Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: Today's hearing is about much more than the game of golf.
Speaker 2: It's about how a brutal, repressive regime can buy, influence,
Speaker 2: indeed even take over a cherished American institution.
Speaker 1: Democratic Senator Richard Blumenthal was one of the senators from
Speaker 1: both sides of the isle who grilled two PGA tour
Speaker 1: officials on Wednesday about the deal that shocked the golf
Speaker 1: world last month and why the PGA would merge with
Speaker 1: Saudi backed Live Golf, two leagues that were intense competitors,
Speaker 1: with lawsuits and countersuits, congressional lobbying, and a fight over
Speaker 1: golf's biggest stars. The answer appeared to be pretty simple money.
Speaker 1: PGA board member Jimmy Dunn said, with its unlimited funds,
Speaker 1: Saudi Arabia's publican Investment Fund could end up owning golf.
Speaker 2: They have an unlimited horizon and an unlimited amount of money.
Speaker 3: So it isn't like the product is better.
Speaker 2: It's just that there's a lot more money.
Speaker 1: And the magic number is one billion dollars. That's the
Speaker 1: amount the PIF will invest in the new golfing entity.
Speaker 1: Republican Senator Josh Holly questioned the PGA's chief operating officer,
Speaker 1: Ron Price, about the tour's intense lobbying against Live in
Speaker 1: the lead up to the agreement.
Speaker 2: But this is before you agree to take a billion
Speaker 2: dollars from the same people that you were lobbying against
Speaker 2: a year ago.
Speaker 3: Senator, we faced the choice. One was to allow professional
Speaker 3: golf to be taken over and operated by the Public
Speaker 3: Investment Fund of the Kingdom of Saudi Arabia. The second
Speaker 3: was to allow the PGA Tour to continue to lead it.
Speaker 1: Joining me is an expert in antitrust law, Harry First,
Speaker 1: a professor at NYU Law School. Harry, the answer to
Speaker 1: every question about the why of the deal was one word. Money.
Speaker 1: That the PGA simply couldn't compete against Saudi money. Is
Speaker 1: that a defensible reason for a merger?
Speaker 4: I'll unpack what you've said with the caveat that the
Speaker 4: only golf that I ever do is mini golf.
Speaker 1: I don't even do that, So so.
Speaker 4: The purpose is money a b PGA couldn't compete against
Speaker 4: the money. And the third thing is therefore they have
Speaker 4: to merge. Okay, so we'll take the three things. First,
Speaker 4: money is behind everything. Oh I'm shocked. I'm shocked that
Speaker 4: people could change their position when offered enough money. So
Speaker 4: I'm not shocked. And you know, a lot of it
Speaker 4: is about the money. There's a heavy emotional overlay on this, obviously,
Speaker 4: but at the heart, from the PGA's point of view,
Speaker 4: it is about money. You know, what is it from
Speaker 4: the saudi'st point of view? So maybe it's reputations, Maybe
Speaker 4: it's also money. Maybe they think professional sports are good investments.
Speaker 4: There are a lot of people who think that a
Speaker 4: lot of people have made a lot of money off
Speaker 4: of professional sports. They're trying to diversify their economy, so
Speaker 4: maybe that people have, of course described sportswa washing idea.
Speaker 4: They're gonna, you know, change their image. They think they're
Speaker 4: going to change their image this way. I don't know
Speaker 4: who's telling them that. It's a long road for that,
Speaker 4: but they're doing very well, thank you, ma'am, with their
Speaker 4: bad image. As it is, Saudi Aramco is the second
Speaker 4: largest company in the world, only behind Apple. And how
Speaker 4: do they have all this money to invest? Where did
Speaker 4: it come from? Oil? And who has bought the oil?
Speaker 4: Since the Opec oil cartel was formed. We have so money. Yes, second,
Speaker 4: PGA can't compete. So that's what competitors always say when
Speaker 4: they're faced with a new competitor that is well financed.
Speaker 4: But you know, firms always say that they would prefer
Speaker 4: not to compete because competition may force them to do
Speaker 4: things they would prefer not to do, like pay their
Speaker 4: players more money, come up with things that might be
Speaker 4: enticing to people who watch golf who have only been
Speaker 4: offered one monopoly view of the sport. They might have
Speaker 4: to think of new ways to present their tournaments. They
Speaker 4: may have to actually compete. So can they or can't they?
Speaker 4: Part three Merging to stop competition is not a defense.
Speaker 4: It's called the worst defense. It we don't get more
Speaker 4: competition by having less, and it's a bad argument. It's bad.
Speaker 4: Interestingly in light of the case the Northeast Alliance so
Speaker 4: called between American Airlines and Jet Blue, where we're having
Speaker 4: trouble competing against each other and Delta. So they said, oh,
Speaker 4: let's stop competing against each other and get bigger so
Speaker 4: they can overtake Delta, and the district court just said,
Speaker 4: that's not the kind of competition. The Sherman Act is
Speaker 4: talking about you know, we're talking about competition, and anti
Speaker 4: trust laws are indifferent as to who wins the marketplace.
Speaker 4: Besides that, so the three parts money is motivating things.
Speaker 4: Of course, the desire to escape competition maybe motivating the PGA,
Speaker 4: but it's not the kind of motivation that presents it
Speaker 4: any trust defense. So if we use the straight anti
Speaker 4: trust lens, they have some high legal hurdles to surmount.
Speaker 1: And Live Golf has spent a year litigating and claiming
Speaker 1: that the PGA tour is a monopoly. In the complaint
Speaker 1: to use the word monopoly more than forty times in
Speaker 1: one hundred and eighteen pages. And this combination would create
Speaker 1: an even larger monopoly. So how do they fight that?
Speaker 1: Do they just ignore their prior arguments?
Speaker 4: Well, but if someone say foolish consistency is the hobgoblin
Speaker 4: of little minds, Yeah, they're not consistent. The question is
Speaker 4: who's going to challenge them. So the PGA does monopolize
Speaker 4: professional golf. There is no other so far as I know,
Speaker 4: no other professional golf tour monopolies are allowed if they
Speaker 4: succeed on their own skill, industry, and foresight and don't
Speaker 4: do anything to exclude competition. What actually had gotten the
Speaker 4: PGA into potential trouble was when they said to their golfer,
Speaker 4: as well, you want to go play in some live
Speaker 4: tour golf tournaments, he ain't ever going to play in
Speaker 4: a PGA tour anymore. We will exclude you. Well, that's
Speaker 4: potentially a violation of Section two of the Sherman Act,
Speaker 4: which is monopolyzation engaging in exclusionary behavior to maintain your monopoly.
Speaker 4: So yeah, I got understand why the Live Tour sued
Speaker 4: them and why the players suited them who were adversely affected. So, yes,
Speaker 4: they're monopoly. Will they become a bigger monopoly? So this
Speaker 4: is where it's hard to know exactly because we don't
Speaker 4: really know how this is going to shake out, how
Speaker 4: it's going to be structured. So they haven't agreed to
Speaker 4: a final deal. They don't want to call it a merger,
Speaker 4: they want to call it a joint venture. It's I
Speaker 4: have a feeling by the end they're just going to
Speaker 4: call it an investment. So whatever they call it is,
Speaker 4: you know, a lot is going to turn on how
Speaker 4: it's structured and whether there is an agreement for the
Speaker 4: Live Tour to be discontinued. So you know, in a
Speaker 4: merger two firms become one and they don't compete against
Speaker 4: each other, or a joint venture two firms become one.
Speaker 4: So if that's the outcome that's negotiated, they are they
Speaker 4: have a big any trust problem. And I'll put to
Speaker 4: the side of the moment. Who's going to do something
Speaker 4: about it? That's the next question. But as a straight
Speaker 4: matter of anti trust and putting aside the identity of
Speaker 4: the parties, and you know, the flags being waived in
Speaker 4: the hearings Center Bloomenthal and the takeover of an American
Speaker 4: institution apparently perfectly willing to be taken over, none of
Speaker 4: that matters from the point of view of the any
Speaker 4: trust laws. The identity good, bad, and different of the
Speaker 4: owners of assets are irrelevant. It's the market outcomes that
Speaker 4: are key. And you know, the Saudi's own lots of things,
Speaker 4: and apparently we don't get quite as upset when they
Speaker 4: buy refining assets, oil refining assets, you know, when they
Speaker 4: buy all sorts of things. So I can understand the
Speaker 4: emotion of this and maybe wanting to do something about it.
Speaker 4: But from any trust laws, that really is irrelevant.
Speaker 1: Does it fit anywhere else. I mean, why is in
Speaker 1: sciphius The Committee on Foreign Investment in the US investigating this?
Speaker 4: This is supposed to be national security, I you know, golf.
Speaker 1: Apparently, though, Senator Ron Wyden, who's the chair of the
Speaker 1: Senate Finance Committee, is investigating the deal for national security
Speaker 1: implications due to the PGA tour's potential ownership interests in
Speaker 1: real estate near US military facilities.
Speaker 4: Remember when the Japanese wanted to take over Pebble Beach.
Speaker 4: I mean, we've had other outside whos wanting to take
Speaker 4: over key kinds of things like that. There was an uproar.
Speaker 4: I don't think Syphius was invoked, and there was some talk,
Speaker 4: as I recall, about, you know, the strategic location of
Speaker 4: these calfboards. I mean, give us a break. I mean,
Speaker 4: the PGA doesn't own real estate. So I'm not even
Speaker 4: sure what Senator Widen's talking about. Maybe he's I had
Speaker 4: some idea there. But we have enough problem trying to
Speaker 4: apply Siphius to industries that are not defense, you know,
Speaker 4: military defense, but are economically important. So we're down the
Speaker 4: rung from that. I mean, golf is golf? Come on?
Speaker 1: The Justice Department apparently has been investigating the PGA over
Speaker 1: possible anti competitive practices for about a year. I mean,
Speaker 1: does that mean it's not going anywhere if it's a
Speaker 1: year in already and they haven't done anything.
Speaker 4: First of all, there was ongoing private litigation, so I
Speaker 4: don't know how deeply involved in an investigation, and Just
Speaker 4: department's been stepping back. The Just Department could rationally say,
Speaker 4: we have a lot of work. There are these huge mergers,
Speaker 4: there are a lot of strains on our resources. Private
Speaker 4: parties are pursuing the any trust claims and have you know,
Speaker 4: good reasons to do that and are interested. We can
Speaker 4: be more observers, maybe gather some information, but not front
Speaker 4: burn or now. Once the litigation settled, which it did
Speaker 4: recently as part of this framework agreement to which the
Speaker 4: parties have apparently entered sort of an agreement to agree,
Speaker 4: and PGA and Live Tours withdrew their litigation and apparently
Speaker 4: the players did as well. So that would be reason
Speaker 4: to step up Justice Department scrutiny because there's no now
Speaker 4: no one on the field, and you know, a straight
Speaker 4: antitrust metric is, you know, what's the impact on the economy, Well,
Speaker 4: golf's impact isn't small. So what's their revenues? Over a
Speaker 4: billion dollars a year for the PGA. So maybe they've
Speaker 4: stepped up their inquiries. I mean, I don't think it's
Speaker 4: a moth balled inquiry. I think they're active. But presumably
Speaker 4: they're also waiting to see what the form of this
Speaker 4: whatever it is, is going to take, because that will determine,
Speaker 4: you know, how the Justice Department will proceed, if at all. Again, now,
Speaker 4: what I don't know is whether there's pressure on the
Speaker 4: Justice Department and a trust division from other parts of
Speaker 4: the administration that I don't know. And this is a
Speaker 4: possible explanation for why it's slow. You know, that's just possible.
Speaker 4: The only reason why I raise it, and the only
Speaker 4: fact I have is the Justice Department has not tackled Opek,
Speaker 4: even though there are good arguments for why I could.
Speaker 4: There have been for many years and it hasn't happened.
Speaker 4: So obviously, the relations with the Saudis are an important
Speaker 4: diplomatic issue.
Speaker 1: So, Harry, the Justice Department opposed that Penguin Random House
Speaker 1: deal on the grounds that it would hurt authors. So
Speaker 1: do you think here they'll look at the player compensation.
Speaker 4: It's a natural This is why, from the Justice Department's
Speaker 4: point of view, take the Saudis out of it. There
Speaker 4: are sort of free good reasons markers on this case
Speaker 4: for going ahead. One is the recent win against the
Speaker 4: airlines that I mentioned, very strong opinion in favor of
Speaker 4: the Justice Department's position. This looks worse because the alliance
Speaker 4: between American Airlines and Jet Blue wasn't an agreement to
Speaker 4: monopolize the market. There was still another competitor here, there's
Speaker 4: no other competitor. There's an agreement to quash the other competitor,
Speaker 4: if that's what it turns out to be. So that's
Speaker 4: the first. Second marker is the Justice Department always insists
Speaker 4: on relatively narrow markets that can form to how commercial
Speaker 4: realities are. So golfing rights, the rights to broadcast, and
Speaker 4: whatever other rights are sold separately from other sports. Apartment
Speaker 4: has always taken the view that, you know, sports sort
Speaker 4: of stand on its own, and individual kinds of sports
Speaker 4: stand on its own. So pro football is different from
Speaker 4: college football. So that's number two. And you've mentioned number three,
Speaker 4: which is the Justice Department's concerned for labor markets. Of course,
Speaker 4: it's always a little irony that the working man. That's
Speaker 4: just Department's standing up for. Are you know, authors with
Speaker 4: million dollar advances and golfers you know who get million
Speaker 4: dollars payout on winning golf tournaments, but are labor markets
Speaker 4: and clear potential impact. In fact, that's what in a
Speaker 4: sense has driven this rivalry is a competition for players,
Speaker 4: and how do you compete for players? You're back to
Speaker 4: what was that first word you mentioned begins with.
Speaker 1: An m money.
Speaker 4: Money, money, money, So yes, you're right. Certainly the Justice
Speaker 4: Department has been stressing and the Bied administration that we
Speaker 4: haven't paid adequate attention to impact on labor markets.
Speaker 1: So apparently the PGA and PIF have removed a clause
Speaker 1: called a non solicitation clause in which they agreed to
Speaker 1: stop poaching players. What impact does that have?
Speaker 4: There was this no solicitation agreement for the rest of
Speaker 4: the live tour, they couldn't solicit PGA tour members I
Speaker 4: guess vice versa. So they agreed to remove that restriction.
Speaker 4: They are not bound by this no solicitation thing. But
Speaker 4: in the end, the idea is to put them all,
Speaker 4: as the agreement says, under one roof. So lifting this
Speaker 4: now is fine for now, but meaningless for the long
Speaker 4: run because they're all going to be in the same corporation.
Speaker 4: You know, it's not even clear you know, what's going
Speaker 4: to be called a live tour and they haven't negotiated this.
Speaker 4: I guess what's going to remain of that or whatever.
Speaker 4: But whatever it is, they're all going to be managed
Speaker 4: by the same company. They're not going to compete.
Speaker 1: I don't think this is your area, but I'll ask
Speaker 1: you anyway. So, the PGA is currently a tax exempt
Speaker 1: nonprofit and it wants to keep that nonprofit status, and
Speaker 1: will it be able to once it's funded by one
Speaker 1: of the world's biggest sovereign wealth funds, and Blumenthal said
Speaker 1: it raises questions about whether a foreign government may indirectly
Speaker 1: benefit from provisions in US tax laws mean to promote
Speaker 1: not for profit business associations. So do you think it's
Speaker 1: tax exem status is in jeopardy?
Speaker 4: So your first premise is correct, partly an area of
Speaker 4: expertise for me, although you know more about it from
Speaker 4: what you've asked me than I do. But my guess
Speaker 4: is that however they structure this, they'll structure it in
Speaker 4: a way that's most likely to retain the tax exem status.
Speaker 4: I'm ensure that sufficient amounts are paid out to charities.
Speaker 4: I mean, presumably people put money into not for profit companies.
Speaker 4: That would be an issue for their tax advisors to
Speaker 4: make it happen, and if they can't deal with the consequence.
Speaker 1: I always appreciate your insights, Harry, thanks so much. That's
Speaker 1: Professor Harry First of NYU Law School.