The PGA-LIV Golf Joint Venture
So it looks like the Professional Golf Association, about which we blogged last week, is going to enter a joint venture with LIV Golf and the European PGA, with the Saudi Private Investment Fund (PIF) serving as principal investor. PGA is a 501(c)(6) entity subject to the prohibition against private inurement. Curiously, though, IRC 4958 (regarding excess benefit transactions) does not apply. Still nonprofit/for-profit joint ventures invariably raise private inurement issues. If these were hospitals, we would refer to the transaction as a “whole hospital joint venture,” presumably governed by Revenue Ruling 98-15. Here are snippets from the PGA announcement:
In addition, PIF will make a capital investment into the new entity to facilitate its growth and success. The new entity (name TBD) will implement a plan to grow these combined commercial businesses, drive greater fan engagement and accelerate growth initiatives already underway. With LIV Golf in the midst of its second, groundbreaking season, the PGA TOUR, DP World Tour and PIF will work together to best feature and grow team golf going forward.
Under the terms of the agreement, the Board of Directors of the new entity will oversee and direct all the new entity’s golf-related commercial operations, businesses and investments. The new entity will work to ensure a cohesive schedule of events that will be exciting for fans, sponsors and all stakeholders. PIF will initially be the exclusive investor in the new entity, alongside the PGA TOUR, LIV Golf and the DP World Tour. Going forward, PIF will have the exclusive right to further invest in the new entity, including a right of first refusal on any capital that may be invested in the new entity, including into the PGA TOUR, LIV Golf and DP World Tour. The PGA TOUR will appoint a majority of the Board and hold a majority voting interest in the combined entity.
Separately, PGA TOUR Inc. will remain in place as a 501(c)(6) tax exempt organization and retains administrative oversight of events for those assets contributed by the PGA TOUR, including the sanctioning of events, the administration of the competition and rules, as well as all other “inside the ropes” responsibilities, with Jay Monahan as Commissioner and Ed Herlihy as PGA TOUR Policy Board Chairman. PIF’s Governor Yasir Al-Rumayyan will join the PGA TOUR Policy Board. The DP World Tour and LIV Golf will retain similar administrative oversight of events on their respective Tours.
If profits are derived by the Saudi Private Investment Fund, will that constitute private inurement? It looks as though PIF might be treated as an insider (or disqualified person using IRC 4958 language), but does the payment of the joint venture’s excess revenue to a government agency constitute the distribution of profit to a “private shareholder or individual?” If PIF were a U.S. government agency, I doubt that distributing an exempt org’s profit to PIF would or should constitute private inurement. But does the sharing of U.S tax-subsidized wealth with a foreign government investor make it private inurement, per se? By the way, the only reason why I can think the PGA wants to retain its 501(c)(6) is to ensure that the huge amounts of anticipated advertising revenue remains tax free under the seriously unjustifiable exclusion of “corporate sponsorships” from the unrelated business income tax. It will be interesting to see the details and how the Service blesses (or not) the transaction.
Here is a little more detail from the New York Times:
The PGA Tour, which is a nonprofit organization, will remain that way and retain oversight over the “sanctioning of events and administration of the competition and rules” for the tour, according to the release announcing the merger. Basically, the PGA Tour will still have full control over how its tournaments are played.
But all of the PGA Tour’s commercial businesses and rights — such as the rights to televise its tournaments, which garner hundreds of millions of dollars annually — will be owned by a new, as-of-yet unnamed for-profit entity. That entity will also own LIV Golf as well as the commercial and business rights of the PGA European Tour, known as the DP World Tour.
The board of directors for the new for-profit entity will be chaired by Yasir al-Rumayyan, the governor of the Saudi sovereign wealth fund, the Public Investment Fund, who also oversees LIV. Three other members of the board’s executive committee will be current members of the PGA Tour’s board, and the tour will appoint the majority of the board and hold a majority voting interest.
With the PGA Tour controlling the for-profit holding company and remaining in charge of administering its own tournaments, it may seem as though the PGA Tour will forever remain the dominant voice in men’s professional golf. But that could change.
darryll jones