PGA Tour/LIV Golf merger could lead to a raft of anti-competitive investigations
On 6 June it was announced that the PGA Tour and the Saudi backed LIV Golf had agreed a proposed merger, which will also include the DP World Tour (the tour responsible for organising events in Europe). The news came as a shock given that over the past 12 months, the two organisations had been locked in a dispute with one another over the rivalry between the two tours.
Whether the merger will be waived through is by no means certain, not least because it is currently under investigation in the US Senate due to the vague structure of the deal; the alleged violation of antitrust laws; and its implications for data privacy and national security. A separate investigation by the Senate Finance committee is also considering introducing legislation to revoke PIFs (Saudi Arabia’s public investment fund) tax exempt status and would similarly threaten the proposed merger.
Perhaps the most significant obstacle which the merger will need to clear, is that it may be deemed to be “anti-competitive” and could be blocked not just in the United States, but in several other jurisdictions in which the organisations operate.
Who regulates competition law and how does this differ in each jurisdiction?
In the UK the regulation of proposed mergers such as this falls under the remit of the Competition and markets Authority (CMA), while the European Commission (EC) deals with large mergers which have the capacity to impact European Union Member States. However, each Member State has its own regulator responsible for assessing smaller mergers.
In the US the Federal Trade Commission (FTC) and the Department of Justice (DoJ) agree on a case-by-case basis which of them will examine a merger. In the case of the PGA/LIV merger at this stage the DoJ has informed the PGA Tour that it will be reviewing the merger.
All jurisdictions will have different thresholds in deciding if a particular merger warrants investigation. In many EU member states and, in the US, if these thresholds are met it is mandatory that the regulator is notified before the merger is completed. In the UK, even if the threshold is met, a notification to the CMA is not mandatory, but the CMA has the power to initiate its own investigation.
What are the key issues for regulators to consider?
When it comes to mergers, regulators have two key issues to consider:(a) the impact on “upstream” markets and, (b) on “downstream” markets.
An upstream market is a market at the previous stage of the production or distribution chain, so in the case of the proposed PGA / LIV merger, this might impact the supply of golf venues to the combined tours, particularly if the tours merge to form one tour.
In this instance, those venues bidding for events on the PGA Tour will lose the alternative option of bidding for an event under LIV Golf or the DP World Tour. Similarly, players would also lose the option of choosing the tour they wish to play on, and therefore would have less room to negotiate on the terms of any agreement they enter.
A downstream market is a market at a subsequent stage of the production or distribution chain, and the most obvious example in the case of the merger would be television rights. Before the merger both the PGA Tour and LIV Golf (and to a lesser extent the DP World Tour) would be in competition to sell their respective television rights, and the existence of each tour imposes a constraint on the other in relation to the price that can be charged. If the merger were to be completed, and all the tours fall under common control, this constraint would be removed.
If the merger were to go through, there would be a complete lack of an alternative for those looking to purchase the television rights to one of the tours. The fact that all the tours might continue to operate as separate brands, would make little difference, nor would the fact that LIV Golf has only recently entered the market, as regulators assess the market as the state of play prior to any merger.
Regulators will also consider the ease with which a potential competitor could enter market. As the combined tours would essentially have a monopoly on professional golf worldwide, this is not a factor that is likely to fall in the favour of the merger.
What can regulators do?
If any regulator in any jurisdiction feels the merger will have an adverse impact on competition, there are two broad types of action that the regulator can take.
First and foremost, regulators could consider structural changes, which are changes that tend to be one-off measures and would not require ongoing monitoring by the regulator. The most notable, and draconian structural change would be banning the merger in its entirety; however, it could also be the case that some regulators enforce divesting part of the business of either the PGA Tour or LIV Golf and ensuring these are acquired by a more suitable purchaser.
Regulators could also implement behavioural remedies, which look to regulate future conduct (e.g., price controls on TV deals etc.) however these would require constant monitoring and enforcement action if not adhered to.
A lengthy road ahead
Currently, there is little information about how the proposed merger will work. What is more certain, however, is that there are likely to be time consuming and costly investigations instigated by regulators across several jurisdictions. So although the merge plans have been announced, it is by no means certain to go ahead.
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