Senate Finance to Investigate PGA/LIV Merger (Yawn)
Alright, I am getting tired of this story. We already know that PGA is gonna lose its 501(c)(6) status eventually. It is really between a rock and a hard place not of its own making but because whatever fundamental tax policy ever justified exemption for the keepers of professional sports has long since dissipated. PGA can’t win because it keeps losing. Consider this. Phil and a bunch of other golfers filed suit against the suits for trying to block LIV from the market. Then, when PGA finally “welcomed” LIV golf into the market, DOJ decided its gonna file suit for welcoming LIV golf into the market via a proposed joint venture. DOJ hasn’t announced that yet, but its just a matter of time. Can’t win for losing.
“Can’t win for losing” is so appropriate for golf. The ball ain’t even moving, nobody is trying to box you out of the paint, and ain’t nobody trying to knock the snot out of you as you matriculate the ball down the fairway. Nobody is hurling the ball at you from 60 feet away at 100 mph. Most of the time people can’t even heckle you, what kind of sport is that? At the US Open last weekend, some guy shot an 81 and said he was “humiliated” for doing so. That would be a new personal best for me, trust and believe. Its quiet, a little roach coach brings you all the beer you can drink over the four hour round, the grass is green and manicured, the sun is shining, and the ball ain’t even moving. It ain’t moving but you still can’t hit the damn ball straight onto a mile-wide fairway instead of the trees, and sometimes not even at all. Can’t win for losing.
Anyway, Senator Wyden has sent a letter to PGA regarding the proposed joint venture and its 501(c)(6) status. What makes this letter particularly interesting is that Wyden is chair of Senate Finance — the tax writing committee — and the letter was obviously written by a tax geek staffer. It delves into private inurement and benefit in a little bit of detail. But I doubt Wyden cares about how much PGA is paying its insiders. He is raising tax exemption issues because Saudi Arabia is our oil rich friend, but still a pariah. Here is an excerpt from his press release (emphasis in the original):
“The PGA Tour’s involvement with PIF raises significant questions about whether organizations that tie themselves to an authoritarian regime that has continually undermined the rule of law should continue to enjoy tax-exempt status in the United States,” Wyden wrote to the PGA Tour leadership. “In addition, I believe it is critical that lawmakers understand what risks this arrangement may pose to America’s national interests, particularly with respect to foreign investment in U.S. real estate, such as locations neighboring military facilities or sensitive manufacturing centers, and how you plan to mitigate those risks.”
The interesting but perhaps unremarkable insinuation is that PGA is engaging in private inurement because its paying its Board Chairman’s law firm gobs of money to serve as PGA’s counsel. If I were really cynical, I say that the Chairman is deliberately mucking this all up just to generate billable hours for his law firm. But the fact of the matter is, PGA is just not a business league. It ain’t no golf Chamber of Commerce. Its a wounded and threatened market competitor. If it was an animal on the Serengeti, it would be a lame antelope, Congress would be a pack of hungry lions and LIV would be a pack of yapping hyenas. Avert your eyes because there ain’t no way even the most white shoe law firm can stop what’s coming. Here are a few excerpts from Wyden’s letter
After more than a year of suspending and publicly scolding PGA players for accepting large buyouts from Saudi-backed LIV Golf, you are now personally pushing for a Saudi-backed buyout of the PGA Tour. Given the Tax Code’s prohibition on Section 50l(c)(6) organizations providing any private benefit to any individual, I have serious questions about any compensation arrangements, formal or informal, proposed as part of this merger framework intended to personally and financially benefit the already lavishly-compensated officers and employees of the PGA Tour. According to the most recently available documents filed with the IRS by the PGA Tour, Commissioner Monahan’s annual compensation in 2021 totaled nearly $14 million (almost double the compensation he received in 2017 when he became Commissioner), and the Tour and affiliated organizations paid 19 officers and employees more than $1 million annually- at a total cost of more than $63 million for your top staff. In addition, IRS filings and public reporting indicate that Commissioner Monahan and other Tour officials make extensive personal use of the PGA-owned jet for trips in the United States and abroad. It is difficult to rationalize how any further increases in compensation to Tour executives would be in the best interest of the
PGA Tour or further the Tour’s tax exempt purpose.
In addition to concerns about executive compensation, reports that the law firm Wachtell, Lipton, Rosen & Katz is serving as legal advisor on the transaction raise significant questions about conflicts of interest, given that the Ed Herlihy simultaneously serves as the Chairman of the PGA Tour’s Board of Directors, and is a partner at the law firm, serving as the Co-Chairman of the law firm’s Executive Committee.
I think the last concern might be a cheap shot. There is nothing unseemly about an insider’s law firm working for an exempt organization and being compensated for doing so. Board members are sometimes selected in hopes that he or she will direct discounted inputs to the organization. But that is not a requirement for exemption. I suppose it could be problematic if the law firm were charging too much or sucking all the organization’s assets out even in fair market value transactions. United Cancer Council might be my favorite exempt orgs case of all time, but there is nothing to suggest that this is that.
darryll k. jones