steve ross is professor of law and codirector of the Center for the Study of Sports in Society at Pennsylvania State University.
Published January 24, 2023
Competition is good, right? The orthodox view on the subject is being tested in an unexpected way in the face-off between the dominant Professional Golfers Association of America (yes, the PGA) and the upstart LIV Golf. For those not following the saga on SportsCenter, LIV Golf burst onto the scene early in 2022 with promises of massive payouts and a lighter playing load for invited professional golfers.
The prospect proved irresistible for a few top pros, and the PGA promptly responded by kicking those athletes out of the tour with no mulligans.
The Sturm und Drang raised questions about the nature of competition in sports. For one thing, sports organized by umbrella groups like the NCAA and FIFA want to be exceptions to the rule on competition — at least they have often been treated that way by governments. For another, LIV is wholly owned by Saudi Arabia’s sovereign wealth fund (worth at latest count $620 billion) and is thus controlled by Saudi’s repressive regime.
Where Do I Stand? Glad You Asked
Millions of fans of elite professional golf, along with thousands of aspiring pro golfers, have traditionally had only one place in the United States to turn for their consumer or career interests: the PGA Tour. And to paraphrase the retired federal judge and antitrust scholar Richard Posner, when there is a single organizer of competition, even when the organizer does not serve the interests of consumers or suppliers (in this case, suppliers of talent), market retribution will not be swift.
This is why aggrieved parties so often turn to antitrust laws when they face adversaries that can and do abuse their market power. Not surprisingly, LIV and the golfers seeking to provide their talents to LIV have followed this path in their dispute with the PGA.
Back to Basics for a Minute
Free-market democracies can respond to abuses of economic power in several ways. The government can simply take over the service, as it has in other countries with health care and in the U.S. with libraries, parks and flood insurance. Likewise, we could create a federal Department of Sports, with an assistant secretary of sports for golf who would organize or license golf competitions.
An alternative approach, often attributed (not entirely accurately) to Supreme Court Justice Louis Brandeis, would be for the government to flat-out outlaw the aggregation of economic power that creates the potential for abuse. By this reckoning, government could break up the PGA Tour and simply open the sport to individually organized golf competitions.
Of course, we could go in the opposite direction, distinguishing sports from the aforementioned health care, libraries, parks and flood insurance — all of which we as a democratic society think are essential. In other words, we could leave well enough alone, tolerating the PGA’s assertion of market power at the expense of consumers and pro golfers, perhaps on the rationale that we face more important problems than the suboptimal organization of golf tournaments.
Congress long ago (1890) rejected all these approaches in the broad language of the Sherman Act. This law provides that parties cannot agree among themselves to unreasonably restrain trade. The Supreme Court has defined unreasonable trade restraints as agreements that distort prices or the level of output of goods and services, or, significantly, that render output “unresponsive to consumer preference.” The law also bars firms that confront no significant rivals — aka monopolists — from abusing their power by acts that help them to maintain that power.
This law, appropriately characterized by Justice Thurgood Marshall as “the magna carta of free enterprise,” declares a national policy that competition is in the public interest. Congress can, of course, exempt industries from this policy, as it has done in a variety of instances regarding transportation and power industries, insurance companies and agricultural cooperatives, to name just a few. But where Congress has not passed an explicit exemption, it is decidedly not for the courts to tolerate limits on competition because judges decide that in a particular case competition is not the best policy. This path, as then-Judge (later President and Chief Justice) William Howard Taft famously wrote in the 1890s, would lead courts to “set sail on a sea of doubt.”
If the Shoe Fits …
These legal principles should suffice to reject the PGA’s justification that LIV shouldn’t be allowed to enter based on its backing by a foreign government that is an unrepentant human rights offender seeking to use golf to improve its image — a familiar strategy known as “sportswashing.” Foes of Saudi sportswashing are free to go to Congress to block LIV, but they should not be able to prevail by persuading a federal judge of the moral failings of Mohammed bin Salman or Phil Mickelson.
There is a more important reason, though, why LIV should be treated no differently than the Bill & Melinda Gates Foundation if the latter wanted to start a rival golf competition to raise money for its many worthy causes. That is because there is a clear democratic and free-market alternative to quashing LIV: an appeal to the public. When Donald Sterling, the racist owner of the NBA’s Los Angeles Clippers was exposed, the NBA’s other billionaire owners responded to the movement by players, sponsors and many fans to boycott the team by forcing Sterling to sell the franchise. PGA Commissioner Jay Monahan is likewise free to publicly shame golfers who offer their services to LIV and to undermine its financial viability by getting potential sponsors, media and golf fans to boycott the LIV tour.
That said, there is a whole other claim in debates about sports and competition. Indeed, in both Europe and the United States, one routinely reads that the distinctive nature of sport makes the sector a good candidate for exemption from the core principles of antitrust law. But with the anomalous exception for Major League Baseball granted in 1922 by the Supreme Court, exemption advocates have not been successful before judicial or legislative tribunals.
This is a good thing. There is extensive jurisprudence demonstrating that courts have been able to consider the distinctive nature of sport (as well as the distinctive nature of many other industries) in applying a “rule of reason” analysis of conduct challenged under the antitrust laws. Under this analysis, courts draw conclusions about whether firms:
- Have market power
- Have used the power to distort prices or to make producers unresponsive to market preferences
- Are in fact reducing prices or improving service through disputed conduct
- Are conducting themselves in unjustifiably restrictive ways
Most sports organizations are structured in ways that come across as an invitation to external restraint — and antitrust is generally seen as preferable to hands-on regulation as the remedy. An extraordinary aspect of the sports industry is that people can innovate — either because of new ideas or in response to changing market dynamics — only with the permission of their competitors. And their competitors are able, and sometimes motivated, to block innovations because of their own parochial interests. Hypothetically, if Pizza Hut were to reject a better way to make pizza for the growing number of consumers who are lactose- and gluten-intolerant, market preferences would come into play because Domino’s or some local provider would likely respond to the demand. Not so with the PGA.
Two modest illustrations of this dynamic in the context of sports may interest the reader. First, six years ago, Penn State University (where I teach) created a multidisciplinary Center for the Study of Sports in Society, which has, among other achievements, facilitated information- sharing among academic researchers. To do so, we did not need to get permission from other universities in the Big Ten Conference. If we had, Michigan (which has top-flight faculty in their sports management program), Illinois (whose Kinesiology department views any sports studies as harmful to their focus on human movement) or other schools might well have blocked the move.
Then, a number of years ago, the actor Russell Crowe, who owns the South Sydney Rabbitohs in Australia’s National Rugby League, decided to put his creative talents to use in designing an attractive fleecy garment featuring team symbols and colors, which he wore on U.S. television while promoting a movie. Market demand led him to order production for resale, only to be told by the league’s CEO that this violated league rules. Crowe offered in vain to share most of the proceeds with the league. It seems the real problem was that any additional sums retained by his club were seen as an “unfair advantage” by rival clubs lacking famous actors as owners.
Rx for Professional Golf
The notion that the PGA Tour was proceeding down the path of life as an optimal steward of the great game of golf until a bunch of sportswashing Saudis and greedy pro golfers intervened is belied by the immediate response to LIV’s entry. Leading golfers, most publicly Tiger Woods, began to organize meetings to work out significant reforms in the way the PGA ran tournaments. Published reports suggest that the PGA, as a monopolist in the business of golf tournaments, was seriously undercompensating the world’s top golfers. Among the reforms proposed was the creation of a “tour-within-the-Tour” consisting of 18 no-cut tournaments featuring the top 60 players, who would compete for $20 million purses.
It is true that this change could further divide PGA golfers between the Tour’s haves and have-mores. However, in a truly free market, the PGA would not have the authority to redistribute income from Scottie Scheffler, the highest ranked pro as of October 2022, to Callum Shinkwin (ranked 100) because its managers think this is the right thing to do. Of course, Congress could grant an exemption to what amounts to restraint of trade if the people’s representatives agreed with this redistributive scheme. Alternatively, the PGA could hire golfers as employees, who could then organize as a union, which likewise has a specific statutory mandate to distribute income among its members in the way it believes best.
LIV’s initial defeat in federal court was not on the merits of its claim. Rather, the court said the plaintiffs’ woes need not be addressed now but could wait for a full trial since the dispute was about money – they could get a damage award from the PGA if their claims were proven.
Another important potential reform concerns the current nonprofit structure of the PGA. A detailed analysis of private equity investment is a topic for another day, but many industry observers argue that the opportunities for golfers to benefit from investments precluded by the PGA’s nonprofit status significantly outweigh the estimated $20 million to $50 million in additional taxes that the Tour would have to pay from this structural change. As a general matter, my own research suggests that, properly constrained, private equity investment optimizes commercial decisions in sports and helps to overcome the parochial vetoes of innovations that so often characterize sports governance.
Woods and his advisors at Excel Management did not suddenly get smarter, nor did they suddenly shift their attention away from golf swings and the fabulousness of Rolex watches. Rather, it was clear that the PGA had been wholly unresponsive to innovation, and the reform project was only worth their time and effort thanks to the opportunities created by the LIV challenge. Viewed from both the perspective of elite professional golfers wishing to be paid their competitive market value and from consumers’ perspective that the PGA should be responsive to their wishes, LIV’s entry has been a good thing regardless of how the challenge plays out.
The PGA as Predator
The Supreme Court has defined the statutory offense of “monopolization” to distinguish between acts that, through “superior skill, foresight and industry,” create a market leader with no apparent rival and acts that harm consumers in order to permit the maintenance of monopoly power. Judges who find a violation often conclude that the monopolist has acted in a way that is “predatory” — that they have deliberately sacrificed short-term profits for the benefits of a long-term monopoly.
The classic case was Standard Oil, where the courts found that John D. Rockefeller’s giant oil company had sold gasoline for less than its cost of production in order to put rivals out of business, and later signed them to restrictive leases to prevent their future competition. The Microsoft case in the 1990s provides a more modern and more analogous example regarding product quality. Here, the courts found that Microsoft had designed its Windows PC operating system to impede users’ choice of the Netscape internet browser instead of its own.
The result was a reduction in Windows’ quality (one valued feature of an operating system is its ease in running multiple competing applications) and, on the margin, a potential short-term loss of profits (to the extent that consumers wishing to use other browsers preferred open source or other operating systems). This made economic sense for Microsoft, the government demonstrated, because whatever losses it suffered by making Windows less valuable to users were outweighed by the benefits of maintaining Windows’s dominance.
LIV’s initial defeat in federal court last August was not on the merits of its antitrust claim. Rather, the court said the plaintiffs’ woes need not be addressed now but could wait for a full trial since in the end the dispute was about money — and they could get a damage award from the PGA if their claims were proven. The gist of public news reports suggests that LIV is arguing that the PGA’s response to LIV’s market entry — barring any golfer who plays in a LIV event from the PGA Tour — is predatory.
After all, a PGA tournament without as many top golfers as possible would be less attractive to fans in attendance and the television audience — and therefore sponsors. Why would the PGA want to degrade its product in that way? By making an example of early defectors and threatening expulsion to others, the PGA is actually attempting to maintain the status quo. The short-term losses would be outweighed by the benefits of returning to its prior status as a monopolist. In short, Jay Monahan, the commissioner of the PGA, is a modern-day John D. Rockefeller.
Pro Golfers as Talented Independent Contractors, Not Employees
The nature of the competition that the PGA organizes is quite distinct from analogies that PGA supporters have drawn from major professional club sports in baseball and basketball. Dustin Johnson and Cameron Smith (two leading golfers participating in LIV competitions) are not employees of the PGA who have rejected or breached contract terms guaranteeing them employment in the way that Aaron Judge works exclusively for the New York Yankees and LeBron James works exclusively for the Los Angeles Lakers. Not only is there no guaranteed pay for the year in the PGA based on past performance; golfers are not even guaranteed the ability to fully participate in tournaments if they don’t make the cut after the first two days.
Once we move beyond typical employment contracts, where elite athletes are guaranteed a salary in return for providing their services exclusively to their employer, the notion that economic actors need to “pick a side” falls away when they are being forced to choose, against their own preferences, by a dominant firm. If Walmart moved into a small town and developed a scheme to bar shoppers who continued to patronize the local grocery or clothing store, it couldn’t justify the decision based on preserving its market share or telling people to “pick a side.” Indeed, the sanctions that the PGA announced against golfers signing with LIV bear a close resemblance to those imposed by the NFL in the 1950s to head off rival leagues — which the Supreme Court found to be an antitrust violation.
Other defenders of the PGA have suggested that, as a membership organization, the PGA is simply adopting rules for its members who choose to join. The suggestion that the PGA is like the local Elks Club is fatuous. After all, if you aren’t partial to the charities the Elks Club sponsors or the drinks served at the Elks Lodge, you can always join the Loyal Order of Moose.
To be sure, some people believe that the PGA Tour offers a close-to-optimal competition design that benefits golfers and fans. But markets have ways of testing that. If the teamfocused design of LIV tournaments is not what golfers prefer, then it will take a premium in compensation to lure them to LIV — a premium that, all other things equal, would eventually make LIV economically unviable. (Assuming, of course, that the Saudis care about profits as well as sportswashing.)
By the same token, if the competition design doesn’t attract fans, LIV will be unviable. If the frisson of watching stars who play below par (figuratively, not literally) on Thursdays struggling on Friday to make the cut creates excitement and interest that fans prefer, then LIV tournaments featuring nocut play will suffer and will eventually be unable to offer the lucrative prize money currently on offer. And since corporate sponsors’ willingness to pay for golf is ultimately based on the number of people who will view their logos and advertisements, competition design that is unappealing to fans will quickly drive sponsors away as well.
Competition Policy Redux
At the risk of repeating myself, in our freemarket democracy there are two legitimate ways to resolve disputed claims about how sports or any other entertainment product should be organized and operated. One is competition in the marketplace, or “one dollar, one vote.” The other is through legislation, or “one person, one vote.” If fans are willing to spend money to watch LIV matches because they prefer them, then this view presumptively should prevail. If society believes the costs in terms of indirect approval of Saudi Arabia’s human rights policies are larger than the market benefits of more competition in professional golf tournaments, then Congress can grant the PGA an antitrust exemption.
What the antitrust laws properly reject is “one old white guy who controls the sport, one vote.” I’m a baseball purist who disdains the designated hitter, but players prefer it (as shown in collective bargaining) and owners prefer it because most fans like it. I still complain about it, but Major League Baseball has decided it can manage without my approval and, perhaps, my attendance.
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In a democracy, lobbyists can try to persuade legislatures to defend the traditional PGA tour, or demand that pitchers take their turns at bat in baseball. Until they succeed, though, those who can wield market power should not be allowed to run roughshod over the preferences of fans and players.