Buy.com’s suit, filed in a Los Angeles federal court, arises out of the golfing organization’s decision to sign an agreement with USA Networks on February 14th calling for the network to build and manage the PGA Tour’s online store.
The complaint alleges that the PGA tour breached its prior agreement with Buy.com by entering into the new relationship with USA Networks and by failing to approach Buy.com about the opportunity it provided USA Networks.
According to Buy.com, its contract called for the PGA Tour to engage in good faith and exclusive negotiations with Buy.com regarding any e-commerce opportunity that might produce mutual benefit.
In addition to asking for damages, Aliso Viejo, California-based Buy.com said it had taken legal steps to rescind its five-year sponsorship agreement with the PGA Tour, which is slated to run through October 2004.
As part of its restructuring announced Wednesday, Buy.com said it was shutting down its online golf equipment store, Buygolf.com, which Buy.com claims was purchased in expectation of running the PGA Tour’s online store.
Buy.com’s suit seeks a payment of $23.5 million to reimburse the company for its costs in purchasing BuyGolf.com, which was acquired in 1999 in an all-stock deal. The suit also seeks reimbursement for all money paid to the PGA Tour.
The PGA Tour received $8.5 million in cash and 1.8 million shares of stock as payment for the sponsorship agreement, under which the PGA Tour renamed its minor league tour the Buy.com Tour.
The PGA Tour disputed the allegation that it has breached its contract with Buy.com, saying that Buy.com’s “former management was fully aware and supportive” of the PGA’s relationship with USA Networks.
“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,” PGA Tour executive vice president and chief legal officer Ed Moorhouse said. “We intend to defend ourselves vigorously against these baseless claims.”
The PGA Tour said that the money it has already received from Buy.com would pay for tour expenses in 2001 and 2002, but that it was willing to seek a replacement sponsor for the final two years of the contract.
In the Rough
In separate news Wednesday, Buy.com said it has slashed 125 positions from its payroll — more than half of its 230-person staff — in a bid to conserve cash. The company also said that the job cuts, along with other cost cutting measures already in place, are expected to reduce operating expenses by approximately $70 million annually.
Buy.com attorney Mike Hornak reportedly denied that the timing of the suit was meant to deflect attention from the job cuts.
In January, Buy.com said that revenue for the fourth quarter ended December 31st slipped 2 percent from a year earlier, to $196.7 million. The company lost $27.4 million, or 20 cents per share, before extraordinary items, compared with a loss of $40.9 million, or 44 cents, in the year-earlier quarter.
Buy.com chief executive officer and chairman of the board Gregory Hawkins and chief financial officer Mitch Hill resigned in February for unspecified reasons.