How the new PGA Tour-Saudi PIF deal ensures Tour will maintain control

Tom Watson has questions. A lot of good questions, too, and he’s not alone. Davis Love III also has questions. Both players have made tens of millions in their Hall of Fame careers on the structures of the PGA Tour and care deeply about it. So much so that each felt compelled to write an open letter to the Tour this week. Was Love’s in response to Watson’s? Only he knows, but it sure felt like it. Either way, the truth for them is a similar truth for current Tour members: There are more questions than answers. 

In the wake of the U.S. Open — a legitimate deep breath for the golf world — we have now entered the wait-and-see period of the Tour’s plans to partner with the Saudi Arabian Public Investment Fund. Another Tuesday players meeting has come and gone without much concrete information shared with players. Two weeks have gone by and little context has been added to the fact that the “framework agreement” and announcement was created in private and shared in a rush, mostly to eliminate the litigation between the warring golf tours. The health status of the Tour’s leader, Jay Monahan, who the Tour said last week was recovering from an “undisclosed medical situation” also remains a mystery  

While Yasir Al-Rumayyan explained in the initial CNBC interview that the deal would be finalized in “a matter of weeks,” a source close to the negotiation process explained it is more likely to take multiple months. Adam Scott, a member of the Tour’s Advisory Council seems to agree: 

“So although [the framework agreement] seems fairly simple, I think the deal sounds quite complex and this could take a long time,” Adam Scott said Wednesday at the Travelers Championship in Cromwell, Conn. “I think hopefully everyone is cooling down and as things go along, there is transparency to the players and those questions get answered.” The future of LIV Golf is one thing that will get decided as part of the proposed partnership, but multiple steps will take place to merge the assets under one roof before decisions on each one of them can be made.

As for the allocation of power in the proposed new golf world, various safeguards have been put in place to protect and maintain the Tour’s control, regardless of additional investment from PIF, according to a source in possession of the agreement. Within the agreement, the partnership is defined as a “commercial relationship,” wherein the PIF makes a sizable cash investment to grow the new company and bring its own assets to the table. That’s what LIV Golf and its subsidiaries are considered here: PIF-owned assets.

One of the first questions Watson included in his open letter is about the investment and what power it will promise the PIF. As it happens, that is one of the major stipulations repeated throughout the agreement. The agreement states that the Tour will maintain controlling voting interest at all times and the PIF will hold a non-controlling voting interest.

Voting interest is dictated by board representation, which means the Tour will be expected to maintain a majority representation on the board. At the moment, only four figures have been appointed to it: Al-Rumayyan, Monahan and the two independent directors from the Tour Policy board, Ed Herlihy and Jimmy Dunne.

Those four figures were all heavily involved in the initial agreement and will make up the initial executive committee of the NewCo board, with other additions to the board requiring approval from both the PIF and the Tour. It is unclear how many board members there will be but it is expected that the DP World Tour will be represented. According to the source, it is spelled out within the agreement that increased investment from the PIF — in addition to its first right of refusal on outside investment — will not give it a controlling voting interest. In other words, the PIF cannot buy greater control of the Tour. Future operations of NewCo will be dictated by the board, with recommendation from Monahan.

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In recent weeks, the Tour has communicated with its players that the breakdown of what stays under the 501(c)(6) non-profit named PGA Tour, Inc. will be on an “inside the ropes” vs. “outside the ropes” basis. In other words, assets like media rights, sponsorships, even the TPC network of golf courses will be managed through NewCo. Revenue streams like these that have been under a non-profit entity for decades would be subject to being taxed under the proposed NewCo. Assets like tournament management are expected to be maintained by the non-profit.

While these plans are seemingly well-intentioned, and Monahan responded to Al-Rumayyan’s “few weeks” line on CNBC with “we will get this done,” the deal still is controversial. It has already drawn the attention of the Department of Justice as well as members of the U.S. Senate who have launched an investigation into the proposed deal. Monahan, Al-Rumayyan and LIV Golf CEO Greg Norman have all been invited to testify at a July 11 hearing in Washington, D.C., focused on the planned partnership. The Tour issued a statement Wednesday declaring its intentions to attend:

“We look forward to appearing before the Senate Subcommittee to answer their questions about the framework agreement we believe keeps the PGA Tour as the leader of professional golf’s future and benefits our players, our fans, and our sport. Already, the first phase of this framework has resulted in the end of costly litigation with LIV Golf.

“As we enter the next phase, we look forward to continuing the productive conversations we had last night with our players, listening to their feedback, and working toward negotiating a final agreement that is in their best interest and ensures that the Tour leads any new venture.
 
“Any agreement coming out of these negotiations will have to be approved by the full board of the PGA Tour, including our player directors.”