Here’s Why The PGA Should Worry About DOJ Probe, Experts Say

Topline

As the ongoing power struggle between the PGA Tour and its fresh Saudi-funded competitor LIV Golf extends off the course and into court, several sports law experts explained how the Department of Justice could potentially find the PGA Tour committed antitrust violations as part of its ongoing probe into the organization, even as the tour privately expresses confidence it will win out in the matter.

The PGA TOUR flag flies during a 2020 tournament.

PGA TOUR

Key Facts

The Justice Department investigation, which the Wall Street Journal reported last week is examining if the PGA Tour’s policies prohibiting members from playing in LIV Golf events violate federal antitrust law, represents a challenge as the established PGA Tour looks to ward off its rival.

The PGA Tour has expressed confidence in how the probe will turn out, telling players in a July 12 memo obtained by Forbes that confirmed the investigation, “The TOUR is confident that it has acted, and will continue to act, in full compliance with the antitrust laws” (the PGA did not respond to questions from Forbes).

But Marc Edelman, a professor of law at Baruch College’s Zicklin School of Business, told Forbes he believes antitrust issues at the PGA Tour are “very real” as the tour “collectively attempting to ban golfers” may constitute monopolist behavior, adding the “Department of Justice seems to be clearly in the right” in pursuing the probe.

Craig Seebald, antitrust lawyer at Vinson & Elkins, told Forbes he believes the PGA Tour has “good arguments that they are not a monopolist” generally, but pointed to two other areas the Justice Department may find antitrust violations: the Official World Golf Rankings and the PGA Tour’s increasing ties to the DP World Tour, its European counterpart.

If the Official World Golf Rankings’ board, which includes PGA Tour Commissioner Jay Monahan, rejects LIV Golf’s application to have its results included in the world rankings—which could eventually keep most LIV Golf players out of the majors—Seebald said LIV could argue it’s a violation of the Sherman Antitrust Act because it may indicate “competitors getting together to potentially harm another.”

Seebald also said the PGA Tour raising its stake in the DP World Tour to 40% last month is “perplexing” and represents “not normal” market conditions, likening the deal to if American aerospace giant Boeing bought 40% of its European competitor Airbus.

Tangent

In the memo to players, the PGA Tour referenced a 1990s Federal Trade Commission investigation into allegations of antitrust behavior from the organization that failed to find the PGA Tour guilty of any wrongdoing. Edelman pushed back on this logic though, explaining the federal government “no longer turns a blind eye to labor-side restraints in sports,” pointing to increased scrutiny recently into Major League Baseball’s antitrust exemption and the Supreme Court ruling last year the NCAA violated antitrust laws.

Contra

The Justice Department will need to “tread carefully” in the PGA Tour probe given evidence that LIV Golf may not be driven by purely economic motivations, a key assumption in any antitrust analysis, K. Craig Wildfang, a partner at Robins Kaplan LLP who worked in the Justice Department’s antitrust division during the Clinton Administration, told Forbes. Some, such as Rep. Chip Roy (R-Texas), have accused the Saudi government of using the new golf tour purely as a public relations vehicle. Wildfang noted the PGA Tour’s defense may center on LIV Golf’s motives and said the PGA Tour could say its actions were justified because it’s “fair for us to try to keep a rival from basically stealing the product that we’ve created.”

Key Background

Funded by the Public Investment Fund, Saudi Arabia’s sovereign wealth fund, LIV Golf has signed several of golf’s biggest names to the tour in recent months, including American stars Bryson DeChambeau, Dustin Johnson, Brooks Koepka and Phil Mickelson. Former President Donald Trump is perhaps LIV Golf’s most powerful ally, hosting two of its eight 2022 tournaments at his country clubs and calling for all golfers to leave the PGA Tour for LIV Golf. News of the Justice Department probe broke just days before Joe Biden’s first presidential trip to Saudi Arabia, prompting Sen. John Cornyn (R-Texas) to question the timing of the scrutiny into the PGA Tour in a letter to Biden.

Chief Critic

LIV Golf CEO Greg Norman told the Palm Beach Post the Justice Department investigation into the PGA Tour “is a testament to [the PGA Tour’s] stupidity.” A February letter from LIV Golf to prospective players obtained Wednesday by the Journal correctly predicted that the federal government would launch an antitrust investigation into the PGA Tour if it barred members from playing in LIV Golf events. LIV Golf declined to comment for this story.

Surprising Fact

With a handful of exceptions, most sponsors of golfers defecting from the PGA Tour to LIV Golf have stayed quiet. This is likely because it isn’t “clear cut” how a decision like jumping from the PGA Tour to LIV Golf impacts legally binding sponsorship agreements, Michael Rueda, head of Withersworldwide’ sports and entertainment law division, told Forbes. Whether or not a sponsor can pull out of a sponsorship deal over a player switching tours is a legal “gray area,” Rueda explained.

What To Watch For

The Justice Department probe likely means that LIV Golf or golfers who joined the new circuit won’t file antitrust suits of their own, a move previously considered by some to be the next step in the legal battle, says Edelman, pointing out that antitrust suits can be “expensive” and “take several years” to reach a conclusion.