Are the Rules of Golf in violation of Antitrust Law?
Today, the two regulatory bodies for golf, the United States Golf Association (USGA) and the Royal and Ancient Golf Club of St. Andrews (R&A) establish the technical specifications for golf equipment. Indeed all major sports would have some regulatory body undertaking the same activity. The purpose of this paper is to analyse the extent to which American antitrust principles will influence the application of Australian antitrust (or competition law) canons to the Rules of Golf. In Australia, the rules promulgated by the regulatory bodies are adopted through its national association, Golf Australia, upon a delegation from the Royal and Ancient Golf Club of St. Andrews. The issues specifically raised are whether regulation of golf equipment improperly excludes innovative products from reaching the market place (ss45/4D of the Trade Practices Act 1974 (Aus) – with this provision somewhat equivalent to §1 of the Sherman Act 1890 (US)), and second, whether the golf regulators are unfairly exercising market power (s46 Trade Practices Act 1974 (Aus) – this section broadly parallels §2 of the Sherman Act 1890 (US)). With precedential case law emanating from the United States, it is possible, if not probable, that a manufacturer (be they Australian or international) may look to the Australian courts as a medium by which their innovative and ground-breaking product can reach the hands of avid golfers. This article examines the United States litigation and applies it to the above-mentioned competition law principles. It has particular relevance to a United States audience given that American manufacturers dominate the retail market for golf clubs in Australia. A framework will be presented against which sporting equipment regulators can test the validity of their rules regarding equipment restrictions. Whilst golf will be the background for this critique, the analysis is equally relevant for any sport (if not all), which contain such limitations.
There is no doubting the importance of sport to the human psyche. From an Australian perspective it is an inherent part of the Australian persona, developed as part of our culture. Whether it is our wealth, weather, availability of land or some other reason, many Australians participate in any number of outdoor and indoor recreational pursuits that come within the broad rubric of sports. As one of the most prominent activities, golf occupies a specific niche in the Australian community. With approximately 1.139ml (or 8% of the population) playing, the related employment of 20,000 people, club revenues of $1.1bn, 30ml rounds played annually, at least 20 male players on the United States Professional Tour and the number nine ranked female player in the world (Karrie Webb), Australia is rightfully positioned as the worlds number two golfing nation, behind only the United States of America.
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However, for every golfer frustrated with a short game that begins off the tee, a putter that uncomfortably yips at impact, or a ball that doesn’t respect the modern mantra of mental visualisation, a lingering question remains, to what extent do the technology restrictions imposed by the regulators of golf actually protect the fundamental values that lie behind the game? Perhaps more specifically, do the contemporary developments such as the conformance test for the ‘spring-like’ effect off clubheads, or the limitations on the distance that a ball can travel serve to protect the skill level of the game, or simply restrict competition amongst innovative manufacturers whilst at the same time exasperating the legion of players in the game. Has tradition been preserved at the expense of progress? Development and growth in sporting equipment is about innovation, (if not in society), and on a simplistic level restrictions prevent competition amongst companies who must create to sell their product to the consumer. Subject to normal use, golf clubs will last for many years if not decades. To purchase new equipment, the golfer needs to be convinced that the latest contrivance (such as the redirection of the weight in the head of the club; the redesigning of the geometry of the dimples on the golf ball, or the adjustability of the shaft), will see that golfer move imperceptibly closer to the utopian ideal of swing perfection. But the question remains – how can a conventional competition law analysis allow sporting administrators the opportunity to engage the game and its participants with its fundamental values, or does sport (as a fundamental part of Australian society) simply need to mend its way to fit within the competition law ideals promulgated and promoted by governments of all persuasions.
United States Litigation
The genesis for present day litigation has been the United States of America. In a golfing context, two cases dramatically highlight the antitrust implications of the Rules of Golf:
Weight-Rite Golf Corp v United States Golf Association and Gilder v PGA Tour Inc.
Weight-Rite Golf Corp v United States Golf Association concerned an action brought by a manufacturer and distributor of (among other things) a particular golf shoe.
The plaintiff had designed a golf shoe to promote stability and appropriate weight transference in the swing. The USGA issued a determination banning the shoe alleging that it did not conform to the USGA’s Rules of Golf. However, Weight Rite argued that the USGA determination amounted to a group boycott or concerted refusal to deal. In the United States, this is per se unlawful under the Sherman Act (in Australia this would be per se illegal under s45 of the Trade Practices Act 1973), no lessening of competition need be established. As noted by the Court these types of practices are:
“agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use”.
However, in addition, Weight Rite submitted that even if the per se rule was not applicable, the USGA’s action violated the rule of reason, that is, its actions lessened competition.
Weight Rite was unsuccessful. The USGA had not violated any procedural fairness requirements nor had an unreasonable restraint of trade occurred. The court found that the USGA had an established procedure for the verification of new equipment, whereby golf equipment manufacturers may, prior to marketing a product, obtain a ruling from the USGA as to whether the product conforms to the Rules of Golf. Given that Weight Rite had not availed itself of this procedure, despite notification to do so from the USGA, injunctive relief was not available to the plaintiff.
Gilder v PGA Tour Inc
Gilder v PGA Tour Inc concerned, at the time, the most popular selling golf club in the world, the ‘Ping Eye 2′. This club was developed following an amendment in 1984 whereby the United States Golf Association had permitted the manufacture of clubs containing grooves that were in the shape of a U (as opposed to a V) – this rule change coming about because of technical improvements in the way clubs were manufactured, rather than manufacturers seeking to gain an innovative advancement to their clubs. This contrasted with earlier clubs where the grooves were all the shape of a V- a diagrammatic representation from Figure XI of the current rules of golf shown below.
In 1985 a number of players complained that the U-grooves had detracted from the skill of the game. The specific allegation was that U-grooves imparted more spin on the golf ball, particularly when hitting from the rough. The USGA conducted further tests and whilst they considered that more spin was added to the golf ball by the U-grooves, not enough information was available to ban clubs with this type of face pattern. However, the USGA did amend how it would measure the spaces between the grooves (the so-called groove to land ratio) and this had the effect of banning the ‘Ping-Eye 2′ – with this rule applying to all USGA tournaments from 1990.
Gilder and seven other professionals, funded by the manufacturer of the ‘Ping-Eye 2′ (Karsten Manufacturing Corporation), began proceedings against the PGA (the administrative body for professional golf tournaments in the United States of America) for adopting the rule that led to the banning of the club. They alleged that the actions of the PGA and its directors violated §1 and §2 of the Sherman Act and Arizona antitrust laws.
To support its case, Karsten presented, in the United States Court of Appeal, economic evidence that there had been no negative impact for the PGA Tour by professionals using the ‘Ping-Eye 2.’ This included a quantitative study that the percentage of money won by players using the golf club was less than the percentage of players not using the club. Furthermore, there was no proof that Ping golf clubs led to a greater number of players getting their balls to the green in less than regulation.
The evidence of the professionals was as expected – that changing clubs would adversely hurt their game, with this impacting on prize money won and endorsement income. By contrast, the PGA considered that success for Karsten would irreparably damage its standing as the governing body. If their reputation were diminished, it would then have difficulty formulating rules for the conduct of tournaments under its control. However, the Court in comparing the harm done to the manufacturer and the player, as against the PGA Tour found in favour of the manufacturer. The damage done to the prestige and reputation of the PGA paled in comparison with the financial harm to the players and Karsten. An injunction was granted preventing the ban of the club going ahead and with this in mind, both the USGA and the PGA settled the outstanding litigation with Karsten. This saw Karsten acknowledging the USGA as the principal rule making body, the PGA as the administrative organisation in charge of tournaments with an independent equipment advisory committee established to oversee the introduction of innovations. Both sides claimed victory – the USGA and PGA retained their positions as the authoritative rule-setters for golf and tournament play, the manufacturer and players able to continue to use the ‘Ping-Eye 2.’
With this background in mind, this paper will consider the application of Australian competition (or antitrust) law to the restrictions presently imposed by the regulators within the current Rules of Golf. Are these restrictions hampering competition in the market place and serving to dampen the innovative market in golf clubs. Do they prevent ground-breaking products from entering the competitive fray, and will the deference shown to the sporting regulators in the United States (with Gilder v PGA Tour the exception rather than the rule), be followed if Australian litigation was to occur? Specifically, within the Australian context, does ss45/4D (broadly similar to §1 of the Sherman Act 1890 (US)) and s46 of the Trade Practices Act 1974 (equivalent to §2 of the Sherman Act 1890 (US)) prevent Golf Australia (the national administrator of Golf in Australia) from endorsing the technology restrictions imposed by the United States Golf Association and the Royal and Ancient Golf Club of St. Andrews?
The Rules of Golf
The USGA and the R&A have collaborated to issue a joint statement of principles concerning advancements in technology. With a focus on what is perceived as golf’s traditions, the rule-makers indicate a continued preference for a single set of rules and the need for these Rules to enhance the skill of the player rather than the quality of the equipment. With this in mind, the Rules of Golf state:
The player’s clubs must conform with this Rule and the provisions, specifications and interpretations set forth in Appendix II.”
Appendix II then establishes, over the course of eleven pages, the rules regarding the design of clubs, with, for example, clause 4(c) being of contemporary concern because of its effect in limiting the spring-like effect of golf clubs.
“The design, material and/or construction of, or any treatment to, the clubhead (which includes the club face) must not:
have the effect of a spring which exceeds the limit set forth in the Pendulum Test Protocol on file with the R&A or incorporates features or technology including, but not limited to, separate springs or spring features, that have the intent of, or the effect of, unduly influencing the clubhead’s spring effect; or unduly influence the movement of the ball.”
The Pendulum Test Protocol then sets out that a driving club is to be impacted several times by a small steel pendulum (see diagram 2). The time between the impact of the clubhead on the pendulum is then recorded, with this time directed related to the flexibility of the clubhead. The time cannot exceed certain parameters.
Pendulum Test Protocol Mechanism
The length golf balls can travel is also restricted. Appendix III, clause 5 provides that the “The initial velocity of the ball must not exceed the limit specified (test on file) when measured on apparatus approved by the [the regulator].”
These rules apply in Australia with the Royal and Ancient Golf Club of St. Andrews, through its rules making entity (the R&A Rules Limited) delegating to Golf Australia the role of administering the Rules of Golf within Australia.
Current Technology Debates
As noted the most recent debate between manufacturers and the regulatory bodies concerns the so-called spring-like effect of club faces. The creation and fusion of new materials in the manufacturing process has reduced the distortion that occurs to a golf ball on impact. By reducing this (through the club-face giving slightly and then rebounding), an overall increase in distance was able to be achieved. Until recently, there had been no adequate measure to test this effect, but with the introduction of the Pendulum Test Protocol, the USGA and the R&A now have the opportunity to measure this accurately. However, the introduction of these measures led to a sharp decline in the share price of golf club manufacturers, and “[a]s one investment analyst commented, ‘if a governing body tells a leading-edge technology company that they can’t improve technology, it puts them out of business.’ This debate stands at the fore of golf, with the industry view provided by the President of Karsten Manufacturing:
“If the USGA restricts innovation, it will artificially restrict competition. Golfers will no longer receive the best possible equipment and will incorrectly perceive that all golf drivers are the same and there is nothing new or improved. The lack of excitement from the game will decrease interest in golf…”
A second issue concerns the relationship between club face markings and the impact of the ball on the clubhead. As every golfer knows, inexorably connected to driving distance is accuracy. However, recent studies from the regulators highlighted that correlation between driving accuracy and success on the professional tours was no longer high, with further evidence illustrating the combination of current golf balls with a thin urethane cover had significantly increased the spin of the golf ball. This led to the Rules being tightened from January 1, 2008 (with this limiting the width, depth and spacing between grooves). However, non-conforming clubs can be used by non-elite golfers until 2024, with the professional golfers to adopt the rule from 2010.
One final contemporary topic concerns the degree to which the club should be able to twist upon impact (the so-called ‘moment of inertia’ (see diagram 3- this machine able to test how much a club twists upon impact)), the regulators suggesting that technology which limits the clubhead and shaft twisting will reduce the skill component of the game. The rules now provide that when the “…moment of inertia component around the vertical axis through the clubhead’s centre of gravity must not exceed 5900 g cm² (32.230 oz in²), plus a test tolerance of 100 g cm² (0.547 oz in²).” As noted by the R&A the purpose is to provide for protection “against unknown future developments…whilst allowing some technological evolution.”
Moment of Inertia Test Machine
The post AmericaInfluences of American Antitrust Principles on Golf appeared first on Essay Creek.
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