The original article was published 6/22/23, 9:46 AM, and can be found here. Written by Tim Shaw.
Congressional lawmakers have raised concerns about the validity of the U.S.-based golf organization’s tax-exempt status after a surprise announcement of a merger with its Saudi-backed rival.
On June 6, the PGA Tour made headlines when it laid out an agreement reached with the Saudi Arabian Public Investment Fund (PIF), the entity behind LIV Golf, a competing golf circuit that quickly reshaped the sport’s landscape when it was created in 2021. The PGA and LIV Golf have been entangled in legal battles as some big-name golfers jumped ship from the PGA Tour after being offered massive deals. It has been reported by multiple outlets that star Phil Mickelson and Dustin Johnson signed contracts with LIV worth $200 million and $125 million, respectively.
Further details of the merger’s framework between the PGA Tour, DP World Tour (Europe’s top pro golf tour), and LIV Golf will be rolled out “in the months to come,” according to the PGA announcement, which specified that the combined rights of each tour will be used to form a”collectively owned, for-profit entity to ensure that all stakeholders benefit from a model that delivers maximum excitement and competition among the game’s best players.”
Currently, the Tour is exempt from federal taxes under Code Sec. 501(c)(6), designed for so-called business leagues, chambers of commerce, real estate and trade boards, and professional football leagues. A business league, such as the PGA Tour, is defined by the IRS as “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit.”
Saudi involvement has ruffled the feathers of some on the Hill, including Senate Finance Committee Chair Ron Wyden, Democrat of Oregon. Wyden wrote to PGA Tour Commissioner Jay Monahan and Chairman Ed Herlihy June 15, expressing “serious concern” about the merger and called into question whether the PGA Tour should continue to qualify for tax-exempt status.
Wyden’s letter purported that “the Kingdom of Saudi Arabia has committed gross violations of human rights in the Middle East, abroad, and here in the United States. The Saudi government has a long history of detaining dissidents, torturing women’s rights activists, and carrying out arbitrary killings.” The letter points to the 2018 killing of journalist Jamal Khashoggi as an example of why the Saudi government would use sports investments as “a way of cleansing its reputation,” a practice known as “sportswashing.”
“Given the Tax Code’s prohibition on Section 501(c)(6) organizations providing any private benefit to any individual, I have serious questions about any compensation, arrangements, formal or informal, proposed as part of this merger framework intended to personally and financially benefit the already lavishly-compensated officers and employees of the PGA Tour,” he wrote. According to Wyden, who cited IRS filings, Monahan received nearly $14 million in 2021, and 19 others had annual compensations exceeding $1 million.
“It is difficult to rationalize how any further increases in compensation to Tour executives would be in the best interest of the PGA Tour or further the Tour’s tax-exempt purpose,” said Wyden, adding that PGA jets were used by Monahan and top officials for “extensive personal use.”
Wyden asked for a suite of information regarding the structure of the new affiliate for-profit entity as outlined in the merger agreement; executive compensation and responsibilities; how the proposal is in line with the Tax Code; and national security matters.
Days prior on June 12, Connecticut Democratic Senator Richard Blumenthal, who chairs the Permanent Subcommittee on Investigations, asked for similar documents and information from Monahan in light of the LIV Golf merger. “PGA Tour has stated that it intends to preserve its tax-exempt status as a Section 501(c)(6) entity after the agreement is executed,” Blumenthal’s letter read. “This assertion raises additional questions about the terms of the agreement and whether a foreign government may indirectly benefit from provisions in U.S. tax laws meant to promote not-for-profit business associations.”
California Democratic Representative John Garamendi introduced the No Corporate Tax Exemption for Professional Sports Act in response to the announcement. Code Sec. 501 would be amended to add a special rule providing that subsection (c)(6) excludes professional sports leagues or other organizations that have “substantial activity” designed to “foster national or international” pro-level sport competition, as the benefit was intended for amateur leagues.
“Saudi Arabia cannot be allowed to sports wash its government’s horrific human rights abuses and the 2018 murder of American-based journalist Jamal Khashoggi by taking over the PGA Tour,” Garamendi said in a June 7 press release. “[Monahan] should be ashamed of the blatant hypocrisy and about-face he and the rest of the PGA Tour’s leadership demonstrated by allowing the sovereign wealth fund of a foreign government with an unconscionable human rights record to take over an iconic American sports league and avoid paying a penny in federal corporate income tax.”
Other members of Congress have introduced legislation in recent years to close alleged tax loopholes enjoyed by professional sport leagues, such as the Properly Reducing Overexemptionsfor Sports Act sponsored by Florida Republican Representatives Greg Steube and Matt Gaetz in 2020. A year earlier, Republican Senator Joni Ernst of Iowa introduced similar legislation in the Senate.
In 2015, the National Football League (NFL) voluntarily gave up its tax-exempt status as a professional football league as defined by Code Sec. 501(c)(6). NFL Commissioner Roger Goodell said at the time that the decision was reached to remove “a distraction” from the league that has been “mischaracterized repeatedly.”
Reuters reported that the U.S. Department of Justice will conduct an investigation into the announced framework.
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