Merger deals around sports are always complicated, but there are further complications still when the deal involves rival leagues and foreign ownership. That’s the case with the proposed PGA Tour-LIV Golf deal (which would also include the DP World Tour). And that’s now led to quite the twist in a U.S. Senate hearing on the proposed merger.
That move was announced with a lot of hype (and a lot of surprise for players) last June, but not completed by the December deadline. And there are questions on if it will actually happen, especially considering that the PGA Tour has now received a $3 billion investment from the U.S.-based Strategic Sports Group (but has said they’re still in talks with LIV and its parent, Saudi Arabia’s Public Investment Fund), and considering that the planned merger has drawn so much criticism and scrutiny.
Some of that scrutiny comes from the U.S. Congress. The Senate Committee on Homeland Security and Governmental Affairs‘ permanent subcommittee on investigations held a hearing into the proposed deal Tuesday. And that saw a notable twist there, with several representatives of the U.S.-based bankers and consultants working with LIV telling the committee they couldn’t reveal many details because the PIF sued them in November to prevent them from sharing information with the U.S. government, and has told them they might face imprisonment for up to 20 years if they violate that order. Here’s more on that from Mackenzie Hawkins of Bloomberg:
Violating the court order could lead the kingdom to imprison executives and their staffers for 20 years, according to veteran investment banker Michael Klein, one of the top advisers to the fund.
“This represents aberrant behavior for a client, and, quite frankly, for the PIF, who has historically been a client that has operated with best practices of governance with us,” Klein said at a hearing held by the committee. He testified alongside Boston Consulting Group’s Rich Lesser, McKinsey’s Bob Sternfels and Teneo Strategy Chief Executive Officer Paul Keary.
US lawmakers slammed the advisers for not cooperating with their inquiry, noting the firms have only provided a fraction of the documents demanded in a congressional subpoena.
“The PIF has been explicit that the disclosure of information relating to BCG’s work for PIF is a violation of Saudi law, which ‘imposes criminal penalties for disclosing or disseminating such information including imprisonment for a maximum of 20 years,’” Lesser said in his prepared testimony. “We risk criminal and financial penalties for the firm and for individuals working or living in Saudi Arabia.”
Senator Richard Blumenthal said the investigations panel on the committee has never conceded a claim of foreign sovereign immunity over commercial documents, warning that it sets a dangerous precedent that could inhibit lawmakers’ ability to do their job.
“It’s simply staggering to me that American companies are not only willing to accept this claim, allowing the Saudi government to determine what is permitted to provide this subcommittee — but also that they would use it to justify their refusal to comply with a duly issued congressional subpoena,” said Blumenthal, a Connecticut Democrat.
Subcommittee ranking Republican member Ron Johnson (R-WI) also criticized the Saudi government’s attempt to bar the consultants from testifying here in his opening statement:
Unfortunately, due to Saudi Arabia’s claims of sovereign immunity and Saudi court rulings, the consultants have been constrained in what documents they believe they can provide. It is my understanding that all four firms here today are facing litigation instigated by the PIF in Saudi court. The firms claim that by producing certain records to the Subcommittee, their employees would be in violation of Saudi law and could face severe consequences. That is a very serious reality that this Subcommittee must consider as it proceeds with this inquiry.
I do have sympathy for the position the consultants find themselves in, but I have no sympathy for Saudi claims of sovereign immunity in this inquiry. Any foreign entity wishing to do business in the U.S. must comply with U.S. law and be responsive to Congressional subpoenas.
That is why I chose to join Chairman Blumenthal on follow-up letters to the consultants calling for full compliance with the Subcommittee’s subpoenas. To be clear, conducting oversight of the PIF is not my top priority, but I am supportive of preserving PSI’s oversight prerogatives and responsibilities.
PSI is the Senate’s chief investigative body which is why it is armed with the power to compel the production of records. If PSI’s ability to access records weakens, then the power of this Subcommittee will be reduced and Congressional oversight will atrophy further.
Of course, confidentiality provisions in consulting work are relatively common. But those don’t usually bar U.S. government bodies from investigating. However, this speaks to the particular challenges of a U.S. sports league trying to partner with a league that’s not just based abroad, but owned by a foreign government’s sovereign wealth fund.
That body is much more likely to follow its own government’s rules than U.S. rules. And that reduces the opportunities for U.S. governmental oversight of the combined league. (And, as seen here, even U.S.-based firms involved with that league aren’t necessarily going to cooperate with their own government when the governments disagree on what’s legal, citing the perils for their executives and foreign-based staffers.)
The PGA Tour-LIV Golf situation is far from the first controversial overseas partnership, as noted by many. The NBA’s various dealings with China have come under a lot of scrutiny over the years, and foreign governmental response there has been part of that. Many leagues and corporations’ dealings with Russia have also been under the microscope, with many of those terminated or suspended around Russia’s 2022 invasion of Ukraine. But the LIV Golf situation is several layers beyond that considering that this is a proposed league merger or partnership rather than just a broadcasting deal.
And the testimony at this committee (the full testimonies of the various advisors can be found on the committee website) indicates some of the challenges that remain before any merger can be consummated. While the advisors all said they have provided some documents to the committee as available, and continue to work with the Saudi government to be able to release more, they’ve made it clear they can’t provide everything the committee asks for right now thanks to Saudi government interference. Here’s more from Klein’s testimony:
Exposing ourselves to a breach under the filed court case with potential criminal consequences is simply not a risk I can take or impose on my employees. And while I understand views may differ
about the severity of the order, if the analysis is wrong, the consequences fall exclusively on me, my employees, and their families.
Of course, U.S. governmental officials don’t necessarily have to push for full disclosures from these bankers and advisors before letting a merger happen. And it should be noted that this particular committee is a legislative branch one on homeland security and governmental affairs. The main merger approval hurdle tends to comes from the executive-side Department of Justice, which is quite separate from this committee.
But a bunch of U.S.-based bankers telling a Senate committee “We can’t fully testify because a foreign government has said we might face 20 years in jail” does indeed seem as unprecedented as Blumenthal cites. And it does not set a great precedent. And it shows some of the many roadblocks that may remain in the way of a LIV Golf-PGA Tour merger.
Update: PIF later offered this statement:
“We have been and are committed to working with the Subcommittee in good faith in a manner that is consistent with PIF’s status and obligations as an instrumentality of Saudi Arabia. We have made, and are continuing to make, significant efforts to facilitate the production of requested information from our advisors consistent with the laws of Saudi Arabia, which should be recognized like those of any other country.
To date, we have facilitated production from our advisors of thousands of substantive pages of presentations, correspondence, and final deliverables related to our investments and their work on our behalf. We are engaged in extensive and rapid document reviews and will continue working constructively and with integrity with the Subcommittee with relevant information that can legally be disclosed under the laws of Saudi Arabia.
The Subcommittee’s requests are sweeping and unprecedented in seeking to compel the production of confidential and classified information of a foreign sovereign instrumentality, but we hope to work with the Subcommittee to resolve these issues.
PIF is confident that its support for innovative and transformative companies has and will promote economic opportunity and job creation in the United States, and around the world. To date, PIF has invested over $79 billion in the U.S. economy, and is expected to grow that investment significantly by 2030. Our estimates show that investment would lead to more than 550,000 new American jobs. As a rational investment fund, PIF acts independently in carrying out its investment activities. As a long-term investor and catalyst of change, PIF is invested in the projects, companies and partners that will create new opportunities for investment and employment, including in the U.S., and shape global industries of the future.”
