ADVERTISEMENT

Opinion | Golf LIV controversy raises critical antitrust issues

ADVERTISEMENT

None of the antagonists in the fight for the new golf league elicits much sympathy. On one side is LIV Golf, which is handsomely funded by the sovereign wealth fund of Saudi Arabia, a nation with an abominable record on human rights. On the other side is the PGA Tour, which is fighting hard to keep its golfers from earning higher salaries with LIV Golf, suspending 17 of them for participating in the LIV Golf Invitational Series. It’s tempting to wish for a plague in both of your dressing rooms.

However, from an economics perspective, there are interesting things to say about the battle. Specifically, can restricting trade, which is what some lawyers accuse the PGA Tour of engaging in, ever be a good thing?

Even Louis Brandeis, the Supreme Court justice who was an ardent enemy of trusts, recognized that restrictions on trade could not be outlawed outright. “Every agreement connected with commerce, every regulation of commerce, restrains,” Brandeis wrote for the court in a 1918 decision. “Binding, restraining, is of its very essence.”

ADVERTISEMENT

In his next sentence, Brandeis left the door open to considering restrictions that are positive: “The true test of legality is whether the restriction imposed is such that it merely regulates and perhaps therefore promotes competition or whether it is such that it may suppress or even destroy the competition. .”

What Brandeis enunciated is a principle of antitrust analysis called the rule of reason. It is widely applied in cases of restraint of trade, except for the worst behaviour: naked agreements to fix prices, rig bids, organize boycotts or divide markets that are presumed illegal on the face of it.

Under the rule of reason, a manufacturer may be allowed to restrict the supply of a product in different geographic markets to existing retailers. That’s clearly a restraint on trade, but it could allow retailers to make higher profits and have an incentive to advertise the product and provide better service to customers, explains the Organization for Economic Co-operation and Development. Consumers might actually end up better off.

In the view of some economists and legal scholars, the apparently anti-competitive behavior of sports leagues may also be potentially legal under the rule of reason. “Professional sports is built on competition, but the industry would not exist without collusion,” attorney Leah Farzin wrote in a 2015 law review article.

Team owners have a financial incentive to help other team owners, Farzin wrote. “An economically monopolistic club will not succeed,” he concluded, “because if it effectively eliminates the existence of weaker teams, as a monopoly does, it will be left with no competitors on the field.” And that would be awkward.

Sports leagues have even argued in court that a league is a single, unified entity, and therefore its constituent teams cannot collude, because only separate entities can collude (just like their right hand man cannot “collude”). with his left hand).

Major League Baseball has an explicit exemption from US antitrust law, although it has been phased out over the years. It’s what allows the league to allocate exclusive territories to teams and pay pitifully low salaries to minor leaguers.

I asked Farzin what he thinks of the PGA Tour’s position against LIV Golf. He is now an assistant attorney general for the state of Alaska, but commented on the dispute as a private citizen. In an email, he predicted that the PGA Tour could play the consumer defense card, arguing that allowing golfers to play in the LIV series would cause the PGA Tour to “lost value and ultimately cease to exist,” to the public’s detriment. . .

“Ironically,” he wrote, the better the LIV series, the more difficult it will be to sustain an antitrust case against the PGA Tour: “I think it would be difficult for them to show that the PGA Tour rules are anti-competitive, as it would have created a competitive league for top level golfers.

However, the PGA Tour has cracks in its legal armor, argues John Lauro, an attorney who once worked as a federal prosecutor in the Eastern District of New York. Lauro says the PGA Tour is essentially trying to impose non-compete agreements on its golfers without justification. A non-compete agreement is justifiable when an employee learns valuable trade secrets whose disclosure to a competitor would devastate the employer, but that’s not the case for golfers, Lauro says.

I wrote last year about the farce of making fast food workers and other low-wage workers sign non-compete agreements. Top golfers don’t garner as much sympathy as burger lovers, but their problems are the same, Lauro said.

Another weakness of the PGA Tour is that it says its mission is “to promote the sport of professional golf through the sanctioning and administration of golf tournaments and the advancement of the common interests of touring golf professionals.” Trying to shut down rival tournaments doesn’t seem consistent with the stated mission, according to a post on the intriguing golf website Lying Four.

You can see how this fight has wide ramifications. Some people say that golf is life. I don’t know anything about that, but golf is certainly economics.


While we’re on the subject of antitrust and unsympathetic players: There’s an interesting new filing from the plaintiffs in the case against elite colleges that coordinate their financial aid policies. As I wrote in January, the plaintiffs argue that by agreeing to adhere to a detailed rubric on how families’ financial need is determined, elite colleges can do much to eliminate aid as a recruiting tool. That saves them money.

The new presentation looks at how much additional financial aid colleges could provide if they increased it by 2 percent of their unrestricted endowments annually (an increase small enough that endowments continue to grow on average). While the numbers of the 17 defendant colleges vary, for nine of them, the filing states, such an increase would be enough to completely eliminate the remaining cost of attendance for existing aid recipients. That appears to weaken the colleges’ argument that ending their antitrust exemption, which would cause an increase in financial aid offers, would be unaffordable for them.


“We’re working our jobs / We’re getting paid / We think we’re slipping down the road / When really we’re slipping.”

— Paul Simon, “Slip Slidin’ Away” (1977)


Do you have comments? Send a note to [email protected]

sniloans