Tax Proposals and the PGA Tour-LIV Golf Merger
August 9, 2023
Tax Proposals and the PGA Tour-LIV Golf Merger
In June 2023, the PGA Tour and LIV Golf announced a
invested in a number of types of investment, some
planned merger. The PGA Tour is the world’s largest
resembling venture capital investments.
professional golf league, while LIV Golf is a newer league
financed by the Saudi Arabia Public Investment Fund (PIF),
The largest sovereign wealth funds are in Norway, China,
a sovereign wealth fund. Two tax issues have been raised
Abu Dhabi, Kuwait, Saudi Arabia, and Singapore.
with respect to the merger of the PGA Tour and LIV Golf.
One issue is the tax-exempt status of the PGA Tour. The
Background on the PGA-LIV Merger
second issue is the favorable tax treatment of sovereign
The PGA Tour is the world’s largest professional golf
wealth funds compared to the treatment of other foreign
league, although there was a smaller, significant European
investors in U.S. assets. Legislation has been introduced to
PGA Tour. In 2020, the two leagues formed an alliance
eliminate these tax benefits for sports leagues with assets
with the PGA Tour owning a minority share of the
over $500 million and for certain sovereign wealth funds.
European PGA. The European Tour is now referred to as
the DP World Tour for sponsorship reasons. DP World is a
Tax-Exempt Status of Sports Leagues
multinational logistics company based in Dubai in the
In a provision dating back to 1913, business leagues,
United Arab Emirates. In 2022, the alliance was
chambers of commerce, real estate boards, and similar
strengthened with an increase in ownership of DP World
organizations are eligible for tax-exempt status under
Tour by the PGA Tour, and some players in the European
Section 501(c)(6) of the Internal Revenue Code (IRC).
Tour being given PGA Tour cards.
Sports organizations such as the PGA Tour fall into this
category. (Note that the PGA Tour, although originally
The formation of LIV Golf, ultimately financed by the
formed by the Professional Golfers’ Association of
Saudi Arabia PIF, was announced in 2019, and the league
America, is now a separate organization for tour players.)
had its first tournaments in 2022. It has signed up a number
of golfers who played in PGA tournaments; according to
Other major sports organizations have voluntarily given up
news reports, it has offered large payments for contracting
their tax-exempt status (the National Football League in
to play in LIV Golf tournaments. While Tiger Woods
2015 and Major League Baseball in 2007) or never were
reportedly rejected a contract, Phil Mickleson and several
organized as tax exempt (National Basketball Association).
other top players have signed up with LIV Golf.
News reports at the time indicate that reasons for
relinquishing tax-exempt status were public relations and
The PGA Tour banned players with contracts with LIV
not disclosing compensation of officers. A search of Form
from playing in PGA Tour events. LIV Golf and some of
990s also indicated that Major League Soccer and the
the banned players filed a lawsuit alleging anticompetitive
National Hockey League do not claim tax-exempt status.
practice violations by the PGA Tour. The Justice
Department began an investigation. The PGA Tour
To qualify for tax-exempt status, the league must not be
countersued LIV Golf.
organized for profit and income must not benefit any
private shareholder or individual. The idea behind tax
While the PGA Tour was under pressure to increase prizes
exemption of a business league is that it serves the common
and player benefits, LIV Golf was having difficulty getting
purpose of the businesses rather than being designed to
media coverage in the United States. Some commentators
make a profit.
point to the benefits to both of a merger given these
concerns.
Tax Treatment of Sovereign Wealth
Funds
On June 6, 2023, the PGA Tour and LIV Golf announced a
Foreign investors in the United States are subject to a 30%
planned merger, which would also include the DP World
withholding tax on dividends and certain interest payments.
Tour. While the details are not clear, apparently the merger
These rates can be reduced by tax treaties.
will involve the creation of a taxable firm, although the
PGA Tour will continue to exist. All pending litigation was
Foreign governments are exempt from these taxes,
dropped.
including sovereign wealth funds. This treatment is based
on IRC Section 892, which exempts foreign governments
News reports indicate that Jay Monahan, commissioner of
from taxation on earnings from noncommercial investment.
the PGA Tour, will serve as chief executive officer of the
It dates from 1917 and reflects the concept of sovereign
new combined organization. Saudi PIF Governor Yasir Al-
immunity. Sovereign wealth funds are state-owned
Rumayyan will serve as chairman of the board, although the
investment trusts that may be used to manage currency
PGA Tour will retain a majority of the seats.
reserves or revenues from natural resources and may be
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Tax Proposals and the PGA Tour-LIV Golf Merger
Issues With the Merger
On June 7, in response to the PGA-LIV merger,
Most criticism of the merger has centered on concerns
Representative John Garamendi introduced the No
about combining with a league financed by a country
Corporate Tax Exemption for Professional Sports Act (H.R.
accused of using sports to distract from human rights
3908), which would eliminate the tax-exempt status for
violations (termed “sportswashing”). Families of victims of
professional sports leagues.
the September 11, 2001, terrorist attacks also raised
concerns.
On July 26, 2023, Senator Wyden announced the
introduction of two bills relating to tax benefits:
Following the merger announcement, Chairman Richard
Blumenthal of the Senate Committee on Permanent
• The Sports League Tax-Exempt Status Limitation Act
Investigations launched a probe into the merger. Senators
(S. 2519) would disallow tax-exempt status under IRC
Elizabeth Warren and Ron Wyden have also asked the
Section 501(c)(3) for sports organizations with more
Justice Department to look into the potential
than $500 million in assets. This bill would largely
monopolization of golf by the merger, and Senator Wyden,
target the PGA Tour, since most other large sports
as chairman of the Senate Finance Committee, began an
organizations are not tax exempt. It would also prohibit
investigation that also noted concerns about national
an entity that lost its status from regaining it if assets fell
security.
below $500 million in the future. The PGA Tour
reportedly had $3.9 billion in assets in 2020.
Concerns were also expressed about the tax-exempt status
of the PGA Tour, which stands to benefit from the merger.
• The Ending Tax Breaks for Massive Sovereign Wealth
The merger may also lead to increases in compensation for
Funds Act (S. 2518) would remove the exemption from
professional golfers.
the withholding tax for countries that have more than
$100 billion in investment funds available globally. The
Tax Proposals
exemption can be retained, however, for countries that
A number of proposals have been introduced over the years
have a free trade agreement or a tax treaty with the
to disallow tax-exempt status for major professional sports
United States and are not a “country of concern.” These
leagues. While some of these proposals were motivated by
countries of concern are listed in Section 4872 of Title
issues with the National Football League, they continued to
10 of the U.S. Code. The Finance Committee news
be introduced after 2015 when the league gave up its tax-
release indicates that countries affected by this provision
exempt status.
would include Saudi Arabia, Russia, China, Qatar, the
United Arab Emirates, and Kuwait.
At the beginning of 2023, Representative Greg Steube
introduced the PRO Sports Act (H.R. 578), which would
Jane G. Gravelle, Senior Specialist in Economic Policy
disallow the tax exemption for professional sports
organizations with gross receipts of more than $10 million.
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In a press release, Representative Steube noted that the
PGA Tour would have paid $80 million in taxes from 2016
to 2019 if it had not been tax exempt.
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Tax Proposals and the PGA Tour-LIV Golf Merger
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