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Buy.com Sues PGA Over Online Retail Deal

March 01, 2001|E. SCOTT RECKARD | TIMES STAFF WRITER

Struggling online retailer Buy.com Inc., undergoing major cuts in staff and operations, sued the PGA Tour on Wednesday for $45 million, saying the pro golf circuit breached an agreement by hiring another company to operate the PGA's online store.

The lawsuit, filed in U.S. District Court in Santa Ana, also seeks to dissolve the Aliso Viejo-based company's five-year contract to sponsor a second-tier PGA golf tour.

The once-promising alliance of old-line sports and audacious e-commerce, now in its second year, appears to have soured as Buy.com's stock plunged and its losses mounted.

Denying wrongdoing, the PGA suggested Buy.com was suing because of its financial troubles.

"We are disappointed that its new management would take this unwarranted action as a means to help rectify its own problems," the PGA's chief legal officer, Ed Moorhouse, said.

The alliance with the PGA began in October 1999 when Buy.com agreed to replace Nike as a sponsor of a PGA junior tour. The Internet retailer agreed to pay the PGA $8.5 million a year for five years and granted the golf circuit 1.12 million shares of its stock.

A day after Buy.com went public the following February, the stock reached $27.50 a share, making the PGA's stake worth $31 million. It would have been worth $495,000 in Wednesday trading on Nasdaq, when Buy.com finished the day up 3 cents at 44 cents a share.

PGA spokesman Bob Combs said the PGA may have sold some of the stock but retains some of it. He wouldn't elaborate.

The PGA contends Buy.com's two former top executives were "fully aware and supportive of" the PGA's online deal with USA Networks Inc. The two, Chief Executive Gregory Hawkins and Chief Financial Officer Mitch Hill, resigned under pressure from Buy.com's board two weeks ago.

But Buy.com's attorney, Michael Hornak, said the pair never supported the deal. The PGA informed Hill and Hawkins in October that it was negotiating another online deal, but the executives were not told who was involved and were "astonished" to learn about it, Hornak said.

The lawsuit coincides with major cutbacks at Buy.com, which is fighting for its existence after losing $280 million in three years.

The company confirmed that it will fire 125 workers--about half its staff--reduce spending on outside services and close its own sports store and the golf retailing business it acquired from BuyGolf.com of Laguna Beach in late 1999. Buy.com, which laid off 25 workers a month ago, said the various cutbacks will save it $70 million a year.

"We had to make difficult decisions in order to advance our goal of becoming profitable while maintaining a leadership position in e-commerce," said James B. Roszak, a board member who became Buy.com's chief executive.

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