Buy.com Sues PGA Tour Over Online Retail Deal
Struggling online retailer Buy.com Inc., undergoing major cuts in staff and operations, sued the PGA Tour on Wednesday for $45 million on claims the pro golf circuit breached an agreement by hiring another company to operate the tour’s online store.
The lawsuit, filed in U.S. District Court in Santa Ana, also seeks to dissolve the Aliso Viejo company’s five-year contract to sponsor a second-tier PGA golf tour.
The once-promising alliance of old-line sports and audacious e-commerce, now in its second year, appears to have soured as Buy.com’s stock plunged and its losses mounted.
Denying wrongdoing, the PGA suggested Buy.com was suing because of its financial troubles.
“We are disappointed that its new management would take this unwarranted action as a means to help rectify its own problems,” PGA’s chief legal officer, Ed Moorhouse, said in a statement.
The alliance with PGA began in October 1999 when Buy.com agreed to replace Nike as a sponsor of a PGA junior tour. The Internet retailer agreed to pay PGA $8.5 million a year for five years and granted the golf circuit 1,125,000 shares of its stock as part of the deal.
A day after Buy.com went public the following February, the stock reached $27.50 a share, making PGA’s stake worth $31 million. PGA’s stake would have been worth just $495,000 in Wednesday trading on Nasdaq, when Buy.com finished the day up 6 cents at 44 cents a share.
PGA spokesman Bob Combs said the PGA may have sold some of the stock. He wouldn’t elaborate.
In a statement, Buy.com said it tried “to find a solution to this dispute” after PGA chose USA Networks as the exclusive operator of its online store. “However, the PGA Tour no longer appeared to be interested in supporting” Buy.com, the company said, leaving a lawsuit as “the only course of action left.”
PGA contends Buy.com’s two former top executives were “fully aware and supportive of” PGA’s deal with USA Networks. Former chief executive, Gregory Hawkins, and chief financial officer, Mitch Hill, resigned under pressure from Buy.com’s board two weeks ago.
But Buy.com’s attorney, Michael Hornak, said the pair never supported the deal.
PGA informed Hill and Hawkins last October that it was negotiating another online deal, Hornak said, but the executives were not told who was involved and were “astonished” to learn about it.
The lawsuit coincides with major cutbacks at Buy.com, which is fighting for its existence after losing $280 million in three years.
The company confirmed that it will fire 125 workers--about half its staff--reduce spending on outside services and close its own sports store and the golf retailing business it acquired from BuyGolf.com in Laguna Beach in late 1999.
Buy.com, which laid off 25 workers a month ago, said the various cutbacks will save it $70 million a year.
“We had to make difficult decisions in order to advance our goal of becoming profitable while maintaining a leadership position in e-commerce,” said James B. Roszak, a board member who became Buy.com’s chief executive.
The company said it would record a pre-tax charge in the range of $32 million to $37 million in the first quarter of 2001 to cover its costs in dismissing the workers and shutting down the sports store and golf retailing business.
