Professional Golf Monopoly? Analyzing Whether PGA Tour Practices Are Vulnerable Under the Sherman Anti-Trust Act

by Stephen Fox, Associate Member, University of Cincinnati Law Review Vol. 91

I. Introduction

The PGA Tour, originally formed in 1968, is the most prominent and widely watched professional golf league in the United States.¹ Since its inception, the PGA Tour has faced competition from other leagues seeking to enter the American market, but has been successful in snuffing out these attempts.² Recently however, anti-trust allegations have engulfed the league following an ongoing investigation from the U.S. Department of Justice³ and a lawsuit from former players who have left the PGA to join the competing LIV Golf League. ⁴ This lawsuit, alleging that various practices of the PGA Tour violate the Sherman Anti-Trust Act (“Sherman Act”), could drastically alter the landscape of professional golf in the United States.⁵

This article will provide a brief description of the Sherman Act and current standards used by courts to interpret its meaning. Next, the article will cover some of the practices of the PGA Tour that have been identified as potentially anti-competitive. Then, this article will describe the likelihood of success on an anti-trust claim against the PGA Tour. Lastly, the article will analyze whether a court should recognize the PGA Tour’s policies governing player appearances as violating the Sherman Act.⁶

II. Background

A. The Sherman Anti-Trust Act

15 U.S.C.S. § 1, popularly known as the Sherman Act, states that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.”⁷ Congress passed this act intending to promote fairness in the economy, strive for lower prices, increase innovation, and provide greater variety of products and services for consumers, which all flourish under increased competition.⁸ The statute states that “every” contract, trust, and conspiracy that restrains trade is illegal. ⁹ However, the Supreme Court recognized that Congress did not intend courts to use the literal definition of “every,” as nearly all business practices manifest some sort of restraint on trade.¹⁰ Rather, courts analyze anti-trust claims under the rule of reason standard.¹¹ Under this analysis, the factfinder must look to the totality of the circumstances and determine whether the restrictive business practice unreasonably restrains competition.¹²

However, the rule of reason analysis has proven to be costly for litigants.¹³ The litigation is often complex, lengthy, and is reviewed by judges who generally lack the required background to understand the complicated effects of prohibitive business practices on market structure and competition.¹⁴ In recognition of these issues, the Supreme Court has enabled Sherman claims to be reviewed under a per se analysis when the conduct in question is blatantly anti-competitive.¹⁵ The Court has found that some business practices are so detrimental to the economy that they should be presumed unreasonable, avoiding an expensive and elaborate investigation into its effects.¹⁶ However, a per se analysis is only undertaken by the Court when it has had substantial experience with the restraint and the economic effects of the restraint are well known.¹⁷ Some of these restraints that warrant a per se analysis are price fixing, collusive boycotts, and dividing markets.¹⁸

Most anti-trust claims fall outside this narrow scope and are analyzed under the rule of reason test.¹⁹ When courts analyze cases utilizing the rule of reason test, they employ a three-step approach to frame their inquiry into the details and basis of an economic restraint. ²⁰ For a plaintiff to satisfy the first prong of the framework, it must first show that the action in question had an actual negative effect on market competition.²¹ Just showing that the action negatively impacted the plaintiff is insufficient.²² Rather, the plaintiff must show harm to the whole market, ensuring that courts are promoting the competitiveness of the economy, not just between individual competitors.²³ If the plaintiff satisfies this requirement, the burden then shifts to the defendant in the second prong, who must show some procompetitive justification for the restraint.²⁴ If the defendant is able to provide a sufficient justification, the third prong sees the burden shift back to the plaintiff, who must show that the defendant’s objectives could be achieved by a less restrictive means.²⁵ If the plaintiff is able to do so, the factfinder then employs a balancing test, weighing the anti and procompetitive effects of the action.²⁶

B. Allegations Against the PGA

Current scrutiny over the PGA Tour’s structure and bylaws is predominantly focused on the treatment of its players.²⁷ The Tour’s bylaws require that players must have prior, written approval by the commissioner before participating in a televised event not sponsored by the Tour.²⁸ Secondly, the PGA Tour’s rules state that players must request a release to play in golf tournaments which conflict with its own tour events.²⁹ Each player may only receive up to three releases a season, and these releases cannot be requested for North American events.³⁰ These non-compete rules greatly impede the ability of players to seek additional income in golf competitions outside the scope of the PGA Tour.³¹ Recently, the PGA Tour has suspended players after they participated in a LIV Golf event, spurring a lawsuit by several players and LIV Golf for anticompetitive behavior.³²

III. Discussion

A. Analyzing PGA Tour Practices Under the Prongs of the Rule of Reason Standard

If a court were to analyze a suit brought by disgruntled players or any other party alleging Sherman Act violations, it would most likely analyze the claim under the rule of reason standard. Since the per se analysis requires the defendant’s conduct to fall within a narrow classification of restraints that the Supreme Court has great experience with, and the employee non-compete rules of the PGA Tour do not fall within those classifications, a per se analysis is excluded.

By excluding a per se analysis, the rule of reason standard is the default test. The Supreme Court has generally used this standard for testing anti-trust claims that are secondary to main business transactions, like what is seen in employment contract disputes.³³ For a claim against the PGA Tour to satisfy the framework, the plaintiff must first show that the PGA Tour’s non-compete rules for its players had a negative effect on market competition.³⁴ Claimants may show this negative effect directly by providing evidence of decreasing quality or output in the market.³⁵ Alternatively, claimants may also show negative effect through indirect means by proving the PGA Tour has market power and the anti-compete rules harm competition.³⁶

Without the ability to conduct an in-depth economic analysis of the PGA Tour’s employment effects on the market, one could look to a statistical analysis of courts employing a rule of reason standard.³⁷ Michael Carrier of Rutgers University surveyed all federal rule of reason cases between February 2, 1999 to May 5, 2009.³⁸ There, it was found that 94% of cases analyzed under a rule of reason analysis dismissed the plaintiff’s claim for failing to show a negative market impact and losing on the first prong of the analysis.³⁹ Next, if the plaintiff was able to defy the odds and satisfy the first prong, the PGA Tour would then have to defend the anti-compete rules for its players by showing a procompetitive justification for the restraint.⁴⁰ Statistics once again would favor the PGA Tour, with only 3% of cases finding that the defendant failed to provide a legitimate justification.⁴¹ The plaintiff would then have to provide a less restrictive means to accomplish the PGA Tour’s desired effect from its anti-competition rules, and if they succeeded, the court would balance the effects of the action.⁴² However, only 2% of analyses make it this far through the framework, with the rest finding that a party failed to satisfy their respective prongs.⁴³ Overall, any anti-trust claim brought against the PGA Tour and its restrictive practices governing player performances would be moving forward under a drastic statistical disadvantage, as courts predominantly rule in the defendant’s favor.⁴⁴

B. Balancing the Economic Effects of PGA Player Requirements

Although seldomly seen, if a claim against the PGA Tour is brought and succeeds in overcoming the statistical barriers of the rule of reason standard, the court would then employ a balancing test to weigh the anti and procompetitive effects of the PGA Tour’s rules concerning player participation in competing leagues.⁴⁵ When utilizing this balancing test, courts look to determine if the defendant has market power, which the Supreme Court has defined as the ability to manipulate prices and exclude competition.⁴⁶ Market power can also be shown if the party has a very large share of the market, which the PGA Tour easily satisfies in this case.⁴⁷ Next, courts may look at the harm to competition by the defendant’s actions.⁴⁸ In United States v. Visa U.S.A., Inc., the Second Circuit identified acts that completely exclude competitors from the market as harmful to competition.⁴⁹ The PGA Tour allows players to participate in golfing ventures outside of its reach, but only under the explicit permission from the commissioner.⁵⁰ Although the PGA Tour’s own rules grant players the ability to participate in competing leagues, the PGA Tour has complete discretion on when it can grant this ability, effectively creating a monopsony⁵¹ in the professional golf labor market.⁵² The Second Circuit continued its balancing test by looking to the effect of the restraining business practices on prices.⁵³ In this context, prices would equate to player earnings, which have increased to record highs since the introduction of LIV Golf, showing that the recent increase in competition has increased wages.⁵⁴

On the other side of the balancing test, defendants often argue that their restrictive practices may negatively impact a single competitor, but do not affect the whole market, which is required to satisfy the rule of reason standard.⁵⁵ However, this argument is not applicable to the PGA Tour. Its rules provide a blanket ability to deny players from competing in any other league’s events, not just a specific rival league.⁵⁶ Additionally, similarly to the defendant in Visa U.S.A. Inc., the PGA Tour could also contest that its rules have procompetitive justifications, as they strengthen the PGA Tour’s ability to remain competitive in the market by ensuring they maintain the best talent.⁵⁷ However, a fact finder reviewing a case against the PGA Tour would likely reach the same conclusion as the one in Visa U.S.A. Inc., which found that any procompetitive merit to the PGA Tour’s rules are outweighed by their inherently anticompetitive nature.⁵⁸ After weighing the potential arguments for each side, it is likely that a court would find for a plaintiff raising an anti-trust claim against the PGA Tour’s player appearance rules, assuming the court’s analysis would proceed to the balancing portion of a rule of reason framework.

IV. Conclusion

The Sherman Act was created to promote the economy through prohibiting anti-competitive practices.⁵⁹ However, when courts analyze anti-trust complaints outside of the per se standard, there appears to be a strong presumption against a plaintiff’s arguments. Courts seem to be wary when ruling on anti-trust claims, not wishing to meddle in complicated affairs they do not fully understand and potentially injure the economy. Due to this, any anti-trust claim against the PGA Tour that is analyzed under the rule of reason standard is unlikely to prevail.

Cover Photo by Steven Shircliff on Unsplash

Stephen Fox

Stephen Fox is a 3L and Articles Editor of the University of Cincinnati Law Review. He grew up in East Lansing, Michigan where he studied at Michigan State University and earned a B.A. in Economics. Stephen is particularly interested in criminal, employment, and health law.

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LIV Golf receives a large amount of financial backing from Saudi Arabia’s Public Investment Fund. The Saudi Arabian government has performed numerous human rights violations in recent years. This blog will not discuss the moral and ethical decisions players must face when accepting money from a Saudi backed golf league. Any acknowledgment of potential antitrust issues with the PGA Tour is not condoning the Saudi government or players who choose to participate in the LIV golf league. See Saudi Arabia Events of 2019, Human Rights Watch, https://www.hrw.org/world-report/2020/country-chapters/saudi-arabia [https://perma.cc/JJW9-5V8C].
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