It Seems To Me. . .
Single entity has served MLS well, but may again be challenged.
By Robert Wagman
WASHINGTON, D.C. (Monday, May 19, 2015) -- There are many who believe the most important date in Major League Soccer history is April 20, 2000. It is on that date that Judge George O'Toole of the United States District Court for Massachusetts issued a summary judgment in favor of MLS is an anti-trust lawsuit that had been brought by a group of players.
Now in the early stages of its 20th season, MLS commissioner Don Garber regularly points to the league's single-entity ownership structure as a principle contributor, first, to its survival for two decades and, second, its movement toward actual profitability. However, now any number of experts believe the basic character of MLS has changed from those early days and these changes now make it vulnerable to a new anti-trust challenge to its ownership structure.
Entitled Fraser v. Major League Soccer - shortly after the initial MLS collective bargaining agreement was signed, eight players sued the league, alleging antitrust violations by MLS -- specifically violation of Sections 1 and 2 of the Sherman Act by its single-entity ownership structure.
Under single entity, all teams are owned by the league, as are all player contracts, and the suit alleged this limited player compensation, movement between teams and lessened competition for players among teams. The players alleged that the league's structure was a "sham" that disguised a conspiracy or agreement among the league's investor-operators.
In making his ruling in favor of the league, Judge O'Toole relied on a 1984 Supreme Court ruling in a case entitled Copperweld Corp. v. Independence Tube Corp, which held that a company and its subsidiaries could not illegally conspire in violation of the Sherman Act because legally they were a single entity and as such could not conspire with itself. O'Toole held that in MLS, the league was the parent and the teams were subsidiaries.
The First Circuit Court of Appeals upheld O'Toole's ruling but did not actually rule on the single-entity issue. Rather, it said (and I know this is a bit technical) that the players had failed to define a distinct, relevant market and thus its challenge to single-entity status was irrelevant.
Everyone can agree the character of the MLS has changed since 2000. One of the major changes is the so-called "Designated Player Rule" that allows teams up to three players who are paid more than the league maximum salary. Salary amounts in excess of the league maximum come out of the owners' pockets.
This allows the Seattle Sounders, for instance, to pay midfielder Clint Dempsey a reported $6 million a year, while Toronto FC pays midfielder Michael Bradley about the same and the new Orlando City SC pays Brazilian star midfielder Kaká in the same range.
Tim Bezbatchenko, the new Toronto general manager, wrote in a fascinating 2008 article for the University of Cincinnati Law Review looking at the proposition that the Designated Player Rule has fundamentally changed the relationship of teams within the league structure. MLS, thus, would no longer be actually operating as a single entity and thus is susceptible to a challenge under antitrust laws.
In his law journal comments, Bezbatchenko focused on whether "the Designated Player Rule creates enough divergent interests among the league's teams to extinguish MLS's claim that it operates as a single-entity enterprise." It might be argued, he concluded, that MLS today is operating more like a joint venture and not a single entity.
Bezbatchenko says he personally does not believe that recent changes in the league structure, such as Designated Player Rule, changes it from a single entity into a joint venture. But he admits it is an open question and very much open to a new determination if the league's single- entity status is challenged anew in the courts.
Ted Philipakos, a long-time player agent and consultant, takes generally an opposite view in a new book "On Level Terms" (American Bar Association, 2015), which traces 10 league battles that have formed soccer in the modern eras. He lists Fraser among the 10.
Philipakos examines the case and the rulings in depth and then concludes ".it must be stressed that MLS's clubs diversity of interests has greatly expanded since Fraser. Now more than ever the clubs are in actual competition most notable for players, fan support and corporate partners. It is reasonable to believe their ambitions could increasingly come into conflict with the centralized structure of the League."
The bottom line, Bezbatchenko says, is "the survival and growth of Major League Soccer is crucial for the continued growth of soccer in this country. To ensure its survival, the league has taken calculated risks that aid in the creation of new soccer fans and help attract existing soccer fans to MLS games. The Designated Player Rule may be the type of risk that is essential to elevate the talent in the league. Amid this change, MLS should be conscious of the legal ramifications. . . these changes strongly suggest MLS is less of a single entity and more of a joint venture."