The PGA Tour has temporarily avoided a battle royale with its membership over the decision by a handful of golfers, including current world No. 3 ranked Dustin Johnson, to play in the Saudi International, an Asian Tour event set to take place in February at the same time as the Pebble Beach Pro-Am, one of the PGA Tour's most high-profile events. This did not sit well with the PGA Tour, which initially drew a line in the sand, declaring it would not grant the necessary releases and threatening fines, suspensions, and potential lifetime bans for players who chose to participate in the Saudi event.
However, in late December, the PGA Tour granted the releases, but with conditions attached—the golfers must commit to play the Pebble Beach event at least once, and in some cases multiple times, in the next few years. Confident in the tremendous amount of power it wields over the sport and the players, the PGA Tour is clearly flexing its muscles. Yet its actions raise red flags about the organization's nonprofit status and its monopolistic dominance in the golf world.
The PGA Tour is classified as a business league under Section 501 (c) (6) of the Internal Revenue Code, which allows it to obtain coveted nonprofit status and receive all the accompanying benefits, namely exemption from paying taxes. A business league is defined as "an association of persons having some common business interest, the purpose of which is to promote such common interest."
In short, they do not operate for profit. Organizations with this classification are not allowed to have net earnings that benefit any one shareholder or individual. Still, they are permitted to distribute cash "where such distributions represent no more than a reduction in dues or contributions previously paid to the organization to support its activities." It is a point that is challenging for the PGA Tour to defend, given it has lavished millions more on executive compensation than on direct charitable contributions over four years.
Recommended
Padding the wallets of executives is hardly in line with the PGA Tour's claimed commitment to charity, just as steamrolling other golf tours runs counter to its claim of promoting the common interest of professional golf. Furthermore, its IRS Form 990 states that the organization also promotes professional golf by "provid[ing] opportunities for the touring professional golfer to compete and earn prize money and benefits." If that is indeed the case, why stifle players' opportunities to do just that by putting up roadblocks?
In addition to these questions, the PGA Tour's dominant and looming presence over the golf universe and its impact on the game and players raises the question of whether the organization complies with a federal statute prohibiting activities that restrict interstate commerce and competition in the marketplace.
Monopoly power is a prerequisite for a violation of the century-old Sherman Act. And while monopoly status in and of itself is permissible under certain circumstances, it is a violation to willfully acquire or maintain that power.
In that context, it is reasonable to question the PGA Tour's efforts to stop its members from competing in another league —first with lifetime ban threats, then with releases with strings attached. Requiring releases, conditional or otherwise, undoubtedly gives the PGA Tour the power to torpedo competing tournaments, as players will be leery of risking the organization's wrath by participating. Without top golfers playing, rival organizers would be hard-pressed to draw media attention and sponsors, making it difficult to have a successful tournament.
Antitrust allegations are nothing new to the organization. Back in the 1990s, the Federal Trade Commission (FTC) concluded that the PGA Tour violated antitrust laws and recommended the federal government act, citing the requirement that players get permission to participate in non-Tour events as one of the reasons. The FTC eventually backed down, but times have changed. And as Facebook and Google can attest to, lawmakers are more inclined to crack down on anti-competitive behavior.
In an indication that it has no desire to loosen its grip on the sport, the PGA Tour noted that the conditioned releases for the Saudi International were not considered to be "precedent setting." The organization is well aware that golf is struggling to keep up with more popular leagues as viewership is dropping and participation has stagnated.
Perhaps the PGA Tour can take a few lessons from the NFL, America's most popular sports league. The NFL was born in 1966 when the National Football League and the American Football League ended their bitter rivalry and merged into one league. Then, 50 years later, the NFL abandoned its tax-exempt status after persistent questions over why a multi-billion-dollar business should be tax-exempt.
It's long past time for the executives at the PGA Tour to live up to the organization's mission to promote golf for the sake of the players, the fans, and the game itself.
John Burnett is the managing director and founder of 1 Empire Group. He is an adjunct assistant professor at New York University.
Join the conversation as a VIP Member