FORE - When golf kills a corporate transaction?

PIF is the Saudi investment vehicle with over $900bn of assets under management (Big but less than half of Norway’s SWF which often goes under the radar!). It is a sovereign wealth fund that has invested across all walks of life but is probably best known for its investments in sports, whether Darts, Boxing, Football or Snooker. Some commentators argue it has been a vanity project to ‘sportswash’ some of the human rights issues in Saudi Arabia. Its most high-profile sports investment has been in LIV golf. LIV being the roman numerals for 54, the original proposition to shorten golf tournaments to 54 holes rather than 72.

Having invested over $5bn in attracting some of the biggest stars in golf and creating a competition to challenge the PGA, PIF has announced its pulling funding at the end of the season. So how does this relate to corporate transactions?

Customer, or for that matter, supplier concentration is a key risk for any business. The reliance on a dominant customer or supplier presents a material risk to any business if that party pulls the plug. Buyers and investors know this and at best are wary of the concentration and discount price, and at worse won’t even consider a transaction. A lack of diversification for even the best business is a significant risk for any corporate transaction and management teams should focus their efforts to create breadth in their customer and supplier relationships in order to try and maximise value. A change in strategy can have monumental effects as demonstrated by the doomed LIV Golf series.

Another reflection may be: Dumb money is worthless. $5bn investment and a now redundant golf series. Without a clear business plan to generate a sustainable model with profitable growth, aimlessly investing capital, is a sure-fire way to lead to failure. Was it a whim, a headline grabbing investment, or a strategic mistake, we will never know, but there are important messages that there needs to be a degree of planning and diligence to any investment. $$$ alone, however deep the pockets, doesn’t create value. 

The dependency of other sports, such as heavy weight boxing or even Newcastle United, could have some shocks to their business model. Only time will tell. So, in summary, who would have thought that the sport which is often defined as ‘a good walk spoiled’ would be analogous to corporate transaction risk.