EDITOR’S NOTE: A version of this article was initially published in Hackney Publications’ Sports Litigation Alert.

While the details and results of the new business arrangement between the PGA Tour and LIV Golf (or some related entity) remain to be seen, many have commented that the relationship is likely to draw antitrust scrutiny. Specifically, there is a concern that the new structure will result in decreased competition (and thus compensation) in the market for the services of professional golfers. This is especially true if the LIV Golf tour disbands, which is uncertain. Nevertheless, recent developments in law and policy might provide the PGA Tour and LIV Golf an avenue to avoid antitrust problems.

The non-statutory labor exemption

There is a tried-and-true method for sports leagues and teams to avoid antitrust scrutiny of restraints on their labor market: the non-statutory labor exemption. The non-statutory labor exemption is a judicially crafted doctrine that exempts rules, policies, and practices of employers that might otherwise violate antitrust law – as long as those rules, practices, and policies are collectively bargained with a union that represents the employees. The purpose of the exemption is to promote collective bargaining and labor peace. Sports leagues and their teams have used this exemption since the 1970s to institute practices such as free agency and contract limitations, salary caps, and drafts.

The non-statutory labor exemption historically would not have applied to the PGA Tour because its member golfers are independent contractors and not employees of the Tour.  Because they are not employees, they would not be considered eligible to unionize and collectively bargain under the National Labor Relations Act.

However, that may have changed because of a decision from last year from the U.S. Court of Appeals for the First Circuit, as well as recent changes in policy from the Federal Trade Commission, the federal agency tasked with antitrust enforcement.

The Confederación Hípica case

In Confederación Hípica de Puerto Rico, Inc. v. Confederación de Jinetes Puertorriqueños, Inc., the First Circuit analyzed whether jockeys at Puerto Rico’s lone horse racing track were exempt from antitrust law when they took collective action intended to improve their pay and working conditions. Among other things, the jockeys refused to race. 

The legal analysis in the case concerned the statutory labor exemption, a corollary to the non-statutory labor exemption. As stated by the court, “[t]he statutory labor exemption flows from both the Clayton Act and the Norris-LaGuardia Act” and generally provides that employees or laborers who act collectively – such as by striking – do not violate the antitrust laws.

A federal court in Puerto Rico had ruled that the exemption did not apply because the jockeys were independent contractors rather than employees. But the appeals court reversed, holding that “[t]he key question is not whether the jockeys are independent contractors but whether what is at issue is compensation for their labor.” The jockeys here were clearly acting to improve the compensation for their labor and thus were protected by the statutory labor exemption.

Changes in FTC policy

Lina Khan, Chair of the FTC, has been no stranger to controversy during her brief tenure in the role. Ms. Khan has been a vocal critic of the competitive practices of large technology firms and has proposed a rule that would ban noncompete clauses in employment arrangements and apply the ban retroactively.

She also has interesting views on the ability of non-employee workers (independent contractors), to take collective action. In a 2021 letter to the U.S. Congressional Subcommittee on Antitrust, Commercial, and Administrative Law, Ms. Khan explained that “collective action and organizing by certain workers – including those who have the terms of their work dictated by a firm yet are classified as non-employees – may be susceptible to prosecution under the antitrust laws.”  However, she said that she did not believe the FTC’s “scarce resources” should be used to pursue such claims.

In addition to non-enforcement, Ms. Khan’s letter advocated protections for such workers.  Specifically, she proposed that Congress

pursue legislative reforms that grant workers greater protections under the antitrust laws. For example, legislation clarifying that labor organizing by workers regarding the terms and conditions of their work is outside the scope of the federal antitrust statutes, regardless of whether the worker is classified as an employee, would remove the threat of antitrust liability resulting from such coordination.

The NBA-ABA precedent

The outcome of the proposed merger between the National Basketball Association and its upstart rival, the American Basketball Association, is instructive. In 1970, NBA players, led by their union President and future Hall of Famer Oscar Robertson, filed an antitrust lawsuit to block the merger.  The players obtained a temporary restraining order against the merger after a federal court determined that the “net effect” of the merger “would be to eliminate all competition between them,” resulting in “immediate and irreparable injury” to the players. After several more years of litigation, the case was resolved when the players and the NBA reached a new collective bargaining agreement. The players got a form of free agency and $4,365,000 in damages. Additionally, the ABA folded, and the NBA absorbed four of its clubs.

Implications for the PGA Tour

Numerous golfers who spurned LIV Golf and its lucrative offers to remain on the PGA Tour have expressed their displeasure about the recent developments. These golfers may seek to exert greater collective pressure and have more control moving forward (whether through a union or otherwise).  The Confederación Hípica case and FTC Chair Khan’s letter suggest that they could do so without violating antitrust laws. That is, they would be protected by the statutory labor exemption.

The PGA Tour may welcome collective action from the golfers. If the golfers, in some collective capacity, approve of the PGA Tour’s new arrangement with LIV Golf, including the possibility that the LIV Golf tour ceases to exist, then the PGA Tour and LIV Golf would have a strong argument that the arrangement is protected by the non-statutory labor exemption. This is a lesson from the Robertson case.

The PGA Tour was forced to cede some control over professional golf to LIV Golf to avoid purported financial ruin. It now may be forced to cede additional control to its member golfers if it wishes for its new business arrangement to escape antitrust scrutiny.