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Inside Saudi-backed LIV’s plan to upend the economics of golf and use huge player salaries as a weapon against the PGA

June 18, 2022, 11:00 AM UTC
Chief Executive of LIV Golf, Greg Norman (L), Chief Operating Officer of LIV Golf, Atul Khosla (C) and Saudi golf federation Chief Executive, Majed Al Sorour (R) leave the 1st tee on the first day of the LIV Golf Invitational Series event at The Centurion Club in St Albans, north of London, on June 9, 2022.
Adrian Dennis—AFP/Getty Images

Imagine for a moment that a free-market economist gets free rein to design a model for professional golf. Of course, the goal of the economist—who, by the way, sports a 7 handicap—is to propose conditions that promote the ultimate that’s reasonably achievable in open, unfettered competition. This dream blueprint would allow any tour that can raise sufficient funding and attract enough top players to compete for America’s audience of 24 million golfer tournament followers and more millions of nonplaying fans. The leagues would sign the pros to a variety of deals. Many stars wouldn’t be exclusive to any one tour but would freelance to participate in the events where they’re offered the biggest appearance fees: tournaments, say, in cities where they’re special favorites. Others would sign to play for a single league as one of its marquee faces; still others might commit to, say, 10 events a year for one tour, and tee up for the highest bidders over the remaining schedule.

The tours would battle to win corporate sponsors, partner with the best courses, and secure contracts with TV and digital broadcasters. Many weeks would see more than one event featuring the big-name pros, so the number of yearly tournaments would mushroom from today’s roster. Viewers would vote with their clicks and remotes for which formats (individual versus team; length of play) they like best. One or more of the tours could attract especially huge ratings by staging an event or two a year that gathers a majors-like cast. As for the PGA, for the U.S. Open, the Open, and the Masters to field all the leading players as always, each would need to determine who qualifies based on ranking platforms that grant points for the golfers’ wins and leaderboard finishes in tournaments across the different tours. “That’s nothing like how golf looks today,” says Gerald Maatman, one of the nation’s leading antitrust lawyers at Seyfarth Shaw LLP in Chicago. “But that’s what it would look like in a pure capitalist system where the dollars would go to the tours that attract the biggest, most lucrative audiences, and to the players who make it happen. The total money generated by professional golf, and the money to the players, would likely be a lot bigger than it is today.”

The LIV challenges the PGA’s longstanding monopoly

Of course, professional golf would have to undergo radical change to remotely resemble the fluid marketplace envisioned by our imaginary economist. Today the business is largely a monopoly, and the organization that has exercised full control for decades is the PGA Tour (usually just called the PGA). But suddenly the PGA Tour is facing the strongest challenge in its history. A new league called LIV Golf, famously bankrolled by the Public Investment Fund of Saudi Arabia and headed by fabled former champion Greg Norman, has lured an array of blue-chip recruits headlined by Phil Mickelson, Patrick Reed, and Bryson DeChambeau, and just mounted its first tournament at the Centurion Club in St. Albans near London, offering PGA-dwarfing prize money. The LIV appears determined to marshal immense funding and legal firepower to overcome fierce resistance from the PGA. “The legal needle has moved against the PGA because of the London tournament,” says Maatman. “We will see a giant antitrust suit from the LIV and the players. It’s a much more serious threat to the PGA than any previous challenges, because the plaintiffs will have the powerful combination of strong arguments and an unlimited budget to spend in the courthouse.” (The PGA Tour declined to make officials available for comment on the legal issues. The spokesperson for the Tour did provide Fortune with the following statement: “We have been working with outside antitrust experts and are confident in our position.”)

The LIV onslaught is already getting lots of negative press due to Saudi Arabia’s horrendous record on human rights. Who’d have thought it would the autocratic Kingdom that’s pushing to democratize golf? The sheikdom is a disreputable trust-buster, but a monopoly-breaker it could well be. The oil-rich disrupter has already come a long way by betting that it can pay players a lot more than the PGA Tour and still make good money for a simple reason: The stars are worth much more to the TV audiences and sponsors than the PGA hands them in weekly prize money and occasional bonuses. The LIV is showing that “free agency” appeals strongly to a number of players who feel shortchanged by the PGA. The PGA can only impair free agency by pulling levers that the courts may interpret as abusing its monopoly power. That’s the scenario LIV believes will play out. If indeed the LIV succeeds, it will make golf the only one of America’s five major professional sports (basketball, football, baseball, hockey, and golf) that offers a second, independent, fully competitive league and isn’t operated as a monopoly.

How the PGA operates

The PGA Tour is a nonprofit based in Florida that effectively governs the U.S. tournament schedule. It holds 33 events a year in the continental U.S. that include the two FedEx playoffs and the Presidents Cup, and leaves open spots for the four majors and the biennial Ryder Cup. (The PGA Tour stages its 10 other events in venues as varied as Japan, Mexico, the Dominican Republic, and Hawaii.) It recently disclosed projected 2022 revenues of $1.522 billion. A big chunk of those dollars fund grass-roots programs that grow the game, especially by attracting and training youngsters. Its revenues will get a big boost from a new packet of TV and streaming contracts with CBS Sports, NBC Sports, and ESPN worth $700 million a year, a 70% increase over the previous package.

It’s hard to identify whether the PGA exploits close relationships with other industry players to block rival tours, but those interlocking connections are many and powerful. It has long been adamantly opposed to new leagues that seek to poach players and establish competing events. Its commissioners, including current chief Jay Monahan, have always claimed that the top game is much better off as a single tour that can assemble the maximum number of top players at a limited number of weekly events. Sundry barriers to entry have repelled potential raiders. The Official World Golf Rankings (OWGR) are a major factor in determining eligibility for the majors, and performance at PGA events is crucial to the players’ OWGR ratings. The likelihood of the OWGR excluding a startup tour from its rankings helped the PGA maintain its tight grip on the stars, since by defecting they would scotch their right to enter the U.S. Open or Masters. The PGA Tour’s close ties to the Professional Golfers Association of America practically ensures that the PGA major event would be off limits to golfers at a rival league. Most of all, the professionals who play on the PGA tour are “members” who are required to abide by the rules stated in the PGA’s “handbook.” Those regulations include the obligation to obtain “exemptions” to participate in non-PGA events. If a golfer bolts to join a tournament run by a rival tour, the PGA has the right to “fine,” “suspend,” or “disbar” the rebel player.

On June 9, Monahan announced that the PGA had suspended all of the 17 members who started play in the LIV’s inaugural event in London, a list that included Sergio Garcia, Ian Poulter, and Lee Westwood. Monahan stated that the PGA had the right to order the suspensions under the handbook’s rules. Those penalties ban the players indefinitely from participating in all PGA Tour events. In a memo to PGA members, Monahan complained that the PGA’s “fans and partners” are “surely tired of all this talk about money, money, and more money,” and slammed the those who joined LIV for “turn[ing] their backs on the PGA.” Monahan implied that the suspensions would last at least as long as the Norman recruits play on the LIV tour. Several of the LIV group resigned their PGA memberships, including Johnson, Poulter, Louis Oosthuizen, and Kevin Na. With the London tournament still in progress on June 10, press reports revealed that DeChambeau and Reed had joined the LIV, with plans to make their debuts at the second tournament, to run from June 30 to July 2 in Portland.

The LIV is offering giant paychecks never before seen in golf

Nothing illustrates the scale of the LIV’s threat to the PGA better than the gulf between the amounts of money the two tours are offering. The PGA pays its members almost exclusively in prize money. With a recent exception, it doesn’t compensate them for their star power in attracting TV dollars and sponsor dollars, either for the tour overall or for specific events. The PGA does not pay its members simply for playing on its tour, for committing to tee off at the minimum required 15 events per year. Nor does it offer “appearance” fees for specific tournaments, even though a golfer may be a big draw at the tournament, no matter how he performs. If the star fails to make the cut, he gets zip. Perhaps watching the LIV’s advancing shadow, the PGA last year created a “player impact program” that allocated $40 million for payment to the ten players who drive “most engagement with fans and sponsors.” The number two, five, and seven finishers were defectors Mickelson, Johnson and DeChambeau, who collected $12.5 million between them.

Mickelson regards that reward as paltry, and claims that what the LIV is paying proves his point. He has objected publicly to the fact that the PGA doesn’t give the players any part of its revenue from their media rights, and claimed the players deserve most of it. He decries the tour’s “obnoxious greed,” and charges they’d rather “throw $25 million here and $40 million there” than reward the players for anything like their value to the franchise.

By comparison, the LIV is guaranteeing big comp—in addition to sumptuous purses. It provides two categories of payments independent of the players’ performance in tournaments. First, the LIV grants huge signing bonuses for joining the tour. So far, we have only media accounts for the size of those payments, but neither the recipients nor their agents have refuted the numbers in the press. The widely reported figures include $200 million for Mickelson, $125 million for Johnson, $100 million–plus for DeChambeau, and between $20 and $30 million for the 46-year old Poulter. To put those dollars in context, Mickelson has won $94 million in total prize money over his two-decade PGA career. It isn’t known how many years of LIV play the golfers are pledging in return for these up-front awards, although Mickelson will reportedly play all eight events this year and a full schedule of 10 next year. Second, it appears from industry articles that the players receive appearance fees for the buzz they bring to certain tournaments, ensuring generous paydays even if they register low on the prize-money ladder.

The third payment source is the purses, and by PGA standards, they’re gigantic. The LIV format differs greatly from that of classic PGA events. Over this year’s eight tournaments—five are being held in the U.S.—the 48 players compete in 12 teams of four each. The events cover three days and 54 holes from Thursday through Saturday. They deploy “shotgun” starts where all the teams pound their opening drives at the same time but on different holes, a feature that makes the 18-hole rounds move much faster than at PGA events. Most PGA tournaments are individual contests over 72 holes lasting Thursday through Sunday. The unorthodox length of play is stamped on the brand: In Roman numerals, “LIV” translates to “54.” The head of the Saudi Investment Fund has reportedly promised that anyone who shoots a 54, presumably over any four consecutive rounds totaling 72 holes, a feat never accomplished in a PGA tournament, will get a $54 million payday.

The first seven LIV events provide $25 million each in total prize money: $20 million awarded based on each player’s ranking by score, and $5 million divided among the three top teams. In London, for example, winner Charl Scwartzel banked $4 million as the individual winner, and another $750,000 for his one-fourth part of the $3 million earmarked for the best-finishing team. Hennie du Plessis of South Africa garnered $2.875 million for finishing second to Schwartzel and helping bag the team trophy. Johnson’s eighth place was good for $625,000; and Poulter, tied for 20th, received $325,000.

By contrast, the largest purse on the entire PGA tour is the $20 million prize at the Players, held in March, where champion Cameron Smith took home $3.7 million. At the U.S. Open, total prize money is $12.5 million with $2.25 million reserved for the lowest score. At the famed Jack Nicklaus Memorial event held the week before the LIV fired its opening drive in London, Patrick Cantlay and Jaoquin Niemann, tied for third, each received $708,000, just slightly more than Johnson got in London for clinching eighth place. Poulter’s $325,000 payout for finishing 20th was over twice what the Memorial players tied for 18th pocketed. The LIV’s bounty doesn’t stop there. The top three individual winners at the tour’s end will divide $30 million, and a final Team Championship will award another $50 million in prizes, with $16 million, or $4 million per member, going to the winning foursome.

What’s at stake in the looming antitrust suit

The LIV’s position is that the PGA is, first, depriving its players of money and prestige by banning them from PGA events; and second, attempting to block competition in blatant violation of the U.S. antitrust laws. Norman has strongly suggested that the LIV plans a landmark suit versus what it considers an abusive monopolist. That means where this story is ultimately decided won’t be on the greens at all, but in court. But the bottom line? A free-market future for golf, given the prestige and vintage of the PGA Tour, would have seemed preposterous just a few months ago. Now it’s a possibility. The LIV would need to score an eagle, to be sure. But it’s taking aim, and its opponent is plenty worried.