LIV called the PGA Tour a monopoly. Their truce created new US antitrust scrutiny.

A tie-up between the nonprofit PGA Tour and Saudi Arabia's for-profit LIV Golf has the attention of US antitrust regulators and lawmakers.

The unusual deal, made public on June 6, has prompted the Justice Department (DOJ) and a group of US senators to call for scrutiny that could quash the still-developing arrangement.

As part of the agreement, the PGA Tour and LIV agreed to cease their own court antitrust litigation in which LIV sued, and the Tour countersued, on claims the Tour illegally used its monopoly to unfairly compete with the startup league.

Despite that ironic twist, legal experts say the partnership doesn't shield the organizations from the DOJ’s antitrust microscope, or security reviews by other US regulators.

Concerns over LIV combining with the PGA Tour are multifaceted, though they mainly stem from the merger's likelihood to reduce competition and to provide some level of access or control to its foreign owner, Saudi Arabia’s $700 billion Public Investment Fund (PIF).

Under terms announced so far, the PGA Tour, which earns about $1 billion in annual revenue, would establish a new for-profit LLC funded at least in part by the PIF. The PGA Tour would remain a non-profit.

Tour commissioner Jay Monahan, who helped broker the deal, would serve as CEO of the newly established PIF-funded LLC. A majority of the new entity's board would be appointed by the Tour, with PIF governor Yasir Al-Rumayyan to serve as chairman.

On Thursday, the Wall Street Journal said Justice Department officials had informed the PGA Tour of a plan to review its agreement with LIV.

Human rights and taxes

Marc Edelman, a law professor at City University of New York, said the department is on good grounds to investigate under its authority to look into agreements that likely lessen competition — and to block it.

"What we have here…is a two-to-one merger," he said, explaining that in the market to host touring golf events the proposed merger would whittle down two major competitors to one. Whether or not the DOJ would factor in Europe's DP World Tour, he said, is unknown.

"Two-to-one mergers are regularly challenged and regularly broken up," Edelman said. "And it takes somewhat extraordinary circumstances for mergers of that nature to be allowed."

In addition to competition concerns, several US senators have expressed uneasiness over the prospect that the Saudi government could leverage its PGA Tour partnership to soften an "egregious" human rights record, and unfairly benefit from US tax laws.

Sen. Richard Blumenthal, a Connecticut Democrat and chair of the Senate Permanent Subcommittee, wrote a letter to Monahan saying the Tour's stated plan to maintain tax-exempt status could allow Saudi Arabia to indirectly benefit from US tax laws that are meant to promote not-for-profit business associations.

In a separate letter, US Senators Elizabeth Warren (D-MA) and Ron Wyden (D-OR) asked US Attorney General Merrick Garland to closely scrutinize the deal for its potential to violate antitrust laws. They said a LIV-PGA Tour merger would force American golfers and their fans to join the Tour in helping the Saudi government sanitize its human rights abuses.

National security

Foreign investments in the US can be reviewed by the Treasury Department-led Committee on Foreign Investment in the United States (CFIUS), which takes direction from the president. The committee is responsible for recommending to the president whether investments by foreign individuals, governments or entities should be blocked based on a threat to US national security.

When asked about the matter on Wednesday, US Treasury Secretary Janet Yellen told Rep. Maxine Waters (D-CA) that CFIUS takes national security seriously.

Robert Shapiro, a partner with Thomson Coburn, told Yahoo Finance that it's unlikely CFIUS would recommend the president block the agreement because PGA Tour's golf operations do not appear to involve critical US technology or infrastructure.

The focus, he said, would likely be to review PGA Tour's real estate portfolio to ensure it could not be used to disrupt US military operations, and to ensure that the personal information it collects does not put US officials or citizens at risk.

The PGA Tour insists the tie-up is not a merger and rather an investment.

"We are confident that once all stakeholders learn more about how the PGA TOUR will lead this new venture, they will understand how it benefits our players, fans, and sport while protecting the American institution of golf," the Tour said in response to reports of the Justice Department's probe.

That distinction between a merger and an investment, Edelman says, is "completely irrelevant" under an antitrust analysis.

The DOJ is in the better position to break up the deal than CFIUS is, Edelman and Shapiro said.

"I think they both have equal influence and power," Shapiro said. "The difference is there's more room in the antitrust environment for judicial review and action than there is in the CFIUS environment."

Monahan, the PGA Tour commissioner, told reporters during the Tour's rivalry with LIV that it would benefit the Tour "to take the competitor off of the board, to have them exist as a partner, not an owner." Whether that is still true remains an open question.

Correction: An earlier version of this story incorrectly referred to the PGA Tour as being affiliated with the PGA of America. The PGA of America and the PGA Tour are separate entities. We regret the error.

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