Saudi Arabia, Kerry Packer and the art of shaking up a sport

All up LIV would have more than $US2 billion tied up in LIV but, in its first year, has had minimal, if any, returns on that investment.

It revealed in its anti-trust litigation against the PGA that its revenues were “virtually zero.” Its tournaments are broadcast to tiny audience on the CW Television Network, a second-tier broadcaster, and it has attracted largely modest crowds and minimal advertising and sponsorship.

When Kerry Packer took on the cricket establishment, he had signed up almost all the game’s best players and had the strongest television platform in the country to broadcast and market his games.

With only a handful of the world’s best players and largely journeymen in its events, no meaningful broadcast or online presence, a format dismissed as gimmickry by most golfers, professional or amateur, the only thing the Saudis and Packer had in common was that they both had deep pockets. In the Saudis’ case, its access to funds was, in a practical sense, limitless.

The PGA, a non-profit organisation, had been forced to greatly increase its prize money and fiddle with its tour’s format to keep more of its top players from defecting. It was also involved in expensive and potentially risky litigation with LIV and its banning of LIV players from most of its tournaments had stirred the interest of the US anti-trust regulators.

Its finances were being strained and, in a war of attrition, the Saudis could out-spend and outlast the PGA.

While the PGA had tried to establish the moral high ground by highlighting the Saudis’ human rights vulnerabilities, in the end it was always about the dollars. It might be a non-profit but the PGA is a very commercial organisation.

When offered a lot of them – it’s thought the PIF will initially invest as much as $US3 billion in the new entity that will pool the commercial operations of the PGA, LIV and DP World Tour – the PGA folded almost instantly.

While it will continue to administer its tour, the yet-to-be named commercial entity will contain all the golf-related commercial rights, including the broadcasting and sponsorship rights, of the three tours.

The PIF will contribute LIV, which is being valued, and then inject the difference between that valuation and the valuation of the new commercial entity to become a shareholder, with a stake thought to be around 30 per cent.

There is no doubt, with the capital it is contributing and its exclusivity over future funding, that the Saudis will control professional golf’s purse strings.

Its chairman, Yasir Al-Rumayyan will join the PGA board and chair the enlarged for-profit arm while the PGA’s chief executive, Jay Monahan, will have that role within the enlarged business while remaining commissioner of the non-for-profit administrative vehicle.

The PIF will also make a separate investment to become the tour’s major sponsor and a further investment to provide the capital for expansion.

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Al-Ramayyan has also said the fund, which will have exclusive rights and first rights of refusal to provide the entity’s future funding, is prepared to invest “whatever it takes” to expand the game and its revenues.

While Monahan has been at pains to stress that the PIF will be a minority shareholder and have only a minority of board members, there’s an old saying that “he who controls the purse strings makes the rules.”

There is no doubt, with the capital it is contributing and its exclusivity over future funding, that the Saudis will control professional golf’s purse strings.

In effect, the PIF has bought, if not outright control, then disproportionate influence, bordering on control, of the professional game. The PGA represents its members – its players – and therefore the non-Saudi elements of the PGA’s governance structure are ultimately highly dispersed. It’s akin to the influence a 30 per cent shareholder would have in a listed company where there are no other significant individual shareholdings.

The deal the PIF struck with the PGA and DP World Tour is being described as a “framework agreement.”

There is substantial detail yet to be determined, including how to deal with the monies owed to LIV players and whether the players who rejected the Saudis’ largesse and remained loyal to the PGA should be compensated.

The deal will require the PGA player’s approval – Saudi money will inevitably fix that – but also will have to run the gauntlet of competition regulators in the US, UK and Europe.

Their approval can’t be taken for granted. The PGA made it clear that one of the attractions of the merger of the tours was that it removed a major competitor. That’s a flashing amber light for the anti-trust regulators already looking into the previously competitive relationship between LIV and the PGA.

The European regulators are arguably even more aggressive on competition issues than the Americans. The inclusion of the DP World Tour means the deal will inevitably be closely scrutinised there, too.

The size of the Saudi’s cheque book will be irrelevant to the regulators’ assessment of the creation of a commercial monopoly in a professional international sport.

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Packer ultimately transformed cricket, the business of cricket and its players’ livelihoods and helped turn a semi-professional game into a massive commercial business.

Golf at the top level is already a major commercial enterprise, with its best players (even those who didn’t accept LIV’s golden handshakes) already extraordinarily well-remunerated. Will the Saudi’s money similarly transform golf, or has it just bought the game?