When Kingdoms Collide
Can Rory McIlroy overcome the Saudis and DOJ to unite golf's future?
“Between the Firth of Forth and the Firth of Tay, lies the Kingdom of Fife – known to certain lovers of that land simply as ‘The Kingdom.’” – Michael Murphy
On the east coast of Scotland this weekend, grown men, as they have for more than five centuries, are chasing little white balls bounding over burnt-grass humps and hollows. The Old Course in St. Andrews, in Fife, is hosting the 150th Open Championship, a golf tournament first played in 1860 just weeks before Americans elected Abraham Lincoln.
This is the home of golf. In 1457, an Act of Parliament banned the pastime because James II worried excessive play was eroding his subjects’ archery skills. Many of the world’s best players still come from this part of the world. On Sunday, Rory McIlroy of nearby Northern Ireland, will attempt to win his fifth major championship and second Open. He’s tied for the lead going into the fourth and final round. It’s impossible to convey just how popular McIlroy is with golf fans around the world and in “the Kingdom” and what a historic moment a Rory win would be.
A very different kingdom, however, has thrown the modern professional game into disarray. The Kingdom of Saudi Arabia is spending many billions of dollars on a league to rival the PGA Tour, home of world’s best players for the last five decades. After years of unfruitful stops and starts, this spring the Saudi-backed LIV Golf lured away several high profile stars, along with several handfuls of average, aging, and previously amateur players. The break-up strikes at the core of the game.
Phil Mickelson, Dustin Johnson, Brooks Koepka, and Bryson DeChambeau, all winners of major championships, have bounced to LIV for reported sums of $100-200 million each. The commissioner is Greg Norman, the Australian great from the 1980s and 90s, who’s been pursuing this breakaway idea since at least 1994, generating deep personal animosities along the way.
Lesser players, unknown outside of golf, are receiving $5, $10, even $20 million to join. These payments are guaranteed, which is foreign to PGA Tour golf, where winnings are based solely on performance. In addition, the eight LIV events scheduled for this year boast purses three to four times larger than existing PGA Tour events – $4 million for a win, versus the PGA’s ~$1.2 million.
The PGA Tour reacted by suspending the LIV players. The U.S. Department of Justice then opened an antitrust investigation, and LIV players have begun private legal actions.
The LIV players want to play both LIV and a few top PGA Tour events. Golfers are independent contractors who can play whenever, wherever, the LIV players insist. The PGA Tour argues you can’t have your cake and eat it too. We offer a platform for elite competition, they say, including developmental leagues in the U.S., Canada, and Latin America. LeBron James and Tom Brady can’t skip the regular season, go play a few exhibitions in China, and then show up just for the NBA or NFL playoffs.
The issue is fragmentation. Players (or teams) require other players (or teams) to compete, give their skills value, and attract public interest. There is some optimal size and organization of a league, which maximizes value for players, teams, and fans. Multiple leagues exist in various geographies and at many levels of competition. But what is the correct number and size of leagues, players, and teams? Who decides?
The Economics of Pro Sports
Pro sports are odd economic entities, and they often operate under different regulatory and legal regimes.1
While we can think of a professional sports league as a single firm, we can also think of the teams that operate within the league as individual firms who agree on playing rules and business practices in order to insure survival of the league. We might think of the teams in a league as cooperating on a sort of joint venture.”
A sports league is a sort of cartel. It colludes and excludes. In order to deliver compelling competitions, it must first cooperate – on game rules and schedules, team and player eligibility, and media contracts and revenue sharing, etc. In most industries, the law bars detailed coordination among competitors. Excluding competitive entrants and workers is also illegal. Because of the ‘coopetitive’ nature of sports, however, these rules don’t work. I can’t insist my new team gets to play against the Green Bay Packers this October.
Just who is the key economic entity? The player, the team, or the league?
In a 1922 court decision, Major League Baseball received a blanket antitrust exemption. In the 1960s, other American sports leagues received partial exemptions through the Sports Broadcasting Act. Sports leagues around the world enjoy similar legal treatment.
Golf shares these coordination challenges but is different in a couple ways. Instead of playing for and signing contracts with team franchises, golfers are independent contractors. They make endorsement money off the course, but their golf paychecks are based on meritorious performance in tournaments. Where the NFL and NBA are governed by team owners, the PGA Tour is a player-run organization. Where many leagues are composed around 30 teams, the PGA Tour has 125 full-time members each year, moving in and out according to annual performance, with several hundred other players enjoying lesser levels of playing privileges on various tours.
The LIV Golf players want to play their own tour – eight events this year, perhaps 12 or 14 in 2023 and beyond – and select events on the PGA Tour and DP World Tour (formerly known at the European Tour). But how does the PGA Tour function if many of its best players don’t show up for most of its events? Will tournament sponsors still pay many millions for purses? Will TV and digital media still partner on multi-billion dollar contracts? How can the PGA Tour keep subsidizing its developmental leagues if LIV poaches players as soon as they’re ready for prime time? And why would a young player commit to the PGA Tour if uncommitted superstars can drop in a few times a year and take his place in the biggest events? The seemingly unlimited money being dangled by the Saudis begins to look more attractive.
Golf and the Kingdom
This is the crux of the problem. Where most upstart leagues face similar economics to their would-be rivals, and suffer the uphill climb of any startup, LIV Golf doesn’t need fans or TV contracts or even compelling tournaments, at least for a while. The Saudis can run the league as a public relations loss-leader for years without the typical economic constraints, never mind the longterm interests of the game.
“If this is an arms race and if the only weapons here are dollar bills, the PGA Tour can’t compete,” PGA Tour commissioner Jay Monahan said in June. “The PGA Tour, an American institution, can’t compete with a foreign monarchy that is spending billions of dollars in [an] attempt to buy the game of golf.”
Rory McIlroy, Jordan Spieth, Justin Thomas, and Jon Rahm, all top-ten players, are backing the PGA Tour. This week at St. Andrews, Tiger Woods, who rarely weighs in publicly on such matters, spoke forcefully against LIV and for the PGA Tour. Tiger’s body may be failing, but his voice still matters.
In winning the Canadian Open last month, McIlroy sent a message, both literally and figuratively, blasting LIV and bolstering the PGA. In comments this week at St. Andrews, he reiterated his displeasure with LIV’s current path. But he also allowed – and some close watchers detected a significant shift – that billions of new money in golf (even from the Saudis) could be a very good thing and perhaps the PGA Tour and LIV might find ways to cooperate.
Is golf big enough for two elite leagues? Does it have enough stars to split and still deliver top-level competitions? Or will LIV dilute the product so that neither tour prospers? In American football, we see two models. In the 1960s, the American Football League challenged the National Football League, resulting in an inter-league “Super Bowl” in January 1967 and a full merger in 1970. In the 1980s, the USFL posed another challenge, but lasted just a few years before shutting down, its players simply moving to the NFL.
International soccer has found ways to support numerous national leagues and also bring the top teams from the English Premier League, the Bundesliga, LaLiga, etc., together for an all-European tournament, the UEFA Champions League.
But again, individual sports are different. If Roger Federer, Rafa Nadal, and Novak Djokavic had played on separate tours, never or rarely facing each other, would we know their greatness? And what about the majors? In golf, participation in the four major tournaments – The Open, the U.S. Open, the Masters, and the PGA Championship – is based in part on Official World Golf Rankings. But LIV tournaments do not yet receive OWGR ranking points. And it’s difficult to see how they could; LIV events have just 48 players instead of the more common ~150, just three rounds instead of four, and no “cut” of the poorly performing players after two rounds. Without OWGR points, LIV players are going to have a difficult time qualifying for the majors, which would diminish the game’s biggest events. Wimbledon without Federer? LIV will thus sue over the rankings, too.
No one doubts that LIV can start a league. But can its players demand entry into tournaments on the tour they just deserted? Will the Saudis and the DOJ push for this to happen?
If McIlroy wins the 150th Open later today, golf’s warring kingdoms may have a much needed unifying – or even better, clarifying – king.
“Professional sports leagues possess three important characteristics that distinguish them from other industries. First, they are allowed to engage in business practices that, by law, are not allowed in other industries. Second, their labor markets are more restrictive, yet more lucrative for their employees, than other industries. Third, a single firm (team) in the professional sports industry cannot survive without the presence of other firms (teams). While we can think of a professional sports league as a single firm, we can also think of the teams that operate within the league as individual firms who agree on playing rules and business practices in order to insure survival of the league. We might think of the teams in a league as cooperating on a sort of joint venture.”