PGA Tour U-Turn Casts Monahan as Beleaguered Managing Partner

Welcome back to the Big Law Business column. I’m Roy Strom, and today we draw analogies between Big Law mergers and the PGA Tour’s proposed Saudi tie-up. Sign up to receive this column in your Inbox on Thursday mornings.

As the drama unfolded between the PGA Tour and the Saudi Arabia-backed LIV Tour, I’ve drawn analogies to how Big Law firms have lavished pay on top partners to keep them happy.

Well, we’re at a new stage in the fight: Merger time!

The PGA Tour has agreed to Saudi Arabia’s Public Investment Fund financial backing for a new for-profit business model. The shock announcement this week caught almost everybody by surprise—outside of PGA Tour policy board chairman and Wachtell partner Ed Herlihy. And plenty of details are yet to be ironed out.

For the Big Law analogy, the deal casts PGA Tour commissioner Jay Monahan in the role of a beleaguered law firm managing partner. He’s selling an unpopular deal to a deeply divided group and he’s lost the most important currency for a leader of a partner-run organization: Trust.

An increasingly common part of a Big Law managing partner’s job is to convince partners to vote for mergers believed to be in the best interest of the firm’s long-term health. It’s never easy, and failure can come at a high cost. Just this year, Shearman & Sterling replaced leader David Beveridge after its merger talks with Hogan Lovells fell through.

Still, no law firm leader has had a tougher deal to sell than the one Monahan sprung on professional golfers this week.

One of the most important aspects of any law firm merger is who will lead the merged entity.

Monahan’s PGA Tour will have the majority of board seats, but the governor of the Saudi wealth fund, Yasir Al Rumayyan, will be the new, unnamed entity’s chairman. With Saudis providing the cash, it will be hard for PGA Tour loyalists to argue they’re still in control.

The biggest question for Monahan will be how the players react—they are the partners in the law firm analogy.

The PGA Tour has frequently been called a “player-run organization.” Like most Big Law partnerships, that has meant top golfers have a vote on how the Tour operates. But that did not happen before Monahan announced the proposed Saudi partnership.

PGA Tour members had no idea the deal was coming. That’s bound to create problems for Monahan. Less than a year ago, as some top players departed for Saudi-backed LIV Golf, the embattled commissioner demanded loyalty.

“Have you ever had to apologize for playing on the PGA Tour?” Monahan asked, in reply to a question regarding protests of LIV Golf by families of 9/11 victims. He threatened lifelong bans for any player who went to LIV.

His take on Tuesday?

“I recognize that people are going to call me a hypocrite,” Monahan said in a call with reporters.

Hardly a position of strength. When one player opined Monahan should resign in a meeting with the commissioner on Tuesday, other players stood and applauded, according to a Golf Digest report.

Loyalty came with a cost for Monahan’s constituents.

Top players such as Rickie Fowler, Hideki Matsuyama, and Rory McIlory reportedly passed up offers from LIV worth tens and hundreds of millions of dollars. Some golfers didn’t just quietly turn down the money; they staked their reputation on the morals of playing for a Tour with clean hands.

Consider McIlroy, the most outspoken critic of LIV. Now, as a member of the PGA Tour’s player policy board, he’ll likely be asked to vote through a deal that will include a provision for LIV defectors to rejoin the PGA Tour.

Lifelong bans? They might end up lasting a year.

Judging by McIlroy’s response to the deal on Wednesday, law firm leaders would be lucky to have such understanding superstars. Despite admitting he felt like a “sacrificial lamb” in the skirmish, he threw his support behind the deal.

“When I try to remove myself from the situation and try to look at the bigger picture and I look 10 years down the line, I think ultimately it’s going to be good for the game of professional golf,” McIlroy said.

Any law firm merger comes with messy calculations about who will be paid what going forward. Combining compensation structures is reportedly among the biggest sticking points of the Allen & Overy-Shearman tie-up.

There’s no doubt that will be a huge portion of the ongoing PGA Tour negotiations with PIF.

The Saudi fund leader told CNBC he expected to invest “billions” into the new organization, and some of that will likely flow directly to players who missed out on LIV payments. After all, the money is coming from the same entity that offered some players nine-figure payments just months ago.

The Big Law corollary is when firms use “lock-ups” to compensate key partners who are needed to make a merger viable.

Harder to reconcile is Monahan’s about-face on the morals of taking money from Saudi Arabia.

There’s no Big Law analogy for that.

The PGA Tour’s lawyers at Skadden, Arps, Slate, Meagher & Flom said in court filings LIV golf was using “the sport of golf to ‘sportswash’ the Saudi government’s deplorable reputation for human rights abuses.”

Families of 9/11 victims, who protested outside LIV’s first US tournament in Portland, Oregon, said on Tuesday Monahan “betrayed” them. “PGA tour leaders should be ashamed of their hypocrisy and greed,” the group said in a statement.

For his part, Monahan said Wednesday he “regretted” not communicating with 9/11 families before the deal was announced, but insisted the deal was in the best interest of golf.

Monahan has important stakeholders pushing players to go along with the deal. By midday Tuesday, nearly every major golf institution had fallen in line behind the deal, including Augusta National, the US Golf Association and Europe-based golf regulatory body, the R&A.

That support will make it harder for players to stand up against the deal, and it’s likely a big reason why Monahan kept things secret until the very end. In a TV interview, the leader of the DP World Tour stressed that “the art of confidentiality” was an important part of the negotiations.

Secrecy is standard operating procedure for law firm mergers. And there’s a good reason: Law firm partners can walk away from the firm if they’re unhappy about a potential deal—especially if they learn about it from news reports.

For Monahan, the hypocrisy and secrecy lost his players’ trust. It might cost him his job.

Here’s another thing Big Law doesn’t have: a betting market for whether leaders will step down by the end of the year. That exists for Monahan, and the odds that he’d be out by the end of the year were almost even-money. (This might need to be an addition to the annual Big Law Sportsbook.)

It all boils down to a pretty obvious warning for Big Law leaders: If you first demand partners’ loyalty, beware of striking a deal that blows up firm culture.

If you do, don’t expect to stick around.

Worth Your Time

On Law Firm Blowups: Two ex-Lewis Brisbois partners who led the departure of more than 100 lawyers have left their new firm after emails between them were released showing racist, sexist, and antisemitic messages, Justin Wise and Tatyana Monnay report. John Barber and Jeff Ranen had started a new firm that will now be renamed.

On Litigation Finance: Validity Capital is cutting half its employees after its private equity backer, TowerBrook Capital, cut its investment in the firm going forward. The move comes as litigation funders face a difficult environment raising capital, Emily Siegel reports.

On Law Firm Moves: Clifford Chance is headed to Houston, hiring a pair of Latham & Watkins partners for a team that’s expected to include 10 partners. The move comes before the UK firm’s Magic Circle competitor Allen & Overy could gain a Houston outpost with its Shearman merger.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.