There's Been a Merger

Jun 07, 2023

The Announcement

Have you ever had to apologize for being the commissioner of the PGA Tour? Not until yesterday.

A year ago, PGA Tour commissioner Jay Monahan delivered the following remarks at the RBC Canadian Open:

Yesterday, Monahan announced a merger between the PGA Tour and the Saudi Arabia Public Investment Fund (PIF) to the surprise of…everyone. Knowledge of the deal seems to have been restricted to just a handful of people. Reportedly, even Rory McIlroy was unaware of the deal, as were the PGA Tour’s media partners.

Why did the PGA Tour relent and cede power to the Saudi Arabians, the same group of people commissioner Monahan has continually moralized against over the past 18 months? LIV Golf, sponsored by the PIF, has posted dismal ratings in its events so far this season and has been unable to lure more talent off the PGA Tour and onto LIV. By most objective measures, LIV Golf has been a failure. Why merge? What changed?

I’m mostly speculating, but I’ll offer my perspective on how the last 12-24 months have unfolded and how we arrived at where we are today.

Background

The PGA Tour is member-run non-profit organization. Its structure provides some benefits for tour players, including the ability to vote on matters relevant to the tour’s operations. Changes to the PGA Tour schedule, for example, must be approved by the members of the tour.

That organizational structure sounds fine in theory, but it has downsides. The biggest downside is that the PGA Tour product has suffered. For decades, PGA Tour players and executives have focused on maximizing playing opportunities. Tour players want as many opportunities to play for cash as possible, and executives are compensated partially based on how many playing opportunities exist for members. Incentivizing as many playing opportunities as possible is not a good thing from an entertainment perspective. The PGA Tour plays 40+ tournaments per year, each of which contributes towards players’ postseason eligibility and status on tour. The oversaturated calendar waters down the entire product. Even if playing 52 games were physically possible, the NFL would not have a 52-game schedule. Scarcity elevates the entertainment value of a product.

My first edition of Finding the Edge focused on how the PGA Tour’s season-long points system is deeply flawed. I’ve also written extensively about the embarrassment of the season-ending tournament, the Tour Championship. These are all inexcusable examples of how the PGA Tour product has lacked cohesiveness and innovation in terms of its structure, its presentation, and the ways in which fans can engage with the product.

Those are symptoms of a league more focused on maximizing playing opportunities than innovating and keeping pace with competing entertainment products. The PGA Tour is not just competing against the NFL, NBA, and other sports leagues. It is competing against an evergrowing list of streaming options vying for your attention span.

Another structural issue for the PGA Tour is the constraint around funneling money to its most valuable stars. The tour’s legal status restricts its methods of compensating its talent, which results in stars earning less money than they could earn under an alternative structure.

Perhaps if, instead of catering to the demands of 200+ professional golfers, you created a new organization comprised only of elite golfers, the business model could be more efficient. You could innovate and experiment without needing the support of every voice in the room. That’s sort of what happened in the golf world.

The Premier Golf League (PGL), a privately-funded venture, sprung up a couple years ago to gauge interest in building a new league. The PGL promised a fresh, team-based concept in which PGA Tour players would receive equity in the enterprise. PGA Tour commissioner Jay Monahan refused to take any meetings with the PGL, and the league never gained any traction.

Then a Saudi Arabian group, financially backed by their Public Investment Fund, stole the PGL’s team-based idea. The idea evolved into LIV Golf. To entice defection into their league, LIV offered generational wealth to PGA Tour players. Monahan responded by imploring players to stay loyal to the PGA Tour, incessantly advocating “legacy over leverage.” In an effort to remain as financially competitive as possible against the Saudi PIF, the PGA Tour boosted prize money in future tournaments and promised a more innovative model. Most players, including stars like Rory McIlroy and Jon Rahm, turned down absurd sums of money to stay on the PGA Tour and compete against the strongest fields in golf.

As I wrote in my last newsletter, LIV Golf essentially found the market rate for players who were willing to take massive sums of money to exit the competitive landscape. I stand behind characterizing LIV Golf as uncompetitive, an assertion supported by the marketplace. Since its first event in June of 2022, minuscule audiences have tuned into the events.

Amidst the chaos of player defections and uncertainty around the future of the PGA Tour and LIV Golf, the two tours have been embroiled in lawsuits against one another. The crux of the legislation is whether or not the PGA Tour has violated antitrust law and engaged in anti-competitive practices. To date, most rulings have fallen in the PGA Tour’s favor. However, the lawsuits are expected to prolong for 5+ years, and legal fees are mounting.

Ok, enough background. Those are most of the variables you need to know. Let’s unpack what happened yesterday.

The Merger

Completely unbeknownst to 99.9% of the golf world, a few people from the PGA Tour side signed a memorandum of understanding (MOU) with the Saudi PIF, which was announced yesterday. Details remain thin, but the press release revealed a few elements of the deal. The PGA Tour will remain a non-profit organization, responsible for administering and operating PGA Tour events. It is unclear what the PGA Tour schedule will look like moving forward and how other formats will be integrated into the schedule. As part of the deal, PIF governor Yasir Al-Rumayyan will join the PGA Tour Policy Board.

Additionally, a new for-profit entity will be created, bringing LIV Golf, the PGA Tour, and the DP World Tour all under one roof. The for-profit entity seemingly provides a vehicle to compensate golfers much more flexibly. It solves for some of the problems imposed by the PGA Tour’s existing non-profit status. Al-Rumayyan is the Chairman of the new entity; Jay Monahan is the CEO. Now the Saudis have a seat at the table. Notably, all sides have agreed to end pending litigation.

Why did the merger happen? Because the deal is in everyone’s best interest.

Desperate to command influence within golf, the Saudis have been burning money supporting a product nobody is watching, LIV Golf. The Saudis want influence within the sport. The PIF pockets run enormously deep, but lighting money aflame is only fun when it helps you achieve your goals. When nobody tunes into the product, you don’t own fireworks; you own a dumpster fire. Also, the Saudis likely want to avoid some of the discovery process to which they’d be subject in United States court proceedings. Imagine what might show up in that process! A deal with the PGA Tour in which the Saudis own equity in the resulting entity plus secure a position of influence had to be appealing.

Meanwhile, the PGA Tour has been burning millions of dollars in legal fees while looking to land corporate sponsors for future tournaments. As millions of dollars in legal fees accumulated, the tour had pledged its members a long-term “Designated Events” model that must have been unsustainable to support. And like the Saudis, the PGA Tour probably wants to avoid the discovery process.

I am not a lawyer, but I do feel strongly that the golf ecosystem is anti-competitive. I’ve written extensively on how the mechanisms within professional golf funnel players onto one tour and one tour only. Competition is stifled.

(Related Previous Newsletter: “Let’s Get Rid of the Official World Golf Ranking”)

It would not surprise me if the discovery process turned out to be very ugly for the PGA Tour and its executives, shining light on collusive behavior between the tour and other entities who have a seat at the table, like other members of the Official World Golf Ranking board. I have a sneaking suspicion the tour and its partners have some skeletons in their closets.

Cutting a deal made sense for everyone involved.

Monahan

I do not take calling for someone’s job lightly, but I think PGA Tour commissioner Jay Monahan needs to be relieved of his duties. Tour players feel completely betrayed by Monahan, rightfully so. From the beginning of the conflict, Monahan has preached about the horrors of Saudi Arabian human rights violations to prevent tour players from jumping ship. He’s belabored the same tired talking points about preserving one’s legacy instead of selling out. Then, when conditions turned unfavorable, he took the money from the same group he’d lambasted, even referring to the Saudis as “world-class investors.”

From the beginning of the tension with LIV Golf, I’ve been dismayed at commissioner Monahan’s messaging and leadership. Instead of focusing on competing against LIV by improving the product and building a brighter future, he resorted to moralizing and pontificating. Here is a link to the letter he sent PGA Tour members in June of 2022, announcing the suspension of golfers who joined LIV Golf. Within the letter, he laments that fans and partners “are surely tired of all of this talk of money, money, and more money.” He later refers to the PGA Tour as a collective legacy that “can’t be bought or sold.” Until it can.

I replied to that social media post with the same sentiment I’ve felt for years while observing the tour’s lack of innovation:

I empathize with the PGA Tour players who feel betrayed by Monahan’s leadership over the past couple of years. The PGA Tour’s failure to innovate placed it in a vulnerable position. When its vulnerability was exploited, Monahan chided players for acting within their best financial interest at the expense of their legacy.

Then, when the money tightened, Monahan acted within his best financial interest at the expense of his legacy.

In all likelihood, the merger is advantageous for the PGA Tour. That does not excuse Monahan’s missteps throughout the entire process that backed the PGA Tour into a corner. Trust is difficult to build and easy to lose. It has been lost.

Resolution

Though yesterday’s announcement is light on details, I am more optimistic about the future of professional golf than I’ve ever been. Creation of a new for-profit entity enables innovation and advancement of the sport in ways that were restricted by the PGA Tour’s non-profit status. I imagine players will receive some sort of compensation for turning down LIV money to stay on the PGA Tour while their colleagues cashed out on LIV.

As long as every decision needed to be approved by PGA Tour players acting on behalf of the entire membership, golf fans were going to suffer. The 130th best player on the PGA Tour does not want 70-80 participant tournaments, even if that is what is best for the entertainment product. It is also abundantly clear that absent the threat of a rival league, the PGA Tour did not have the leadership nor structure to transform itself into a formidable modern entertainment product. Obviously, now that golf is organized into one giant conglomerate, you could make the argument that there is even less competition now than there was before the Saudis arrived. I am concerned about this! Nonetheless, I’m optimistic that a new, more flexible infrastructure can facilitate innovation more effectively than under the previous arrangement, especially if some fresh faces replace the people who steered the ship until this point.

I think we’ll come out the other end of this chaos with a much-improved product and a return to normalcy. And eventually, all of the best players in the world will once again walk the same fairways.

Perhaps there is one exception to that outcome:

See you next week with some thoughts on the U.S. Open at LACC :)

Feedback/Contact

Twitter: @JosephLaMagna

Email: Joseph.LaMagnaGolf@gmail.com

Finding the Edge