WEBVTT - Antitrust Flags In PGA-LIV Golf Merger 0:00:03.200 --> 0:00:08.280 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:08.720 --> 0:00:14.320 Today's hearing is about much more than the game of golf. 0:00:14.360 --> 0:00:19.960 It's about how a brutal, repressive regime can buy, influence, 0:00:20.000 --> 0:00:23.960 indeed even take over a cherished American institution. 0:00:24.640 --> 0:00:28.320 Democratic Senator Richard Blumenthal was one of the senators from 0:00:28.360 --> 0:00:32.040 both sides of the isle who grilled two PGA tour 0:00:32.080 --> 0:00:35.760 officials on Wednesday about the deal that shocked the golf 0:00:35.800 --> 0:00:39.440 world last month and why the PGA would merge with 0:00:39.640 --> 0:00:43.720 Saudi backed Live Golf, two leagues that were intense competitors, 0:00:44.040 --> 0:00:48.960 with lawsuits and countersuits, congressional lobbying, and a fight over 0:00:49.040 --> 0:00:54.320 golf's biggest stars. The answer appeared to be pretty simple money. 0:00:54.640 --> 0:00:58.520 PGA board member Jimmy Dunn said, with its unlimited funds, 0:00:58.600 --> 0:01:02.880 Saudi Arabia's publican Investment Fund could end up owning golf. 0:01:03.400 --> 0:01:07.440 They have an unlimited horizon and an unlimited amount of money. 0:01:07.480 --> 0:01:09.959 So it isn't like the product is better. 0:01:10.680 --> 0:01:12.959 It's just that there's a lot more money. 0:01:13.360 --> 0:01:17.039 And the magic number is one billion dollars. That's the 0:01:17.080 --> 0:01:20.880 amount the PIF will invest in the new golfing entity. 0:01:21.520 --> 0:01:26.360 Republican Senator Josh Holly questioned the PGA's chief operating officer, 0:01:26.480 --> 0:01:31.440 Ron Price, about the tour's intense lobbying against Live in 0:01:31.520 --> 0:01:32.880 the lead up to the agreement. 0:01:33.240 --> 0:01:35.080 But this is before you agree to take a billion 0:01:35.120 --> 0:01:37.440 dollars from the same people that you were lobbying against 0:01:37.440 --> 0:01:37.920 a year ago. 0:01:38.480 --> 0:01:42.600 Senator, we faced the choice. One was to allow professional 0:01:42.640 --> 0:01:47.360 golf to be taken over and operated by the Public 0:01:47.400 --> 0:01:49.840 Investment Fund of the Kingdom of Saudi Arabia. The second 0:01:49.960 --> 0:01:52.200 was to allow the PGA Tour to continue to lead it. 0:01:52.600 --> 0:01:55.960 Joining me is an expert in antitrust law, Harry First, 0:01:55.960 --> 0:01:59.120 a professor at NYU Law School. Harry, the answer to 0:01:59.160 --> 0:02:04.160 every question about the why of the deal was one word. Money. 0:02:04.680 --> 0:02:09.080 That the PGA simply couldn't compete against Saudi money. Is 0:02:09.120 --> 0:02:11.280 that a defensible reason for a merger? 0:02:11.720 --> 0:02:15.280 I'll unpack what you've said with the caveat that the 0:02:15.280 --> 0:02:18.600 only golf that I ever do is mini golf. 0:02:19.520 --> 0:02:22.720 I don't even do that, So so. 0:02:22.000 --> 0:02:29.400 The purpose is money a b PGA couldn't compete against 0:02:29.480 --> 0:02:32.760 the money. And the third thing is therefore they have 0:02:32.800 --> 0:02:36.600 to merge. Okay, so we'll take the three things. First, 0:02:36.840 --> 0:02:41.080 money is behind everything. Oh I'm shocked. I'm shocked that 0:02:41.120 --> 0:02:44.520 people could change their position when offered enough money. So 0:02:45.200 --> 0:02:47.920 I'm not shocked. And you know, a lot of it 0:02:47.960 --> 0:02:52.680 is about the money. There's a heavy emotional overlay on this, obviously, 0:02:52.840 --> 0:02:56.040 but at the heart, from the PGA's point of view, 0:02:56.080 --> 0:02:58.519 it is about money. You know, what is it from 0:02:58.520 --> 0:03:02.680 the saudi'st point of view? So maybe it's reputations, Maybe 0:03:02.720 --> 0:03:06.520 it's also money. Maybe they think professional sports are good investments. 0:03:06.520 --> 0:03:08.040 There are a lot of people who think that a 0:03:08.120 --> 0:03:10.040 lot of people have made a lot of money off 0:03:10.080 --> 0:03:13.760 of professional sports. They're trying to diversify their economy, so 0:03:14.240 --> 0:03:18.160 maybe that people have, of course described sportswa washing idea. 0:03:18.440 --> 0:03:22.400 They're gonna, you know, change their image. They think they're 0:03:22.400 --> 0:03:24.920 going to change their image this way. I don't know 0:03:24.960 --> 0:03:28.560 who's telling them that. It's a long road for that, 0:03:28.919 --> 0:03:31.880 but they're doing very well, thank you, ma'am, with their 0:03:31.919 --> 0:03:35.080 bad image. As it is, Saudi Aramco is the second 0:03:35.160 --> 0:03:40.920 largest company in the world, only behind Apple. And how 0:03:40.920 --> 0:03:43.560 do they have all this money to invest? Where did 0:03:43.560 --> 0:03:47.280 it come from? Oil? And who has bought the oil? 0:03:47.520 --> 0:03:53.320 Since the Opec oil cartel was formed. We have so money. Yes, second, 0:03:53.840 --> 0:03:57.720 PGA can't compete. So that's what competitors always say when 0:03:57.760 --> 0:04:01.960 they're faced with a new competitor that is well financed. 0:04:02.240 --> 0:04:05.840 But you know, firms always say that they would prefer 0:04:05.960 --> 0:04:09.640 not to compete because competition may force them to do 0:04:09.720 --> 0:04:13.240 things they would prefer not to do, like pay their 0:04:13.240 --> 0:04:16.840 players more money, come up with things that might be 0:04:17.520 --> 0:04:21.880 enticing to people who watch golf who have only been 0:04:21.960 --> 0:04:25.400 offered one monopoly view of the sport. They might have 0:04:25.520 --> 0:04:28.800 to think of new ways to present their tournaments. They 0:04:28.880 --> 0:04:35.000 may have to actually compete. So can they or can't they? 0:04:35.440 --> 0:04:41.440 Part three Merging to stop competition is not a defense. 0:04:42.160 --> 0:04:45.920 It's called the worst defense. It we don't get more 0:04:45.920 --> 0:04:50.520 competition by having less, and it's a bad argument. It's bad. 0:04:50.920 --> 0:04:55.960 Interestingly in light of the case the Northeast Alliance so 0:04:56.120 --> 0:05:00.920 called between American Airlines and Jet Blue, where we're having 0:05:00.960 --> 0:05:05.000 trouble competing against each other and Delta. So they said, oh, 0:05:05.040 --> 0:05:10.159 let's stop competing against each other and get bigger so 0:05:10.240 --> 0:05:14.200 they can overtake Delta, and the district court just said, 0:05:14.880 --> 0:05:17.919 that's not the kind of competition. The Sherman Act is 0:05:17.920 --> 0:05:22.560 talking about you know, we're talking about competition, and anti 0:05:22.600 --> 0:05:25.960 trust laws are indifferent as to who wins the marketplace. 0:05:26.040 --> 0:05:33.480 Besides that, so the three parts money is motivating things. 0:05:33.520 --> 0:05:38.440 Of course, the desire to escape competition maybe motivating the PGA, 0:05:38.640 --> 0:05:41.520 but it's not the kind of motivation that presents it 0:05:41.520 --> 0:05:45.160 any trust defense. So if we use the straight anti 0:05:45.240 --> 0:05:49.960 trust lens, they have some high legal hurdles to surmount. 0:05:51.279 --> 0:05:55.279 And Live Golf has spent a year litigating and claiming 0:05:55.320 --> 0:05:58.680 that the PGA tour is a monopoly. In the complaint 0:05:58.680 --> 0:06:02.040 to use the word monopoly more than forty times in 0:06:02.040 --> 0:06:05.920 one hundred and eighteen pages. And this combination would create 0:06:06.000 --> 0:06:10.760 an even larger monopoly. So how do they fight that? 0:06:11.200 --> 0:06:13.080 Do they just ignore their prior arguments? 0:06:13.480 --> 0:06:17.120 Well, but if someone say foolish consistency is the hobgoblin 0:06:17.200 --> 0:06:20.600 of little minds, Yeah, they're not consistent. The question is 0:06:20.600 --> 0:06:24.120 who's going to challenge them. So the PGA does monopolize 0:06:24.160 --> 0:06:26.880 professional golf. There is no other so far as I know, 0:06:27.520 --> 0:06:31.839 no other professional golf tour monopolies are allowed if they 0:06:31.880 --> 0:06:36.040 succeed on their own skill, industry, and foresight and don't 0:06:36.040 --> 0:06:40.320 do anything to exclude competition. What actually had gotten the 0:06:40.360 --> 0:06:45.400 PGA into potential trouble was when they said to their golfer, 0:06:45.440 --> 0:06:48.080 as well, you want to go play in some live 0:06:48.200 --> 0:06:50.840 tour golf tournaments, he ain't ever going to play in 0:06:50.880 --> 0:06:55.000 a PGA tour anymore. We will exclude you. Well, that's 0:06:55.040 --> 0:06:58.920 potentially a violation of Section two of the Sherman Act, 0:06:59.000 --> 0:07:04.360 which is monopolyzation engaging in exclusionary behavior to maintain your monopoly. 0:07:04.920 --> 0:07:09.760 So yeah, I got understand why the Live Tour sued 0:07:09.800 --> 0:07:14.680 them and why the players suited them who were adversely affected. So, yes, 0:07:14.720 --> 0:07:17.680 they're monopoly. Will they become a bigger monopoly? So this 0:07:17.720 --> 0:07:21.480 is where it's hard to know exactly because we don't 0:07:21.480 --> 0:07:24.040 really know how this is going to shake out, how 0:07:24.040 --> 0:07:27.520 it's going to be structured. So they haven't agreed to 0:07:27.680 --> 0:07:30.720 a final deal. They don't want to call it a merger, 0:07:30.880 --> 0:07:33.240 they want to call it a joint venture. It's I 0:07:33.280 --> 0:07:34.880 have a feeling by the end they're just going to 0:07:34.920 --> 0:07:37.960 call it an investment. So whatever they call it is, 0:07:38.240 --> 0:07:40.040 you know, a lot is going to turn on how 0:07:40.080 --> 0:07:45.360 it's structured and whether there is an agreement for the 0:07:45.520 --> 0:07:50.680 Live Tour to be discontinued. So you know, in a 0:07:50.800 --> 0:07:54.680 merger two firms become one and they don't compete against 0:07:54.720 --> 0:07:58.160 each other, or a joint venture two firms become one. 0:07:58.320 --> 0:08:04.800 So if that's the outcome that's negotiated, they are they 0:08:04.840 --> 0:08:07.320 have a big any trust problem. And I'll put to 0:08:07.360 --> 0:08:08.880 the side of the moment. Who's going to do something 0:08:08.920 --> 0:08:11.840 about it? That's the next question. But as a straight 0:08:11.920 --> 0:08:15.320 matter of anti trust and putting aside the identity of 0:08:15.360 --> 0:08:19.160 the parties, and you know, the flags being waived in 0:08:19.240 --> 0:08:23.880 the hearings Center Bloomenthal and the takeover of an American 0:08:23.920 --> 0:08:28.880 institution apparently perfectly willing to be taken over, none of 0:08:28.920 --> 0:08:30.880 that matters from the point of view of the any 0:08:30.880 --> 0:08:35.000 trust laws. The identity good, bad, and different of the 0:08:35.040 --> 0:08:39.840 owners of assets are irrelevant. It's the market outcomes that 0:08:39.920 --> 0:08:43.000 are key. And you know, the Saudi's own lots of things, 0:08:43.400 --> 0:08:47.199 and apparently we don't get quite as upset when they 0:08:47.200 --> 0:08:51.160 buy refining assets, oil refining assets, you know, when they 0:08:51.160 --> 0:08:54.440 buy all sorts of things. So I can understand the 0:08:54.440 --> 0:08:57.240 emotion of this and maybe wanting to do something about it. 0:08:57.280 --> 0:09:00.800 But from any trust laws, that really is irrelevant. 0:09:01.120 --> 0:09:03.640 Does it fit anywhere else. I mean, why is in 0:09:03.800 --> 0:09:09.040 sciphius The Committee on Foreign Investment in the US investigating this? 0:09:09.559 --> 0:09:13.679 This is supposed to be national security, I you know, golf. 0:09:14.120 --> 0:09:18.199 Apparently, though, Senator Ron Wyden, who's the chair of the 0:09:18.240 --> 0:09:23.439 Senate Finance Committee, is investigating the deal for national security 0:09:23.480 --> 0:09:28.840 implications due to the PGA tour's potential ownership interests in 0:09:28.960 --> 0:09:31.959 real estate near US military facilities. 0:09:32.559 --> 0:09:35.920 Remember when the Japanese wanted to take over Pebble Beach. 0:09:36.600 --> 0:09:39.920 I mean, we've had other outside whos wanting to take 0:09:39.960 --> 0:09:43.200 over key kinds of things like that. There was an uproar. 0:09:43.240 --> 0:09:46.760 I don't think Syphius was invoked, and there was some talk, 0:09:46.800 --> 0:09:50.200 as I recall, about, you know, the strategic location of 0:09:50.240 --> 0:09:53.080 these calfboards. I mean, give us a break. I mean, 0:09:53.200 --> 0:09:57.080 the PGA doesn't own real estate. So I'm not even 0:09:57.120 --> 0:10:00.200 sure what Senator Widen's talking about. Maybe he's I had 0:10:00.320 --> 0:10:03.840 some idea there. But we have enough problem trying to 0:10:03.880 --> 0:10:09.280 apply Siphius to industries that are not defense, you know, 0:10:09.360 --> 0:10:14.080 military defense, but are economically important. So we're down the 0:10:14.160 --> 0:10:16.760 rung from that. I mean, golf is golf? Come on? 0:10:17.920 --> 0:10:21.560 The Justice Department apparently has been investigating the PGA over 0:10:21.760 --> 0:10:25.960 possible anti competitive practices for about a year. I mean, 0:10:25.960 --> 0:10:27.880 does that mean it's not going anywhere if it's a 0:10:28.000 --> 0:10:29.920 year in already and they haven't done anything. 0:10:30.320 --> 0:10:33.480 First of all, there was ongoing private litigation, so I 0:10:33.480 --> 0:10:36.400 don't know how deeply involved in an investigation, and Just 0:10:36.480 --> 0:10:40.960 department's been stepping back. The Just Department could rationally say, 0:10:41.559 --> 0:10:44.840 we have a lot of work. There are these huge mergers, 0:10:44.960 --> 0:10:48.760 there are a lot of strains on our resources. Private 0:10:48.800 --> 0:10:51.720 parties are pursuing the any trust claims and have you know, 0:10:51.840 --> 0:10:55.480 good reasons to do that and are interested. We can 0:10:55.520 --> 0:10:59.679 be more observers, maybe gather some information, but not front 0:10:59.720 --> 0:11:03.480 burn or now. Once the litigation settled, which it did 0:11:03.559 --> 0:11:07.040 recently as part of this framework agreement to which the 0:11:07.080 --> 0:11:11.319 parties have apparently entered sort of an agreement to agree, 0:11:11.840 --> 0:11:17.840 and PGA and Live Tours withdrew their litigation and apparently 0:11:17.880 --> 0:11:21.160 the players did as well. So that would be reason 0:11:21.280 --> 0:11:24.600 to step up Justice Department scrutiny because there's no now 0:11:24.720 --> 0:11:27.959 no one on the field, and you know, a straight 0:11:28.280 --> 0:11:32.000 antitrust metric is, you know, what's the impact on the economy, Well, 0:11:32.679 --> 0:11:35.599 golf's impact isn't small. So what's their revenues? Over a 0:11:35.640 --> 0:11:40.000 billion dollars a year for the PGA. So maybe they've 0:11:40.040 --> 0:11:43.920 stepped up their inquiries. I mean, I don't think it's 0:11:44.120 --> 0:11:47.640 a moth balled inquiry. I think they're active. But presumably 0:11:47.679 --> 0:11:51.000 they're also waiting to see what the form of this 0:11:51.400 --> 0:11:56.120 whatever it is, is going to take, because that will determine, 0:11:56.600 --> 0:12:01.440 you know, how the Justice Department will proceed, if at all. Again, now, 0:12:01.800 --> 0:12:06.480 what I don't know is whether there's pressure on the 0:12:06.600 --> 0:12:12.040 Justice Department and a trust division from other parts of 0:12:12.200 --> 0:12:18.200 the administration that I don't know. And this is a 0:12:18.280 --> 0:12:23.680 possible explanation for why it's slow. You know, that's just possible. 0:12:23.960 --> 0:12:25.960 The only reason why I raise it, and the only 0:12:26.000 --> 0:12:30.560 fact I have is the Justice Department has not tackled Opek, 0:12:31.040 --> 0:12:33.840 even though there are good arguments for why I could. 0:12:34.360 --> 0:12:38.000 There have been for many years and it hasn't happened. 0:12:38.360 --> 0:12:42.120 So obviously, the relations with the Saudis are an important 0:12:42.120 --> 0:12:43.480 diplomatic issue. 0:12:43.720 --> 0:12:48.439 So, Harry, the Justice Department opposed that Penguin Random House 0:12:48.520 --> 0:12:52.000 deal on the grounds that it would hurt authors. So 0:12:52.040 --> 0:12:55.240 do you think here they'll look at the player compensation. 0:12:54.760 --> 0:12:59.000 It's a natural This is why, from the Justice Department's 0:12:59.040 --> 0:13:02.640 point of view, take the Saudis out of it. There 0:13:02.800 --> 0:13:06.720 are sort of free good reasons markers on this case 0:13:06.760 --> 0:13:09.720 for going ahead. One is the recent win against the 0:13:09.760 --> 0:13:14.600 airlines that I mentioned, very strong opinion in favor of 0:13:14.720 --> 0:13:19.959 the Justice Department's position. This looks worse because the alliance 0:13:20.000 --> 0:13:24.120 between American Airlines and Jet Blue wasn't an agreement to 0:13:24.920 --> 0:13:28.200 monopolize the market. There was still another competitor here, there's 0:13:28.240 --> 0:13:31.520 no other competitor. There's an agreement to quash the other competitor, 0:13:31.679 --> 0:13:34.520 if that's what it turns out to be. So that's 0:13:34.559 --> 0:13:38.240 the first. Second marker is the Justice Department always insists 0:13:38.280 --> 0:13:42.920 on relatively narrow markets that can form to how commercial 0:13:42.960 --> 0:13:47.480 realities are. So golfing rights, the rights to broadcast, and 0:13:47.520 --> 0:13:50.720 whatever other rights are sold separately from other sports. Apartment 0:13:50.760 --> 0:13:53.280 has always taken the view that, you know, sports sort 0:13:53.280 --> 0:13:56.360 of stand on its own, and individual kinds of sports 0:13:56.400 --> 0:13:59.120 stand on its own. So pro football is different from 0:13:59.600 --> 0:14:03.400 college football. So that's number two. And you've mentioned number three, 0:14:03.920 --> 0:14:07.920 which is the Justice Department's concerned for labor markets. Of course, 0:14:08.040 --> 0:14:10.920 it's always a little irony that the working man. That's 0:14:11.000 --> 0:14:13.880 just Department's standing up for. Are you know, authors with 0:14:13.960 --> 0:14:17.520 million dollar advances and golfers you know who get million 0:14:17.600 --> 0:14:22.320 dollars payout on winning golf tournaments, but are labor markets 0:14:22.360 --> 0:14:25.840 and clear potential impact. In fact, that's what in a 0:14:25.920 --> 0:14:30.400 sense has driven this rivalry is a competition for players, 0:14:30.560 --> 0:14:32.920 and how do you compete for players? You're back to 0:14:33.000 --> 0:14:35.400 what was that first word you mentioned begins with. 0:14:35.320 --> 0:14:37.560 An m money. 0:14:37.680 --> 0:14:42.040 Money, money, money, So yes, you're right. Certainly the Justice 0:14:42.040 --> 0:14:46.320 Department has been stressing and the Bied administration that we 0:14:46.400 --> 0:14:49.240 haven't paid adequate attention to impact on labor markets. 0:14:49.680 --> 0:14:55.160 So apparently the PGA and PIF have removed a clause 0:14:55.600 --> 0:14:59.080 called a non solicitation clause in which they agreed to 0:14:59.080 --> 0:15:02.280 stop poaching players. What impact does that have? 0:15:03.040 --> 0:15:07.160 There was this no solicitation agreement for the rest of 0:15:07.200 --> 0:15:11.640 the live tour, they couldn't solicit PGA tour members I 0:15:11.640 --> 0:15:14.560 guess vice versa. So they agreed to remove that restriction. 0:15:14.960 --> 0:15:19.080 They are not bound by this no solicitation thing. But 0:15:19.440 --> 0:15:21.400 in the end, the idea is to put them all, 0:15:21.440 --> 0:15:25.520 as the agreement says, under one roof. So lifting this 0:15:25.680 --> 0:15:28.640 now is fine for now, but meaningless for the long 0:15:28.720 --> 0:15:32.240 run because they're all going to be in the same corporation. 0:15:33.000 --> 0:15:35.760 You know, it's not even clear you know, what's going 0:15:35.800 --> 0:15:38.120 to be called a live tour and they haven't negotiated this. 0:15:38.240 --> 0:15:41.440 I guess what's going to remain of that or whatever. 0:15:41.520 --> 0:15:43.720 But whatever it is, they're all going to be managed 0:15:43.760 --> 0:15:45.880 by the same company. They're not going to compete. 0:15:46.480 --> 0:15:48.360 I don't think this is your area, but I'll ask 0:15:48.440 --> 0:15:52.400 you anyway. So, the PGA is currently a tax exempt 0:15:52.560 --> 0:15:57.280 nonprofit and it wants to keep that nonprofit status, and 0:15:58.040 --> 0:16:00.520 will it be able to once it's funded by one 0:16:00.520 --> 0:16:05.080 of the world's biggest sovereign wealth funds, and Blumenthal said 0:16:05.240 --> 0:16:09.040 it raises questions about whether a foreign government may indirectly 0:16:09.080 --> 0:16:12.680 benefit from provisions in US tax laws mean to promote 0:16:12.800 --> 0:16:16.160 not for profit business associations. So do you think it's 0:16:16.280 --> 0:16:19.000 tax exem status is in jeopardy? 0:16:19.520 --> 0:16:22.480 So your first premise is correct, partly an area of 0:16:22.480 --> 0:16:25.080 expertise for me, although you know more about it from 0:16:25.080 --> 0:16:27.480 what you've asked me than I do. But my guess 0:16:27.640 --> 0:16:30.680 is that however they structure this, they'll structure it in 0:16:30.760 --> 0:16:35.520 a way that's most likely to retain the tax exem status. 0:16:35.600 --> 0:16:38.920 I'm ensure that sufficient amounts are paid out to charities. 0:16:39.040 --> 0:16:44.320 I mean, presumably people put money into not for profit companies. 0:16:44.600 --> 0:16:47.000 That would be an issue for their tax advisors to 0:16:47.120 --> 0:16:50.280 make it happen, and if they can't deal with the consequence. 0:16:50.520 --> 0:16:53.600 I always appreciate your insights, Harry, thanks so much. That's 0:16:53.600 --> 0:16:56.240 Professor Harry First of NYU Law School.