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Major League Soccer’s Single-Entity Structure: Time to Go?

In an August interview with the Washington Post, LA Galaxy head coach Bruce Arena had this to say of the league’s recent handling of his attempt to sign U.S. Men’s national team player Sacha Kliejstan: “We had a trade in place. We had budget room and space to be able to do it. We had all of our ducks in a row. We were positioned to sign a player. I won’t go into detail and just say forces within the league worked real hard to make sure that didn’t happen.” ((Steven Goff, A Few Good Minutes With Los Angeles Galaxy Coach Bruce Arena, Wash. Post, August 25, 2014, http://www.washingtonpost.com/blogs/soccer-insider/wp/2014/08/25/a-few-good-minutes-with-los-angeles-galaxy-coach-bruce-arena/.)) Arena was referring to the Major League Soccer office in New York, which handles all player acquisitions on behalf of MLS clubs. Arena went on to describe the reason the acquisition didn’t go through on the league’s end: “Because they are children and there have to be adults in the process, and we didn’t have enough of them. I think we are back into the old days in the league when the rules are somewhat arbitrary. Hopefully we will get that straightened out in the offseason.” ((Id.)) Commissioner Don Garber responded quickly with an announcement that Arena would be subject to “a major fine.” ((Grant Wahl, Don Garber: Bruce Arena to Receive Major Fine Over Critical Comments, Sports Ill., Sep. 16, 2014, http://www.si.com/soccer/planet-futbol/2014/09/16/don-garber-bruce-arena-mls-comments-fine.))

In the original interview, Arena went on to critique the league’s lack of transparency, single entity structure, and tightly controlled financial rules as hindrances to the league’s ability to attract top talent from around the world. ((Goff, supra note 1.)) He acknowledged that the structure was necessary in the early years of the league to grow the sport in the US while limiting serious financial risk to the individual owners and to ensure parity within the league, but believed that the league was beyond the point where it needed such heavy-handed measures. ((Id.))

MLS was founded in 1996 as a condition for the United States to host the 1994 FIFA World Cup. ((About Major League Soccer, http://pressbox.mlssoccer.com/content/about-major-league-soccer, last visited Oct. 10, 2014.)) After the North American Soccer League, the previous attempt at top-level professional soccer in the US, folded due to massive financial problems in 1985, ((Clemente Lisi, By the Numbers North American Soccer League vs. Major League Soccer, US National Soccer Players, Feb. 11, 2013, http://www.ussoccerplayers.com/2013/02/by-the-numbers-north-american-soccer-league-vs-major-league-soccer.html.)) league owners were wary of a traditional league structure which would allow profligate owners to spend massive sums of money on players like the New York Cosmos did in the late 1970s. ((Noah Davis, Major League Soccers Money Problems, The New Yorker, May 2, 2014, last visited Oct. 2, 2014.)) The MLS owners also wanted to avoid the over-expansion that had plagued the NASL. ((Id.)) In order to combat these potential problems, MLS settled on a single-entity structure in which all owners would own a share of the league itself rather than their individual clubs. ((About Major League Soccer, supra note 6.)) The league would negotiate all player salaries, and player movement between clubs would be restricted to avoid bidding wars between clubs for players. ((Jared E. Young, The MLS CBA: Unpacking Don Garbers Recent Comments on Single-Entity, Brotherly Game, Sept. 24, 2014, http://www.brotherlygame.com/2014/9/24/6836267/the-mls-cba-unpacking-don-garbers-recent-comments-on-single-entity.))

The single-entity structure still enjoys some significant benefits today. Because the league can restrict player movements through arcane rules of player allocation to clubs, the league avoids the traditional bidding wars that may drive up the price of individual players. ((Id.)) When US. National team star Jermaine Jones wished to transfer to an MLS club after a successful 2014 World Cup, for instance, MLS officials used a “blind draw” to decide whether Jones would play for Chicago Fire or New England Revolution. The Revolution won the draw and Jones was assigned to New England after signing with the league. ((Bill Littlefield, Jermaine Jones and the Bizarre Rules of MLS, Only a Game, August 30, 2014, http://onlyagame.wbur.org/2014/08/30/jermaine-jones-mls-revolution-2.)) Virtually all players are subject to this sort of allocation when transferring into MLS, though usually with more transparency under formal allocation rules. ((Id.)) Another benefit of the single entity structure when MLS was founded was potential protection from Sherman Act section 1 antitrust claims. ((Marc Edelman, Why the Single Entity Defense Can Never Apply to NFL Clubs: A Primer on Property-Rights Theory in Professional Sports, 18 Fordham Intell. Prop. Media & Ent. L.J. 891, 900 (2008).)) However, the First Circuit found that the MLS was not truly a single entity, but a hybrid between single entity and traditional league structure and was still subject to the same “rule of reason” analysis as traditional sports leagues even as it upheld the league’s salary cap in the face of an antitrust action by players. ((Michael A. McCann, The NBA and the Single Entity Defense: A Better Case?, 1 Harv. J. Sports & Ent. Law 39, 56-57 (2010).))

The main arguments against the single entity structure are that it is too limiting to both clubs and players and that it is no longer necessary to protect the owners’ financial interests. Players cannot negotiate directly with their own club for salary terms, and certain players cannot decide which club to sign for upon entry to the league. ((Young, supra note 11.)) Clubs are limited in terms of the players they can sign for the same reason. Clubs are prevented from making investments to become competitive by signing high-quality players from abroad due to the league restrictions. There is also a sentiment among fans of the league that MLS itself has favored certain clubs over others to better benefit its most popular clubs. ((Id.))

MLS has been undergoing controlled expansion since losing its two Florida franchises in 2002, going from 10 clubs to 22 between 2002 and 2014. ((Lisi, supra note 7.)) Commissioner Garber has also stated that he would like the league to expand to 24 teams in the near future. ((Jeremiah Oshan, MLS Will Expand to 24 Teams by 2020, Don Garber Says, SB Nation, July 31, 2013, http://www.sbnation.com/soccer/2013/7/31/4577342/mls-will-expand-to-24-teams-by-2020-don-garber-says.)) Team valuations have crossed the $100 million threshold, and average attendance at MLS matches is now greater than NHL or NBA games. ((Davis, supra note 8.)) MLS is now established enough to sign broadcast television deals as well, having recently signed a deal with ESPN, Fox Sports 1 and Univision. ((Chris Smith, Major League Soccer Announces New TV Deals with ESPN, Fox, Univision, Forbes, May 12, 2014, http://www.forbes.com/sites/chrissmith/2014/05/12/major-league-soccer-announces-new-tv-deals-with-espn-fox-univision/.)) Forbes has estimated that 10 of 19 teams turned an operating profit in the 2012 season. ((Chris Smith, Major League Soccers Most Valuable Teams, Forbes, Nov. 20, 2013, http://www.forbes.com/sites/chrissmith/2013/11/20/major-league-soccers-most-valuable-teams/.)) With the one exception of the ill-fated Chivas USA, the recent history of the league has been wildly successful and expansionary.

With all this expansion and profitability fostered by the league’s single entity structure, is now the time for the league to remove the training wheels and compete against the major leagues globally? The main benefits to the current structure are cost control in the form of a low salary cap, though the salary cap number will depend on the negotiations for a new collective bargaining agreement. The downside of the current system is that it limits the number of high-quality players through strict controls like the designated player system and a low salary cap. Outside of a few big-name signings, clubs are prevented from signing higher-quality squad players from other leagues in order to improve the overall level of play in the league.

For now, with the expansion process ongoing in MLS, it makes the most sense for Commissioner Garber to gradually loosen financial restrictions rather than scrap the single entity system for good. Adding new clubs will dilute the talent pool for MLS squad players, especially from the American talent pipeline, and MLS will need to compete for players against leagues abroad even more than they have to date. With the average salary for an MLS player below even those in the English second tier and smaller European first divisions, ((George Quarashi, Why the English Might Actually Prefer MLS to the Premier League, Forbes, March 5, 2012, http://www.forbes.com/sites/georgequraishi/2012/03/05/242/.)) the league will have to gradually loosen its purse strings to improve the quality of play on the field. Soccer fans in America have a choice in which league to watch, which makes MLS different from any of the other major sports leagues in the US. Currently, the only way for MLS to compete globally is through the limited protectionism of the single-entity structure.