U.S. Regulatory Hurdles for a PGA/PIF Merger

On June 6, 2023, the PGA Tour announced that it had, along with the DP World Tour, entered into a Framework Agreement with the Public Investment Fund of the Kingdom of Saudi Arabia (PIF) in order to create “a global golf partnership.” In furtherance of this global golf partnership, a new entity would be formed (PGA Tour Enterprises) whereby PIF will make an initial investment into PGA Tour Enterprises and have the right of first refusal to make additional investments.  In exchange, each of the PGA Tour and the DP World Tour would contribute all of their respective commercial businesses and assets to PGA Tour Enterprises (which has subsequently been formed and received an investment from Strategic Sports Group). The Framework Agreement did not address any regulatory issues that may arise upon the signing of a definitive agreement. In order for this deal to go through, there are at least two U.S. regulatory hurdles that the parties will need to successfully navigate: (1) antitrust scrutiny; and (2) The Committee on Foreign Investment in the United States (CFIUS) scrutiny.

Antitrust

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) requires parties to report large transactions to both the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division (DOJ) for antitrust review. Unless an exemption applies, each of the parties is required to notify the FTC and the DOJ of the transaction and the transaction will be reviewed by one of the governmental agencies to determine whether the agency may investigate the transaction, or even challenge it, under the antitrust laws. Notably, Section 7 of the Clayton Act prohibits any merger or acquisition whose effect “may be substantially to lessen competition, or to tend to create a monopoly.”

Among the tests to determine whether a transaction is required to be reported to the FTC and DOJ is the minimum “size of transaction” threshold, which for 2024 requires reporting transactions worth at least $119.5 million (subject to certain exceptions). The Framework Agreement does not provide specifics as to the investment amount the PIF is looking to invest in PGA Tour Enterprises. However, in a Senate Subcommittee hearing held on July 11, 2023, Ron Price, the PGA Tour’s Chief Operating Officer, testified that a PIF investment “north of $1 billion” in PGA Tour Enterprises had been discussed. An investment of this size, depending upon its structure, might land the transaction within the filing requirements under the HSR Act. Regardless, according to the Wall Street Journal, the DOJ has notified the PGA Tour that it will review the deal contemplated by the Framework Agreement for antitrust concerns.

When the FTC and DOJ review a merger for antitrust concerns, they presume a merger will substantially lessen competition or tend to create a monopoly if it would significantly increase market concentration in an already highly concentrated market. The Biden administration has been openly vocal of its intentions to fight against what it views as anticompetitive mergers and acquisitions and “is set to accelerate several of its biggest antitrust fights in 2024 with an intense lineup of lawsuits and investigations.”

Past statements and actions by representatives of the PGA Tour and LIV Golf (the current golf asset of the PIF) could undermine the parties’ arguments that the proposed deal does not raise concerns under the antitrust laws. Prior to the Framework Agreement, LIV Golf and its contracted golfers sued the PGA Tour alleging violations of antitrust laws, using the word “monopoly” over 40 times in their complaint against the PGA Tour and calling the PGA Tour’s actions “transparently anticompetitive.” Similarly, following the announcement of the Framework Agreement, Jay Monahan, the CEO of the PGA Tour, stated that the agreement with PIF was a means of taking a “competitor off of the board.” These words could come back to haunt the parties: taking their words at face value, if the PGA Tour is currently a monopoly and anticompetitive, then the combination of these organizations would result in a single entity controlling the majority of the professional golf market.

The professional sports industry is unique in that some level of coordination amongst competitors is essential to the public’s enjoyment of the industry’s “product”—live sporting events. In 1922, the Supreme Court issued a controversial decision allowing major league baseball to operate outside the ambit of the antitrust laws, and it has upheld the so-called “baseball antitrust exemption” in the face of numerous subsequent challenges. The most recent merger of two sports leagues, the National Football League and the American Football League, was announced in 1966, and later that year, Congress passed a law permitting the merger to proceed. Few antitrust lawsuits against professional sports leagues have succeeded. 

CFIUS

Overview:

The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee chaired by the Department of the Treasury. It is responsible for reviewing foreign investments in U.S. businesses and real estate to determine if the transaction threatens to impair U.S. national security. CFIUS evaluates the vulnerabilities to national security that a U.S. business generates and the likelihood that the foreign entity will exploit those vulnerabilities or make it easier for a third party to do so. Although CFIUS largely is a voluntary process, CFIUS introduced mandatory filing requirements in November 2018, which it formalized and expanded in February 2020. Upon review, CFIUS can block a transaction or require that the parties alter the transaction to mitigate any national security concerns. If the parties do not notify CFIUS of the transaction, CFIUS unilaterally can investigate after the closing and direct that the buyer divest the acquired U.S. business or investment if there is a national security concern that cannot be mitigated.

Mandatory Filings:

A number of categories of transactions subject to mandatory filing requirements may be applicable to a PGA Tour/PIF merger, specific to U.S. businesses involved with critical technology, critical infrastructure, or sensitive personal data (known as “TID U.S. businesses” for technology, infrastructure, and data). One mandatory filing category pertains to certain investments in a TID U.S. business by foreign investors with substantial foreign government ownership. Another mandatory filing category deals with investments in TID U.S. businesses where a foreign investor receives certain governance rights and is classified as a “covered investment.”

In order to determine whether a CFIUS filing would be deemed mandatory for the proposed PGA Tour/PIF transaction, the parties should determine:

• whether PIF is a foreign investor under the CFIUS regulations;
• whether PIF is obtaining a substantial interest in PGA Tour Enterprises;
• whether the transaction is considered a “covered investment”; and
• whether the newly formed entity is a TID U.S. Business.

Voluntary Filings:

Outside of the mandatory filing rules, parties can file voluntarily to obtain CFIUS clearance of the transaction. Parties typically file voluntarily when they perceive that the transaction could impact national security. CFIUS assesses this risk based on a combination of the “threat” posed by the buyer and the “vulnerability” to exploitation associated with the target. Many factors inform the evaluation of the nature and extent of such risk, including:

• the foreign investor’s nationality and the extent of its ownership by foreign governments;
• the target’s storage of and access to detailed personal/customer information (such as credit card information, Social Security numbers, and personal health information);
• the proximity of the target’s assets to sensitive U.S. government locations, such as military installations (which may be known or unknown to the target); and
• close business relationships between the foreign investor and third parties that pose a risk to national security.

These factors, among others, could be scrutinized to determine whether there are any threats or vulnerabilities associated with an investment in PGA Tour Enterprises by PIF. 

During a U.S. Senate hearing surrounding the Framework Agreement on July 11, 2023, U.S. Senator Richard Blumenthal delivered harsh criticism against the “repressive” Saudi regime. On June 16, 2023, Congresswoman Maxine Waters and Senator Sherrod Brown sent a letter to CFIUS expressing concern about the Framework Agreement and specifically noted Saudi Arabia’s “repressive” government and requesting CFIUS to evaluate the merger and any potential national security risks this transaction may pose to the United States. Further, during an exchange with Treasury Department Assistant Secretary Paul Rosen, who leads activities at CFIUS on September 13, 2023, Congresswoman Ayanna Pressley called for greater scrutiny of Saudi Arabia’s investments in U.S. companies and emphasized the Saudi government’s human rights record. Given the high profile nature of the transaction and the parties involved, voluntary filing may be merited.

Conclusion

A proposed transaction between the PGA Tour and PIF would undoubtedly raise both antitrust and national security concerns that would result in review by a number of U.S. governmental agencies. Even if a definitive agreement is signed, review by the applicable governmental agencies would delay the closing of the transaction until the agencies have approved. Although the outcome of such regulatory review is uncertain, it is virtually certainty to be required.

Ballard Spahr attorneys in our Sports industry team are closely monitoring the transaction and are available to advise on developments.

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