Antitrust Regulators Should Be Careful Not to Shank the PGA-LIV Deal

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Eric Fruits, Antitrust Regulators Should Be Careful Not to Shank the PGA-LIV Deal, Truth on the Market (June 08, 2023),

In a world in which so-called “Big Tech” has dominated antitrust discussions for a decade or more, who would’ve guessed that golf would grab the biggest headlines? The proposed merger of the PGA Tour and LIV Golf has some major headline-grabbing potential: sports, big money, big names, 9/11, human-rights abuses, and cringeworthy public-relations attempts.

Aside from those issues, the PGA-LIV link-up also presents some important issues for antitrust enforcers.

Less than two years ago, LIV Golf launched as a competitor to the PGA. Less than a year ago, LIV held its first tournament at Trump National Doral Miami.

LIV entered the golf tournament as a powerhouse. Hall of Fame golfer and entrepreneur Greg Norman was hired as chief executive officer. Three-time Masters winner and Hall of Famer Phil Mickelson was signed on to LIV’s roster. According to National Club Golfer, LIV paid out $255 million in prize money and bonuses to players. The publication estimates 52 golfers earned at least $1 million last year after joining LIV. The organization innovated professional golf by introducing team play.

The PGA didn’t just sit on the sidelines, however. After LIV launched, the PGA boosted its payouts. The New York Times reports that golfers competed for $8.2 million in prize money at last year’s Phoenix Open. This year, the pool more than doubled to $20 million.

Despite the eye-popping payouts to golfers, it’s not clear how much interest LIV has generated from fans. While the data on TV viewership is pretty shaky, LIV’s average audience is around 290,000, versus the PGA Tour’s 2.4 million viewers.

The entry of LIV has many of the hallmarks of the benefits of increased competition. Labor gained from boosted pay. Consumers benefited from more opportunities to watch top golfers play.

Perhaps that’s why (or, at least, one of the reasons why—the involvement of the Saudi Public Investment Fund is obviously also a big one) there is so much hand-wringing about the announced merger of PGA and LIV. Antitrust regulators are bound to speculate what will happen if the combination is consummated. Will golfer pay fall back to Earth? Will fans have fewer tournaments to watch? Will team play go away?

Some regulators will have a knee-jerk response that the merger of PGA and LIV would create a monopoly that will make many worse off than if the two organizations competed against each other.

But, this is the wrong way to look at it. Before LIV entered less than two years ago, the PGA was a monopoly with which few people (mostly just Phil Mickelson) had a problem. Would rolling back the clock a couple of years really impose irreparable harm? I doubt it.

Instead, it seems just as likely that the merged organization will incorporate the lessons it learned from their “LIVed” experience. Payout pools may drop relative to last year, but there is no evidence that those high payout pools were sustainable.

Instead, we will likely end up with payouts between the ridiculously high, one-year LIV numbers and pre-LIV numbers. Similarly, there are likely to be more tournaments than there were before LIV entered. Plus, there’s a good chance that team play will be here to stay. That’s as close to innovation as we get in sports.

Antitrust policymakers and regulators must be careful in crafting their counterfactuals. Too often, they rely on an unrealistic assumption that, but-for a merger, vigorous competition would be the natural state of the world. In reality, however, the world is imperfect.

A merged PGA-LIV organization may be worse than two competing organizations, but may also be much better than the pre-LIV PGA monopoly. Competition is often a matter of degrees, rather than an either-or.