PGA’s Cool Hand Luke Defense
I didn’t get a chance to watch the Senate Permanent Subcommittee on Investigations hearings yesterday. I was on a plane to Chicago and will be here until Friday. The hearing lasted only three hours, but the A-listers weren’t there. The first A-lister, Jay Monahan, Commissioner of the PGA Tour is currently on medical leave no doubt made necessary by the Tour’s gasping desperately for air as though a live fish flapping on a pier in a very hot sun. Slowly suffocating, I mean. The second A-lister is Yasir Al-Rumayyan, the top guy at PIF, known to PGA folks as “His Excellency.” He is slated to become Chair of the unnamed partnership between PGA and LIV Golf. Even so, the Tour points out, His Excellency only gets one vote on a board the majority of which is appointed by the Tour. Ok, fine, the attorneys know about Rev. Rul. 98-15, but I don’t think voting control is going to be enough. That’s for another post.
What I want to talk about today is PGA Tour’s reliance on what I’ll call the “Cool Hand Luke” defense. The B-listers who voluntarily appeared yesterday and understandably spoke from the same script were Ron Price, PGA’s CEO, and Jimmy Dunn, a PGA “Independent” Director. Neither one of those guys names appear on the “Framework Agreement,” and they are considered slightly down the chain of command, at least regarding the team negotiating the proposed partnership. Anyway, they both focused on the high dollar amount of money the PGA provides to exempt organizations. Here is some of what Dunn said in his prepared remarks:
Even before I joined the board, I had seen the incredibly significant contributions that the Tour makes to professional golf and to communities around the world. The Tour continually works to make golf more accessible to everyone, regardless of age, socioeconomic status, race, or nationality. It has a strong and longstanding tradition of contributing its net proceeds to charity, and its tournaments generated $215 million for 3,000 charities across the United States, bringing the total charitable impact to $3.6 billion since the Tour’s inception 54 years ago. We are immensely proud of this commitment.
And here is some of what Price said:
In addition to promoting and building the sport of professional golf, the Tour has a longstanding commitment to generating substantial charitable contributions in the communities where its tournaments are played. Even though the Tour is a 501(c)(6) membership organization, and not a charitable organization under section 501(c)(3), the Tour has chosen to structure its tournaments whereby the net proceeds of the tournaments are contributed to local charities. Through its charitable activities, the Tour has supported local healthcare, education, youth development, disaster relief, food banks, military programs, and other causes. Last year, the Tour and its tournaments generated $215 million for 3,000 charities. Some examples include its support for grantees, including the Hole in the Wall Gang Camp in Connecticut; American Family Children’s Hospital in Wisconsin; and Evans Scholars Foundation in Delaware. In its 54-year history, the Tour and its events have generated $3.6 billion in charitable giving. In addition, the events sponsored by the Tour help support the additional charitable efforts of Tour members through their individual foundations and fundraising activities.
Funny that the Tour mentions its support for the Hole in the Wall Gang camp. That’s a charitable camp founded and funded by Cool Hand Luke himself using money from his feeder, Newman’s Own. Newman’s Own is the salad and spaghetti sauce company that donates all of its profits to charity. But Newman’s Own is entirely taxable. Alas, PGA is just a feeder too. So what we have here is a failure to communicate.
Because unless the PGA has an exempt purpose, its consistent feeding of charitable organizations makes it just like Newman’s Own, a feeder organization. If the PGA Tour is not really a Chamber of Commerce – as suggested by its anti-competitive behaviors, forget about the joint venture for a minute — its only claim to tax exemption is that it donates all profits to charitable organizations. Quiet please! Here is IRC 502:
An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.
IRC 502 applies to all of 501, not just 501(c)(3). I still think PGA Tour’s banning of Phil and other golfers who played in LIV events was clearly anti-competitive and therefore exposes a purpose not to benefit a “line of industry,” but merely to preserve PGA’s top money making spot on the golf industry leaderboard. That is, PGA is merely a business, even if it is one with a conscience. That it donates most or even all its profits to charity — quiet please! — makes it merely a feeder. The Cool Hand Luck plea didn’t work for Newman’s Own, and it cannot work for PGA Tour. Ultimately, PGA Tour is just Mueller Macaroni with Newman’s Own sauce.
darryll k. jones