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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• This week’s topic is the massive PGA Tour-LIV Golf merger that was announced today and its implications for Saudi Arabia’s future in sports

• Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• “Whoa of the Week”

• Reminders that sports are awesome

Hey team,

Shocking news broke yesterday on what will be far and away the biggest sports news story of the year: arch enemies PGA Tour and LIV Golf are reportedly merging, and Saudi Arabia’s Public Investment Fund will be the sole outside investor.

There are a ton of unanswered questions about how this deal was brokered, what the partnership will look like in action, and if it even will make it through government approval, but one thing is abundantly clear: Saudi Arabia’s plans to become a power player in global sports are well in-motion.

New (Ultra-Rich, Oil Money) Kids on the Block

If you need a quick primer on the PGA Tour and LIV Golf saga up until this point, the NY Times has a solid breakdown on their “history” together. Here are the highlights:

The PGA Tour has been around for almost 100 years and has been the dominant force in the sport for most of that period.

That changed two years ago.

LIV Golf, with the backing of Saudi Arabia’s state-owned Public Investment Fund, started in late 2021 and began to poach players from the Tour. Their pitch: ludicrous signing bonuses, less events to play in, and a more modern approach to a game that was showing signs of aging.

The plan somewhat worked. A number of big time players and major champions, such as Brooks Koepka, Dustin Johnson, and Phil Mickelson, left the PGA for a $100 million+ payday to join LIV before they even played a tournament. In total, LIV paid over $1 billion total to get players to join them.

The PGA, led by Commissioner Jay Monahan, scrambled to keep the rest of the players from jumping ship, citing the moral issues with taking money from the Saudis and claiming that they would make changes to the Tour’s structure to reward those who stayed with the PGA. The PGA also launched a number of lawsuits against LIV, so LIV then did the natural thing and countersued the PGA for antitrust violations (more on that later).

Several prominent players, including Tiger Woods and Rory McIlroy, took up the “good company men” roles and spoke out against LIV, chastised the players that left for “blood money,” and touted the tradition and opportunity that existed on the PGA. It ultimately became an “us vs. them”, “good vs. evil” battle for the PGA advocates.

Since the initial salvos, the relationship has settled into a icy stalemate. LIV was not much of a commercial success in its first 1.5 seasons, with many of the potential media and sponsorship partners staying away due to already having relationships with the PGA and/or being turned off by the Saudis highly questionable human rights history. For example, their media rights deal was with the CW, which took the time away from Buffy the Vampire Slayer and The OC reruns to show some golf to a measly 300,000 viewers. Not exactly crushing it with the target audience, particularly when compared to the PGA’s 6.67 million for the recent PGA Championship tournament, which was considered a down year.

But the Saudis didn’t really care because they were on the map and the players who joined were thrilled - they got paid and they got to go back and play the Majors tournaments because the PGA technically doesn’t control them. Win-win.

The PGA did its best to update its rules this year and make the players who stayed with them whole by offering 33% more prize money and potential off-course earnings. They too seemed to be getting along fine in this new paradigm.

Until yesterday.

Why does Saudi Arabia care about golf?

Saudi Arabia’s economy is driven by oil. And business is boomin’.

The state-owned oil company, Aramco, reported a profit of $161 billion last year, the highest figure ever on record for a public company, and oil makes up nearly half of the country’s GDP.

While happy days right now, the country is looking to take its immense wealth and diversify it in order to fortify itself against declines in oil demand and the impending shift to cleaner energy over the coming the decades.

To do this, the country put its $620 billion Public Investment Fund (PIF) to work via Crown Prince Mohammed Bin Salman (MBS)’s Saudi Vision 2030 Plan, focusing on investing in non-energy industries, including sports and entertainment.

And invest they have. The PIF has reportedly spent nearly $10 billion in sports over the last several years, including buying Premier League club Newcastle United and bringing a number of marquee events (WWE, Formula 1, eSports) to the country.

They’ve also taken some audacious swings that have not panned out, including trying to buy Formula 1 and WWE outright, and this latest endeavor with LIV Golf was a mixed bag until yesterday’s announcement.

The PIF cares about generating profits and returns from its investments, but there is something else of equal importance in these deals: legitimacy. One of the core tenants of MBS’ plan is for Saudi Arabia to grow into a global power and gain a seat at the table with other key players. They see these investments as keys to unlock those relationships while also showcasing the new Saudi Arabia, and they will spend whatever it takes to get there.

Critics would say that its hard to execute (pun very much intended) this vision when you have the checkered past of MBS and the Saudi state, and it is in the best interest of the current global order to shun them until they repent and implement significant reforms.

Regardless of their track record, the Saudis are willing to sacrifice all the money in the world to overcome their reputation and bend the power structure to their will. And they just got a checkmark in their column with this merger.

BFFs now

So, there a lot of mysteries about this merger, and the deal was done in secret the past few weeks by an ultra select group from both sides. Key figures (i.e., Rory McIlroy from the PGA and Greg Norman from LIV) were left out the discussion and out with the rest of us yesterday. Here’s what we do know:

The PGA Tour and LIV Golf will combine their commercial businesses and media deal rights into a new, for-profit entity.

The board of directors for this new entity will be chaired by Yasir al-Rumayyan, close friend and confidant of MBS, the governor of the PIF, and the Chairman of LIV. Jay Monahan will be the CEO, and the PGA will appoint the rest of the members to the board and hold a majority voting interest.

While the PGA will have board control, the Saudis have the purse strings. The PIF will be the sole outside investor in the new entity (first investment is expected to be somewhere around $3 billion) and have first right of refusal on any additional capital needs.

It also drops all pending litigation by both sides, and the PGA will retain its non-profit status (for now - some members of Congress got mighty interested in that status after this announcement). This is massive for both sides because neither group wants their affairs dug into — Saudi Arabia for obvious reasons; the PGA is currently under investigation by the DOJ for antitrust violations.

Lastly, it absolutely screws the players who stayed. There were countless players who turned down generational wealth from LIV to stand by the PGA. Now, the players who left for “blood money” are coming back into the same organization as them with substantially fatter pockets and no real repercussions. There supposedly will be a way for the players who left to be fined and those who stayed to be made whole, but let’s just say there were not a lot of nice things said about Jay Monahan during the PGA players’ meeting yesterday afternoon. Rory McIlroy said it all here.

We Are Where We Are

More broadly speaking, though, this pending deal illustrates two macro concepts:

First, this most likely emboldens Saudi Arabia’s plans for sports. The Saudis took every shot in the media, the boardroom, and the courtroom on this LIV Golf experiment, and they end up being the lead investors on this new, supercharged game of golf. I doubt it went exactly as they expected, but this is about as good of an outcome as the PIF could’ve hoped for.

As noted above, Saudi Arabia weren’t exactly being shy with their sports aspirations before, but I expect their timelines and scale of investments to accelerate quickly. Their next target: soccer. Two of the teams in the Saudi Pro football league paid out over hundreds of millions to two aging stars (Cristiano Ronaldo and Karim Benzema) to come play for them, and just this week, the state announced that is was taking over the top four clubs in order to accelerate their growth. You definitely don’t see that move by other governments.

Second, money talks. It’s hard to think of a time where this concept was laid more bare for everyone to see — well, since all the players left the first time 18 months ago.

Jay Monahan looks like a complete jackass after the moral grandstanding he did on Saudi Arabia last year when LIV started to poach the players. Whether he actually believed it at the time or if it was just a business move to keep as many players as possible on his side is negligible because this is one of the biggest 180s in business history, and Twitter was having a field day with it.

While it’s unclear if he’ll survive this merger after leading what many players and fellow executives feel is an utter betrayal, it most likely became apparent to him that they’d be facing a death by a thousand cuts with this LIV battle and this deal secured their future. The PGA is currently not in bad financial shape but the lower quality of product without the popular players who left for LIV means less revenue, and the need to constantly increase prize money and other financial incentives to keep up LIV from poaching more players could push a rationally acting business to the brink. And guess who’s on the other side and feeling pretty irrational with their checkbook? The Saudis.

Putting aside the moral quandaries and questions of if this deal will get past the FTC given the PGA’s already questionable antitrust-exempt status, it is better for the long-term health of the game because it pieces the fractured golf world back together and creates a new, very well-capitalized version of the game. It’s not a stretch to think that golf is about to morph from a regional game to a global, F1-style juggernaut.

And the truth is that despite the initial shock and consternation, the majority of the players, sponsors/partners, and fans will eventually fall in line. Given the circumstances and players involved, I imagine it’s not going to be the last time we are going to be put into this moral dilemma, either.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• PGA Tour, the old guard, faced an existential threat from LIV Golf, the Saudi Arabia-backed upstart with bottomless pockets that began poaching its players.

• A previously icy, litigious relationship that had been framed as “good vs. evil” has now been turned into a potential partnership, as the two sides announced a merger yesterday.

• Saudi Arabia has a national mandate to diversify from oil, and one of its main target areas is sports and entertainment. This move is in line with that directive.

• Assuming the merger makes it through government approval, this is a huge win for the game of the golf, the players who went to LIV, and the Saudis. The main losers are the players who stayed on the PGA Tour.

• Expect to see much more of Saudi Arabia in sports, particularly soccer, very soon.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. Messi’s MLS deal is lol-worthy

2. Women’s sports to the moon

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. TCU with the Class

2. Viktor Hovland. Man of the People

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex