PGA Outclubs FTC in Antitrust Fight

For the 24.3 million Americans who struggle just to steady their backswings, golf is a fiendishly difficult game--”a good walk spoiled,” Mark Twain called it--wrapped in a mantle of immaculate fairways and gracious traditions.

And for most amateurs, the epitome of the royal and ancient game is the touring professional. Today’s pros ply their skills in a world of elegance, trailed by galleries who observe in reverential silence.

But professional golf is also a booming, multimillion-dollar entertainment business, and it was this aspect of the game that concerned Timothy W. Finchem, the newly installed commissioner of the PGA Tour Inc., late last year.

Finchem had a decision to make.

And both the problem he faced and the way he solved it illuminate the economic importance of professional sports and the special niche that golf enjoys with some of Capitol Hill’s premier lawmakers.

Where major league baseball has turned into a public brawl among millionaires, and the business machinations of pro football and basketball have stirred endless controversies, professional golf has maintained an image so smooth that money seems almost an afterthought.

Yet unaccustomed as people may be to thinking of professional golf as an industry, it is a big business getting bigger.

The number of PGA tour events has grown from 72 in 1984 to 125 in 1994, while purse money over those years ballooned from $26.5 million to $107.3 million. The PGA Tour’s operating income for this year is projected to surpass $280 million.

Behind those numbers lies a carefully built framework of relationships among major corporations that sponsor tournaments, charitable organizations that share in the financial rewards and the television networks that pay millions of dollars for broadcast rights.

It was against this background that PGA Commissioner Finchem, in late 1994, made an unsettling discovery: After a four-year investigation, antitrust lawyers at the Federal Trade Commission in Washington had decided to seek government action to nullify two little-known PGA rules that all professional golfers must accept as a condition of joining the PGA tour.

One of the rules forbids golfers to play in a non-PGA event without the commissioner’s permission. The other gives similar veto power over appearances on televised golf programs. Together, the provisions enable the PGA to dominate the business side of professional golf, constraining the opportunities of rival promoters.

Without those rules, Finchem and the PGA feared, golf could be swept by the type of costly disruptions that have dogged other professional sports. Finchem was mindful of many scenarios, including the emergence of rival golf tours and the specter of players spurning long-established tournaments, leveraging one offer against another.

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The choice for Finchem was whether to respond to the FTC in the PGA’s traditional low-key manner or to launch a more vigorous, frontal counterattack.

“We decided to raise the profile a little bit,” said Finchem, a lawyer who served in the Carter White House. “We just wanted the [FTC] commissioners to understand this was a very important matter.”

Of course, vested interests of all kinds, from Fortune 500 companies to labor unions and environmentalists, often seek the aid of members of Congress. And, the validity of the FTC antitrust lawyers’ position remains a matter of opinion.

Finchem said that while the tour’s disputed policies control players, the restraints are necessary to assure TV networks and sponsors of a reliable supply of quality golfers. He also pointed out that the PGA Tour’s growth helps charitable organizations, which received $31.7 million from tournament-generated revenues in 1994.

On the other hand, the FTC’s attorneys argued that the rules unreasonably restrained competition in violation of antitrust law. They recommended that the FTC file a formal legal complaint to nullify the rules.

Economists at the FTC, according to sources, opposed taking action against the PGA, arguing internally that the tour’s growth justified the rules.

Yet whatever the legal merits of the case, what Finchem achieved when he decided to “raise the profile a little bit” was extraordinary--the lobbyist’s equivalent of a hole-in-one.

Finchem first contacted the FTC commissioners personally and with the help of the PGA Tour’s lawyer-lobbyists and public relations consultants, who included a former White House press secretary.

In press releases and media interviews, Finchem challenged the confidential conclusion of the FTC lawyers. He helped persuade corporate sponsors of tournaments and charities, from Monterey, Calif., to Westchester County, N.Y., to write members of Congress and to the FTC.

He also pressed the PGA’s case directly with Congress. It was an opportune moment: The PGA case was playing out just as the FTC faced a 20% budget cutback from the Republican-controlled Senate. What unfolded demonstrated how vulnerable the FTC is to political pressure, even though the agency is supposed to function as an independent regulatory and law enforcement agency.

Interviews and documents obtained by The Times under the Freedom of Information Act show that no fewer than 26 members of Congress--Republicans and Democrats--wrote to the FTC commissioners about the case.

“We went to the Hill and we had a number of meetings where we presented our case,” Finchem said, adding that he sought the members’ “help, to make sure the [FTC] commissioners think this through. . . . We encouraged a number of congressmen to write letters, and some of them did.”

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Among those who did was Senate Majority Leader Bob Dole (R-Kan.), the current front-runner for the Republican presidential nomination. Others included Senate Majority Whip Trent Lott (R-Miss.); Rep. Bill Archer (R-Tex.), chairman of the House Ways and Means Committee; House Majority Leader Dick Armey (R-Tex.), and the House Democratic Caucus chairman, Rep. Vic Fazio of Sacramento.

Dole took the extra step of making his point on the Senate floor. “I understand that the Federal Trade Commission is considering filing a complaint challenging the PGA Tour’s [rules],” Dole said on Feb. 15. “I question whether the public interest would be served by eliminating the foundation for the success of the tour.”

President Clinton’s nominee to be the chairman of the FTC, Robert Pitofsky, also got an earful regarding the PGA case at his Senate confirmation hearing in January.

“I understand for four or five years now you have got a bunch of lawyers . . . wanting to try to mess up this sport,” Sen. Ernest F. Hollings (D-S.C.), told Pitofsky, adding: “The FTC . . . is still fiddle-faddling around, trying to find some trouble, and that is what I will be interested in.”

(South Carolina is a state that has worked hard to develop resort and retirement industries around golf).

Another opponent of the investigation was Rep. Michael G. Oxley, an Ohio Republican who chairs a subcommittee that oversees the FTC. Oxley twice wrote letters to the agency. On Jan. 26, he urged the FTC commissioners to “disregard the staff’s recommendation to file a complaint against the PGA Tour.” On June 13, Oxley wrote again, seeking a briefing regarding the investigation “on a confidential basis.”

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Oxley himself is no stranger to PGA golf: He is among 20 members of Congress who are invited each year to play with some of golf’s stars in an exclusive 18-hole event, staged in conjunction with the PGA Tour’s Kemper Open, according to Michael F. Dineen, a tournament organizer. Dineen is a lobbyist for the Kemper National Insurance Cos., sponsor of the annual tournament in suburban Maryland.

Invitations to the event--in which the congressmen and other amateurs play alongside the pros--are hard to come by. Organizers said that outsiders who want to play must get on a waiting list and, if called, pay an entrance fee, which this year was $3,250. Dineen said the Kemper Cos. have waived the fee for the congressmen and for a handful of the company’s own, top-performing insurance agents.

Oxley confirmed that he has never paid to play in the tournament. He said he does not believe he was required to report the playing privileges as gifts in his annual disclosure statements. A spokesman for the House Ethics Committee declined to comment. Oxley said he contacted the FTC because he thought the PGA investigation “was simply wrong.”

Yet within the golf industry, some discontent has flared over the PGA’s rules.

Jack Nicklaus, the game’s living legend, has at times bristled at the effect PGA Tour rules have had on his own company, which produces made-for-television golf events. Nicklaus voluntarily conferred with the FTC’s antitrust lawyers, but has publicly supported the PGA Tour’s position.

“The rules and regulations of the PGA Tour make it difficult to conduct business in a free-enterprise environment,” said Terry Jastrow, president of Jack Nicklaus Productions. “They have stringent, often arbitrary rules. . . . However, for those of us who live and work in the golf community, we appreciate that there must be order and there must be control. . . . We are willing to play ball under these rules and regulations because others also have to.”

Greg Norman, the Australian who is the leading money-winner on the PGA Tour today, announced last November that he would launch a “World Tour,” featuring televised international matches of marquee players. Rupert Murdoch’s Fox network--which already has bought rights to telecast professional football--pledged to buy the new tour’s broadcast rights for $25 million over 10 years.

But for the World Tour to prosper on American television, it would need to siphon some top U.S. players from the PGA Tour, to the potential detriment of PGA tournaments. Finchem immediately warned players that he would suspend them if they played in World Tour events.

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A Fox executive said the network stands by its $25-million pledge and is eager to air the tournaments. But for now, the World Tour remains idle.

A spokesman for Norman declined to be interviewed regarding the PGA investigation.

Clearly, the PGA case is not the first time that a big-time sport has confronted the power of federal antitrust law.

An antitrust lawsuit, pressed in the early 1980s by the University of Oklahoma, broke up the National Collegiate Athletic Assn.’s exclusive control of televised college football. The Supreme Court ruled in 1987 that the NCAA’s rules were too restrictive--freeing Oklahoma to directly negotiate its own TV contracts.

Indeed, big league baseball is the only major U.S. sport that is absolutely exempt from antitrust law. But it is precisely the unruliness of baseball, with its unending labor strife, that defenders of the PGA Tour cited while opposing the FTC’s antitrust unit.

“I am concerned that eliminating the [PGA Tour] rules would only serve to ‘fix’ something that isn’t broken, effectively destroying what is perhaps the only professional sport which is still working today,” said Sen. Conrad Burns (R-Mont.), in a May letter to the FTC chairman.

Finchem’s campaign took several months, but in the end the score wasn’t even close:

The FTC announced on Sept. 1 that the commissioners had voted 4-0 to kill the PGA investigation by rejecting the staff antitrust lawyers’ recommendation to take legal action. The announcement was made late on a Friday afternoon before the Labor Day weekend and received little attention.

FTC investigations are kept confidential, but agency officials said the commissioners in an overwhelming number of cases have voted to follow the antitrust unit’s recommendations.

According to people familiar with the unfolding of the PGA investigation, the congressional overtures injected a tension that could not be ignored.

“I’m sure it was a factor in their decision,” said Edward L. Moorhouse, executive vice president and general counsel of the PGA Tour, referring to the FTC commissioners’ 4-0 vote, adding that he believes the PGA prevailed on the basis of legal merit. Moorhouse acknowledged that seeking the congressional support was not without risk.

“It certainly was something that we thought about,” he said. “We didn’t know how the [FTC] commissioners would react.”

Said an official at the FTC, who spoke on a condition of anonymity: “I can tell you that those letters were taken very seriously here.”

All the more so because the attacks on the PGA investigation came at the same time the FTC faced a new congressional leadership, eager to downsize or eliminate government regulatory agencies. Legislation approved by a Senate subcommittee threatened to slash by 20% the FTC’s existing budget of $98.9 million.

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“The threat was really very clear to the agency,” said one FTC official familiar with the sensitivity of the PGA investigation.

Pitofsky, the FTC chairman, declined to discuss the investigation, noting that he abstained from the vote because his former law firm once represented the PGA. Generally, he said in an interview, “you don’t want regulators coerced into failing to do their job. On the other hand, the regulators are creatures of Congress, and need to be aware” of what Congress wants.

Another recent Clinton appointee to the FTC, Commissioner Christine A. Varney, said she was untroubled by the intercessions.

“The Congress is always watching what the antitrust division is doing,” Varney said. “There was interest in this case. Does it have any relationship to the way the commission voted? Probably not.”

Perhaps. But soon after the PGA case died, FTC officials found a new ally as their proposed budget appropriation has moved behind closed doors to a Senate-House conference committee.

Hollings--the South Carolina senator who derided the FTC’s “fiddle-faddling”--has pledged to carry the agency’s fight for the full, $98.9-million appropriation.

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Winning Stroke

Professional golf is big business and getting bigger all the time. Under the aegis of PGA Tour Inc., the number of professional golf tournaments has nearly doubled in the past 10 years and purse money has quadrupled.

Number of PGA Tour events

‘84: 72*

‘94: 125**

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Purse money for PGA Tour events

‘84: $26.5 million

‘94: $107.3 million**

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Total annual charitable contributions

‘84: $9.4 million

‘94: $31.7 million

* Includes events of both the regular tour and senior tour (for players 50 and over)

** Includes events of regular tour, senior tour and Nike tour (for developing professional players)