(Bloomberg) -- The PGA Tour tried to argue that LIV Golf posed a threat to the sport’s integrity. Now it will have to convince players and sponsors that joining forces with its Saudi Arabia-backed rival is good for business.
The shock merger of the two professional golf circuits, announced on Tuesday, is far from a done deal. PGA Tour and LIV must still agree on an array of financial and operational details and the combination will need to pass antitrust scrutiny.
Reconciling a financial disparity among top players is perhaps the most substantial obstacle for the combined enterprise. Some golfers, like Phil Mickelson, agreed to deals said to be worth hundreds of millions of dollars to play for LIV. Others spurned LIV’s offers and stayed loyal to the PGA Tour, which also threatened to sanction players who left.
“On its face, it appears that the LIV golfers may benefit financially more so than the PGA players who turned down LIV deals,” said Frank DiGiacomo, a partner at Duane Morris who specializes in sports and gaming law.
Read More: Golf-Crazy Saudi Wealth Manager Orchestrated Shock PGA-LIV Truce
Lucrative Offers
So far, PGA and LIV haven’t provided specific details about how they plan to address the issue, but Jay Monahan, the PGA Tour Commissioner, sought this week to assure players that they would benefit from the proposed tie-up.
“Any player that has stayed is going to realize that the money that they’re going to make, the strength of this platform, all the things that we talk about are going to put them in a really strong position,” Monahan said on Tuesday in Toronto. “They’re going to win.”
Asked whether the combined PGA-LIV could make Tour players whole after they turned down lucrative offers for LIV, or whether players who departed for LIV might be sanctioned in some way, Monahan said that the matter would be discussed with the PGA Tour’s board.
“Ultimately what you’re talking about is an equalization over time, and I think that’s a fair and reasonable concept,” Monahan said.
To satisfy the players, it will be important for the combined golf circuit to retain the PGA Tour’s corporate sponsors. However, LIV’s backing from Saudi Arabia’s Public Investment Fund — which was the target of intense public criticism by the PGA Tour — could give some companies second thoughts, and the merger could provide an opening to renegotiate or even exit their deals.
A representative of PGA Tour didn’t immediately respond to a request for comment.
Legal Options
AT&T Inc (NYSE:T)., FedEx Corp (NYSE:FDX)., Deere (NYSE:DE) & Co., Citigroup Inc (NYSE:C). and other corporations have shelled out millions of dollars over the years to sponsor PGA Tour events. It isn’t clear what effect the tie-up, which also includes the DP World Tour in Europe, would have on existing agreements.
Representatives from AT&T, FedEx, Citigroup and Deere declined to comment.
Lawyers said that there are at least two provisions found in typical contracts that could theoretically help the PGA’s sponsors back out of deals: assignment clauses and morality clauses.
Assignment clauses generally prevent one party from transferring their contractual responsibilities to another party, including through a merger, said Matthew Mitten, a law professor and executive director of the National Sports Law Institute at Marquette University in Milwaukee.
Morality clauses typically allow a sponsor company to cut ties with an athlete who has done something that may harm the company’s image, for example. Mitten said that the PGA’s prior rhetoric about LIV’s Saudi connections could be used in a fight over the issue.
“Sponsorship is about branding and there’s a lot of careful thought that goes into it,” he said.
The financial terms of the agreements between the PGA Tour and its corporate sponsors aren’t disclosed publicly. The UK’s Daily Mail previously reported that FedEx would pay $650 million to sponsor the tour’s season-long points competition for a 10-year period. The PGA Tour has been asking companies to pony up anywhere between $13 million and $25 million a year to sponsor events, according to Sports Business Journal.
Player Rebellion
At a closed-door meeting with nearly 120 golfers after the LIV deal was unveiled, Monahan, the PGA Tour Commissioner, dodged questions about whether any sponsors would pull out, according to a golfer who attended the gathering but spoke on the condition of anonymity to discuss confidential details. Monahan said sponsors would see that the deal would benefit pro golf in the long-term, without directly addressing concerns, the player said.
Golfers were visibly frustrated by the lack of transparency, the player said. Others worried about linking the PGA Tour with Saudi Arabia, and whether they would be answerable for the Kingdom’s abuses, the player said.
Players have also expressed frustration over being potential punishment by the PGA Tour if they played for LIV, only to have the two sides merge. It’s possible that some players could seek to reclaim what they see as lost income through the courts, some lawyers said.
“If the PGA Tour told them there was absolutely no turning back if they went to LIV Golf, then that strengthens the claims they could make,” said Rishi Sehgal, an attorney at Romano Law Pllc in Coral Gables, Florida, and a former general counsel of the North American Soccer League.
Mickelson and Dustin Johnson are said to have signed deals with LIV worth $200 million and $150 million, respectively. Additionally, 11 golfers, including Mickelson, sued the PGA last year after they were barred from playing in the circuit’s tournaments. Mickelson and the other players later dropped out of the suit, which was taken up by LIV.
Read more: Golf’s Thorniest Grudge Match Threatens the Game’s Old Order
“The people that left the PGA Tour irreparably harmed this tour, started litigation against it,” said Rory McIlroy, who is one of five players who sits on the PGA Tour’s board. “We can’t just welcome them back in. That’s not going to happen.”
The return of LIV players — including world-class golfers like Brooks Koepka, the winner of last month’s PGA Championship — could also be problematic for PGA players in the game’s lower tiers who could find that the increased competition prevents them from making the cut at high-profile events. Those players could see their incomes decline substantially.
Antitrust Complications
The proposed merger is expected to come under regulatory scrutiny. Some commentators have suggested the deal clearly violates US antitrust law. At the same time, the PGA Tour itself remains the subject of a separate US Justice Department antitrust investigation.
The Justice Department will be keenly interested in how the proposed agreement impacts sponsors, said Henry Hauser, an antitrust lawyer at Perkins Coie LLP. Prior to the deal, sponsors and advertisers had financial leverage with two elite golf tournaments competing for their backing, he said.
“Now that there’s just one media rights holder they are negotiating with, that could drive up the price to obtain sponsorships,” said Hauser, who worked for the Justice Department’s antitrust division before moving to private practice.
