in a tight spot, that even if they were inclined to sign off on this transaction for other reasons, it would be a bit of eating crow to kind of go back on some of the express priorities that have been expressed prior to this specific transaction coming across their desk?

Asheesh Agarwal:  Well, I guess I’ll start. And I’ll just say, eating crow, no. Of course, the Justice Department doesn’t have to say anything. They don’t have to initiate a lawsuit. They can just sit on their hands, and the road will continue to turn.

John, I think you’re right, though, that this framework agreement, potential merger, does raise a number of legitimate antitrust concerns. And you’re right to flag the labor issues. That has been very much a priority for this administration. In fact, one of the Justice Department’s few litigated antitrust victories under this administration has been on the labor issues. They enjoined a merger in the publishing space based on the grounds that merger would hurt the market for high-end authors. So they’re very concerned about labor issues.

And certainly, when you’re looking at a merger that, from one perspective, is a merger of the two leading golf leagues in the world—obviously, the European Tour is part of the PGA these days—that should raise some flags for any antitrust lawyer, as no doubt it does for the Justice Department. I do think, however—and I started out my remarks a little bit by talking about this—I do think there is a pro-competitive story to tell here.

First of all, it’s the idea that fans want to see the world’s top golfers compete against each other: so Phil Mickelson, who defected to LIV; Rory McElroy stayed with PGA. He’s one of the biggest critics of the LIV Golf Tour. Who doesn’t want to see those two golfers paired together at a major tournament. That would be must-see TV.

Beyond that, I do think it’s going to be incumbent on the PGA and LIV to tell a pro-competitive story about how they’re going to expand output and improve quality for fans. That’s keeping some of the innovations that are popular from LIV, and that is more investment.

There have been other 2-1 mergers in U.S. history that got cleared. The AFL/NFL merger back in the day got approval from Congress, in part, through a promise that the new league was going to expand in new cities and upgrade facilities. You had the NBA and ABA mergers approved, in part. There are some kind of concerns about some of the long-term viability of some of the franchises.

Just recently—Jodi can talk more about this—there have been some other leagues, including pickleball, that have made this argument that a merger will actually promote competition. So there is a good story to tell if PGA and LIV do what they need to do in terms of talking about increasing output.

Prof. Jodi S. Balsam:  And in terms of leagues merging, I mean, the argument being made there is what some call the “natural monopoly argument,” that when it comes to sports, because the consumer demand is for a product that collects the best athletes, the best teams in a single league or a single tour that, by necessity, you’re always going to have one dominant producer of sports entertainment and that no other league will match the level of competition, of athleticism, of fan engagement, because the nature of sports is to create a pyramid of competitions with an ultimate elite level which collects all of the most significant athletes in that sport, right? So that’s sort of the theory behind sports being a natural monopoly.

But let me just throw -- and why all of these combinations of sports leagues have ultimately been approved, either through special legislation or DOJ review. But let me just also throw in one other wrinkle here, and that is what the PGA Tour is as an entity. And I’m not sure the casual fan of golf really understands or recognizes this. The PGA Tour is a collection of the 150 or so golfers who get their membership cards every year, right?

So you have something known as the PGA of America. It’s basically a trade association for teaching professionals at your local country clubs and public courses. And then you have the elite golfers, who broke off from the PGA of America 50 years ago to form a commercial entity known as the PGA Tour that exists solely to promote them and their golf tournaments.

And they are the boss, right? So they employ Jay Monahan as commissioner. They hire folks to populate their operations and marketing departments. But ultimately, the 150 golfers who get their membership cards any given year run the show.

And to that point, in the wake of the LIV Golf Challenge, the PGA Tour has since changed its governance structure. So now, a majority of its board of directors are professional golfers. So does that change the antitrust analysis that, here, there are professional golfers themselves, the workers running the organization and deciding that there should be some degree of exclusivity with respect to their membership, all of whom, by the way, are independent contractors, not employees of the PGA Tour?

And maybe I’ll toss this to you, Asheesh. How would that affect the antitrust analysis of what the Tour is doing whether or not it ultimately partners in some way with the Saudis?

Asheesh Agarwal:  I would think that that would be something of relevance to the Justice Department when they’re evaluating whether to bring a suit or not because if given the Justice Department’s interest in the welfare of workers -- and, of course, we’re talking about very high earners here. We’re not talking about your folks who work at fast food companies or whatnot, which are really some of the biggest concerns about the non-compete clauses.

But nevertheless, you are talking about the workers, the earners in an organization. And if they’re supportive of some sort of merger with LIV Golf or they think it’s good for their bottom line, I do think that’s something that would factor into the Justice Department’s analysis.

John T. Delacourt:  On a similar note, there are always changing developments that are affecting how the competition enforcers would view this case. I think one of the big ones was already mentioned, which was the decision by the official World Golf Ranking organization, that previously, during the time of the private litigation prior to the merger discussions, that had been kind of one of the alleged co-conspirators, right?

And now, here they are making an independent ruling that seems to be helpful to the PGA. And so how does that impact the competition analysis because I can see that going a number of ways? In one sense, I would think that LIV would be concerned, in that this seems to devalue some of their tournaments and discourage high-ranked golfers from participating in events. They’ll not gain points, and their rankings will be negatively impacted.

But on the other hand, it seems like the -- well, on the other hand, it seems that the Tour would have an opportunity to kind of work with the companies -- work with its partner to come to some sort of resolution. So I don’t know. When that came out, Jodi, was your initial reaction that this is helpful in some way to the competition analysis, or is it just one more thing to throw into the stew?

Prof. Jodi S. Balsam:  It was certainly helpful to the PGA Tour in terms of its leverage in negotiating a definitive agreement with LIV Golf. And it’s one of the reasons why there’s now additional scrutiny being given to whether this merger may actually be good for competition. And here’s why.

Because unless you restrain the PGA Tour from exercising its rights under these exclusivity provisions, they’re going to continue to exclude LIV Golf defectors from their tournaments. And one thing that the definitive agreement hopes to achieve—at least in its early outlines—is to revisit the status of the LIV Golf defectors.

Parties are supposed to work to establish some sort of fair and objective process for those golfers to reapply for membership with the PGA Tour or the DP World Tour, as the case may be, beginning in the year after the definitive agreement is reached. And those terms of readmission are supposed to be consistent with the Tour’s disciplinary policies and could involve some sort of period of suspension, some sort of financial penalties.

But the point is, it would be reestablishing the credentials of the LIV golfers so that you now reunite all golfers in one consumer-pleasing competition while enabling those golfers, to the extent the emerged entities want to continue offering team golf, enabling those same golfers to continue to play this innovative alternative style of professional golf, right?

So there’s an argument that the OWGR ruling suggests that the merger is ultimately pro-competitive, unless you go back to sort of square one and you condemn the OWGR and/or PGA Tour’s exclusivity provision standing alone that’s part from the merger as an antitrust violation.

John T. Delacourt:  All right. Well, we’re coming up on our -- the top of the hour. And I guess one thing that we did want to leave time for was some discussion of what comes next, right? So I will give all of you the opportunity to look into your crystal ball and make some predictions about what we will see next, whether it will be -- ultimately, we will see a LIV Golf PGA Tour merger where the two come together in the way that’s envisioned in the framework agreement, whether the whole thing will come apart due to some adverse action by the Department of Justice, or whether we’ll see significant tweaks to the framework agreement—a number of other possibilities as well. Does anyone want to hazard an opinion on that?

Matt Perault:  I’m happy to start because I think my crystal ball might be cloudier than my co-panelists. So I guess my place to start is reacting to something Asheesh said a few minutes ago where he said there is actually a pro-competitive story to tell here, potentially.

And I think the interesting thing is I hear Asheesh telling it and telling it very well, but I don’t hear it coming from the parties as much. And my hope would be—I don’t know if this is actually seeing into the future or just purely aspirational—but my hope is that they would be -- there would be more of a narrative focused on benefits to the consumer, and that would really be the strongest orientation in the conversation.

Saying things like, “This is great because we wipe out a competitor” or saying, “Don’t look here because -- don’t think about the competitive issues because one of -- because LIV has human rights issues associated with it” don’t strike me as kind of pro-competitive orientation that you would ultimately like to see.

I think Asheesh and I tried to orient our piece, to some extent, around the idea of if there was a path to getting this deal done. What might that path look like, and what would the parties need to do to march down it strongly? And I think listening to the kind of narrative that Asheesh has been articulating around benefits to competition and benefits to the consumer would be desirable.

Asheesh Agarwal:  Yeah, I’ll go next, leaving the best for last. Look, I wouldn’t venture a prediction. But I would say based on the priorities and rhetoric in history coming out of the Justice Department under this administration -- it’s not just the Justice Department, by the way. Either the U.K. Competition Authority or the Europeans also could take a look at this and seek to block the transaction.

They’ve been, in some ways both of them, very, very aggressive in looking at primarily U.S. transactions. There are a number of cases in which they intervene. But based on the track record, you would expect that the Justice Department might sue to try to block any sort of final agreement, 2-1 merger, arguably, etc.

Having said that, there is a long history of this sort of agreement ultimately getting approved in one form another. So I think there is a strong case that can be made. And Matt, I am curious as to whether recent events might, in some ways, make Saudi Arabia even more important from the political aspect and recognizing that maybe we don’t want to cross legal swords with a country that’s just very important to our geopolitical interests.

Prof. Jodi S. Balsam:  Well, I’m not sure this is the best, but it is the last. I can offer some insight on where I think the actual deal negotiation is going. They will not meet the December 31, 2023, deadline for a definitive agreement. The framework agreement allows them to extend that deadline. They most likely will.

One of the reasons that they’re not making any progress on the deal—and it may be in part because of the Middle East conflict right now, but it’s been going on for a while, ever since the Senate hearings with Senator Blumenthal calling for leased an inquiry into the capital markets to see if American private equity might be interested in investing in the new future PGA Tour—that’s going on right now.

A number of private equity funds have been submitting proposals to the PGA Tour. It’s unclear if anybody could match the Saudi-promised $1 billion of capital influx. And so what I predict is no earlier than 2024, there will be some sort of new PGA Tour commercial entity that includes both the Saudis and private equity, perhaps diluting the Saudi interest somewhat, making them more of a passive investor, like Uber, and thereby satisfying the concerns of some senators about the foreign takeover of American sport and also giving the players some satisfaction that they will continue to control the game.

John T. Delacourt:  That’s a very helpful analysis and very insightful as usual. I do have one quick follow up on that. And just how’s the timing that you have laid out? How does that tie in with what the OWGR has said about the ranking policies because, as you noted in your summary at the outset, that of the 12 golfers that moved -- the 12 highly ranked golfers that moved over to LIV, that 10 of them had been severely impacted in their world ranking.

And so if this continues to play out and there’s no resolution to how the transaction will go forward and it lingers into 2024, do you expect that there will be an impact on all 12, or will that continue to be a burning issue that needs to be addressed through some interim solution?

Prof. Jodi S. Balsam:  It’s a hit for LIV Golf. I mean, this is a big hit, meaning it’s a detriment. They’re going to want to announce something by the end of this year so that they can tout their product for 2024, right? It’s a new season in January, and they need to sell it to not just consumers, but media rights buyers.

They need new players because they’ve lost a bunch, and they’re not going to be able to recruit any who are significantly high in the OWGR rankings, unless they come up with, for example, another $150 million payday, like they paid Brooks Koepka for him to defect and go to LIV.

I’m not sure they’re willing to come up with hundreds of millions of dollars to recruit new players, to fill in the empty slots on their teams at the moment and be able to present a product in the spring without having players know -- have the opportunity to be ranked and to resume their professional careers at the most elite level and to, for instance, get invitations to the majors. So it’s a big problem for LIV at this moment as to how they’re going to fill their ranks and sell their product.

John T. Delacourt:  Okay. Well, on that note, I think we’ve come to the end of our time. I’d like to thank the panelists for their contributions. I think there’s much more to come in this controversy. As the panelists have laid out, there’s -- the negotiations are not concluded. So we’ll all keep our eyes peeled and maybe have another conversation in the future.

 

Emily Manning:  On behalf of The Federalist Society, I want to thank our panelists and our moderator for the benefit of their time and expertise today. Thank you also to our audience for joining us. We greatly appreciate your participation.

 

      Check out our website, fedsoc.org, or follow us on all major social media platforms at FedSoc to stay up to date with announcements and upcoming webinars. Thank you once more for tuning in, and we are adjourned.

 

 

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