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Buy.com files lawsuit against PGA

LOS ANGELES — Ailing Internet retailer Buy.com Inc. is suing the Professional Golf Association for damages in excess of $45 million and is seeking to end its sponsorship of golf's "minor league" tour because the PGA hired another company to run its online store.

Buy.com filed a federal lawsuit Tuesday charging that the PGA breached a 5-year sponsorship contract when it hired USA Networks to build and manage an online store selling PGA-branded products. The company, based in Aliso Viejo, Calif., has sponsored the Buy.com Tour since 1999.

The lawsuit was filed in U.S. District Court in Santa Ana, Calif.

The PGA 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 Wednesday, 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 online golf 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 said Buy.com's former management was aware of and supported the deal with USA Networks, which was announced earlier this month.

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. 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 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.