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Buy.com clubs PGA Tour with $45 million lawsuit

The e-tailer files a lawsuit alleging that the professional golf organization broke a sponsorship agreement with the company.

    Buy.com filed a $45 million lawsuit against the PGA Tour in federal court Wednesday, alleging that the professional golf organization broke a sponsorship agreement with the struggling e-tailer.

    The Aliso Viejo, Calif.-based e-tailer filed the suit in the wake of a deal the tour signed earlier this month with USA Networks, under which USA will operate an online store for the professional golf league. Buy.com alleges that its marketing agreement with the PGA Tour obligated the tour to work with Buy.com in setting up e-commerce stores on the PGA Tour's Web site.

    The "PGA Tour has entered into a relationship with USA Networks...that directly contradicts and contravenes its obligations to Buy.com," the e-tailer said in its lawsuit. "As a direct and proximate result...Buy.com has been damaged in an amount believed to exceed $45 million."

    As part of the suit, Buy.com asked the U.S. District Court for the Central District of California to cancel its five-year marketing agreement with the PGA Tour.

    In a statement, the PGA Tour denied that it had breached its agreement with Buy.com, charging that Buy.com was aware and supportive of the tour's new partnership 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," Ed Moorhouse, chief legal officer of the PGA Tour, said in a statement. "We intend to defend ourselves vigorously against these baseless claims."

    Earlier Wednesday, Buy.com slashed its staff by more than 50 percent as part of a restructuring plan to cut expenses. The move marked the second round of job cuts for Buy.com in less than a month.

    Buy.com attorney Mike Hornak denied that the timing of the lawsuit was meant to deflect attention from Buy.com's layoffs. He also denied that the primary purpose of the suit was to cancel the agreement between Buy.com and the tour.

    "From our standpoint, the PGA Tour went and decided they could find a better deal, and without giving Buy.com an opportunity, went to USA Networks," Hornak said. "To us, the e-commerce aspect was an important part of the agreement."

    As part of the restructuring, Buy.com plans to shut down its online golf equipment store that it acquired from Buygolf.com. Buy.com bought Buygolf in October 1999 for $23.5 million in stock, according to the lawsuit. The purchase was linked to Buy.com's agreement with the tour, in the expectation that Buygolf would help Buy.com offer golf supplies through the tour's Web site, Buy.com said in its suit.

    The damages sought by Buy.com include its purchase price for Buygolf.

    "Despite the PGA Tour's pledge to reasonably integrate Buy.com into its long-term general Internet strategy, the tour has failed to make any good faith efforts" to do so, Buy.com charged in its suit.

    Buy.com paid the tour $8.5 million and 1.8 million shares of stock as part of the sponsorship agreement. Under that agreement, the PGA Tour renamed its minor league tour the "Buy.com Tour."

    The suit will not affect the Buy.com Tour schedule, the PGA Tour said in a statement. The money the PGA Tour received from Buy.com will fund the Buy.com Tour for the 2001 and 2002 seasons, the organization said.

    Earlier this month, Buy.com's chief executive and chief financial offers resigned. The turmoil comes as the company missed Wall Street estimates in its fourth-quarter and cut expectations for the coming year.