Ailing Internet retailer Buy.com Inc. said today it is seeking
to end its sponsorship of golf's "minor league'' tour because the
PGA Tour hired another company to run its online store.
Buy.com filed a federal lawsuit Tuesday charging the PGA Tour
breached a 5-year sponsorship contract when it hired USA Networks
to build and manage an online store selling PGA Tour-brand products.
The company, based in Aliso Viejo, Calif., has sponsored the Buy.com
Tour since 1999.
The lawsuit, filed in U.S. District Court in Santa Ana, seeks
damages in excess of $45 million.
The PGA Tour denied the allegations and suggested Buy.com was
suing because of its current financial difficulties.
"While we are sympathetic to Buy.com's financial situation, we
are disappointed that its new management would take this unwarranted
action as a means to help rectify its own problems,'' Ed Moorhouse,
PGA Tour executive vice president and chief legal officer, said
in a statement.
Earlier this month, Buy.com reported lower year-over-year sales,
and said it would shut down its Canadian store and sell its United
Kingdom operations.
The company's chief executive and chief financial officer resigned
shortly after the release of the disappointing financial results.
Also today, Buy.com said it would lay off 125 employees and end
some outsourcing agreements in an attempt to reduce expenses by
$29 million annually. The company previously laid off 25 workers
and closed its golf online store.
The company said it would record a pre-tax charge in the range
of $32 million-to-$37 million in the first quarter of 2001.
The PGA Tour said Buy.com's former management was aware of and
supported the deal with USA Networks, which was announced earlier
this month.
"The PGA Tour has performed all obligations owed to Buy.com,''
Moorhouse said.
In its lawsuit, Buy.com charges that its sponsorship agreement
required the PGA to negotiate with Buy.com about ``any electronic
commerce opportunities which might produce mutual benefit.''
Buy.com said it knew when it was negotiating with the PGA that
the golfing association had entered into a 5-year deal with a company
called Sportsline to operate its online store. The suit claims its
subsequent sponsorship agreement required the PGA to negotiate an
end to the Sportsline deal to allow Buy.com to become the Tour's
primary e-commerce partner.
The suit claims that in anticipation of running the PGA's e-commerce
operations, Buy.com bought BuyGolf.com Inc. for $23.5 million in
a stock-for-stock transaction.
Buy.com said it paid the PGA Tour $8.5 million in cash and 1.8
million shares of common stock to sponsor the Buy.com Tour. It also
secured a $17 million line of credit to cover future payments to
the PGA Tour. The payments covered the first three years of the
sponsorship agreement.
The lawsuit seeks a refund of all payments to the PGA Tour as
well as the money Buy.com paid for BuyGolf.com. The company is also
asking a federal judge to prevent the PGA from drawing on the $17
million line of credit.
In its statement, the PGA Tour said it was willing to seek a replacement
sponsor for the final two years of Buy.com's contract and beyond.
The Buy.com Tour is scheduled to kick off March 8 with the Buy.com
Florida Classic at the Gainesville Country Club.
