Beneath the Surface of the
PGA Tour’s Promise of Predictability
Lies Legal Uncertainty
When eight PGA Tour players requested permission in late October to play the Asian Tour’s money-soaked Saudi Arabia tournament in early 2022, it placed front and center whether the PGA Tour will unholster its biggest gun: lifetime bans.
As a Saudi-backed, international golf league has grown from rumored insurgent to existential threat, the PGA Tour’s tallest bulwark against a defection of its top stars has been its threat to ban any players participating in the Saudis’ events.
But as that threat echoed across the pro golf world, a whispered question followed: Can they do that?
The answer to that question is not simple. Neither is it a certainty — and neither is the PGA Tour eager to discuss it. “We have stated our position,” Laura Neal, the Tour’s vice president for Communications and Media Content, told Lying Four, “and have nothing more to say at this time.” The threat of a lifetime ban, then, is the Tour’s last word on the matter — until the legal missiles begin flying.
To be sure, companies generally can work with whichever contractors they want — and the PGA Tour’s players are independent contractors, not employees. But against the backdrop of the emerging Saudi threat, that authority is more complicated. Whether the Tour can ban players who participate in the upstart — which will bankroll 10 new Asian Tour events in 2022 — implicates at least two legal issues: the PGA Tour’s nonprofit status, and federal prohibitions on anticompetitive behavior. And for a tour whose promise of certainty remains a powerful incentive for players to resist Saudi temptations, the doubt surrounding its heaviest cudgel is impossible to ignore.
The Fine Line Between Aggression and Antitrust.
Not all monopolies are created equal.
Federal law does not forbid organizations from obtaining monopoly power — which the Supreme Court has described as “the power to control prices or exclude competition.” But monopoly power is a prerequisite to showing violations of the Sherman Act, a federal law forbidding anticompetitive practices. And under the Sherman Act, an organization holding monopoly power violates federal law if there is proof of “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.”
The PGA Tour’s role as the world’s preeminent golf circuit is beyond serious dispute. That it enjoys the power to exclude competition — and has done so, as Greg Norman’s mid-1990s brainchild World Golf Tour can attest — also seems obvious. Whether the PGA Tour holds monopoly power, then, seems an easy question to answer. It does.
That leaves only the matter of whether the PGA Tour’s strategy against the Saudis amounts to “maintaining” its monopoly power through anticompetitive means.
And the Saudis’ emergence isn’t the first time that question has arisen.
In 1997, Harry Toscano — a journeyman pro who appeared regularly on the PGA Tour from the mid-1960s through the mid-1970s — sued the Tour for preventing the emergence of rival senior tours. Toscano had earned less than $50,000 on the PGA Tour. But after beginning play on the Senior Tour in 1992, he made $715,000 in his first five seasons.
In 1996, though, Toscano suffered a shoulder injury, and his play fell off sharply. His lackluster finish on that season’s money list cost him his fully exempt status for 1997. And when that happened, he sued — arguing that the PGA Tour had short-circuited his chances at earnings by preventing alternative senior tours from developing. Toscano specifically pointed to a PGA Tour policy echoing a quarter-century later: its prohibition on players participating on rival tours. If not for that policy, Toscano argued, other senior tours would have developed, and his earnings potential would not turn exclusively on his Senior Tour exemption status. The Tour’s successful effort to nip the World Golf Tour concept in the bud, Toscano said, was proof enough of the policy’s anticompetitive effectiveness.
After a couple of early victories — including at the Ninth Circuit Court of Appeals — a California federal court sided with the PGA Tour in 2002. The judge in Toscano’s case identified several shortcomings in his legal theory. For one, the judge concluded that Toscano’s overarching theory — that other senior tours would have emerged, but for the PGA Tour’s threats to ban anyone playing on a rival tour — was speculative. For another, Norman’s World Golf Tour was a poor parallel for Toscano’s situation, since the World Golf Tour would have served younger players and Toscano’s case focused on senior tours.
But the biggest hole in Toscano’s case, according to the judge, was a Sherman Act principle called the “rule of reason.” The rule of reason is a framework by which courts review cases that allege anticompetitive practices: first, by determining whether the defendant’s behavior “produces significant anticompetitive effects;” second, whether there is a procompetitive explanation for that behavior; and finally, whether less aggressive behavior could accomplish the same procompetitive goals. And in Toscano’s case, the judge answered all three questions in the Tour’s favor. Most problematically for Toscano, the judge was unconvinced that the Tour’s policies were anticompetitive, and Toscano did not suggest a viable alternative policy.
Toscano’s case is the clearest example of an unsuccessful attack against the PGA Tour’s policies around safeguarding its fields. It still is not a perfect fit for the Saudis’ insurgency, though. For one thing, Toscano’s case failed more for a lack of evidence than for legal support — arguably more to do with bad lawyering than bad law. For another thing, the judge in Toscano’s case was unpersuaded by the example of the failed World Golf Tour — but his opinion suggested that he would feel differently if Toscano were addressing the main tour’s fields rather than the Senior Tour. For yet another thing, portions of the judge’s ruling in Toscano’s case simply are not persuasive: specifically, the judge seemed not to grasp Toscano’s argument that the Tour’s policy created anticompetitive effects. And finally, the speculation needed to envision alternative senior tours is not needed in the case of the Saudi effort, which is by now a real-life thing that requires no imagination to see.
Still, Toscano’s case is precedent. How persuasive other courts might find it remains to be seen. But a generation later, it remains a looming example of someone who came at the king and missed.
For Whose Benefit?
If the Sherman Act implications of the PGA Tour’s threats are lighted by little precedent, then the implications for the Tour’s tax status are the exact opposite: revoking a nonprofit’s tax status happens all the time. (The Tour itself came uncomfortably close to losing nonprofit status through legislation in 2017.)
Section 501 of the Internal Revenue Code establishes that certain types of organizations are exempt from paying taxes — that is, nonprofits. Among those tax-exempt nonprofit organizations are “[b]usiness leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues, not organized for profit.” These are the organizations exempted from taxation by the Internal Revenue Code’s Section 501(c)(6) — that is, 501(c)(6) nonprofits. The Tour claims entitlement to this protection as a business league — which the IRS defines as “an association of persons having some common business interest, the purpose of which is to promote such common interest.”
And therein begins the Tour’s problem.
Like all organizations exempted from taxes by Section 501, nonprofits claiming refuge under Section 501(c)(6) — including the PGA Tour — must file annual overviews of their operations through a document called Form 990. And in the Tour’s most recent publicly available Form 990, it represented that its principal mission — that is, the common interest at the heart of its claim as a business league — “is to promote the sport of professional golf through sanctioning and administering golf tournaments and promoting the common interests of touring golf professionals.”
It is difficult to square this nonprofit mission — promoting professional golf — with an effort to quash another professional golf circuit from existence.
If, as the Tour claims in its Form 990, it accomplishes its mission to promote pro golf by “provid[ing] opportunities for the touring professional golfer to compete and earn prize money and benefits” — how is that purpose furthered by destroying another organization that seeks to provide still more playing opportunities?
It is not difficult to imagine, then, how attacking the Saudis might risk undermining the Tour’s 501(c)(6) status.
Even a minimal risk to that tax status would cast a gigantic shadow. In a 2013 report, ESPN estimated the PGA Tour’s tax savings over the previous 20 years to be as high as $200 million. Even then, the Tour’s claims to nonprofit status seemed tenuous under only light scrutiny (“a house of cards that eventually will fall,” as a watchdog described it to ESPN). And that was before the Tour adopted a response to a rival circuit that seems blatantly at odds with the principal mission at the core of its nonprofit status.
Uncertainty, Within and Without.
In its battle against its greatest threat in a quarter-century, the PGA Tour cannot out-spend the Saudis. But it can out-reassure them: the PGA Tour has been the world’s preeminent professional golf circuit for more than 50 years, and the financial rewards showered upon its members have grown consistently. For whatever promises the Saudis might offer to lure star players away, the PGA Tour undoubtedly has the greater claim to certainty.
It is ironic, then, that the Tour’s fight against the Saudis reveals so much legal uncertainty — both about the legal consequences of the Tour’s threats, and whether those consequences might compel the Tour not to follow through on those threats.
In one of the final scenes of “Raiders of the Lost Ark,” as a phalanx of Nazis marched through a canyon with the Ark of the Covenant, Indiana Jones stood above them on a cliffside, aiming a rocket launcher at the column’s head and threatening to destroy the Ark. It was his last, best play. The Nazis called Jones’ bluff — daring him to destroy it.
He couldn’t pull the trigger.
. . .
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