Soccer Dad Ken is a life long fan, player, coach, and referee of the beautiful game. As a lawyer, Ken also has a keen interest on the ongoing CBA talks. Today's article is the first of a three part series on the current CBA situation.
Like all U.S. soccer fans, I am concerned about the apparent impasse in the Major League Soccer (MLS) collective bargaining agreement (CBA) negotiations. The Major League Soccer Players Union (MLSPU) and MLS have engaged a federal mediator in an attempt to reach a compromise. Absent a compromise, U.S. soccer/sports fans will be stuck watching golf and basketball this spring.
In order to understand the current CBA mess, it is necessary to understand "how we got here" and what the issues are. In preparing this series of articles, I interviewed MLS player agent/attorneys, non-MLS player agent attorneys, and read countless law review articles/court decisions.
This series of stories will explain: 1.) The history of the league and why the past is critical to the future, 2.) Exactly what free agency is and whether it can be achieved within the MLS framework, 3.) Other issues that players and owners should be very concerned about.
A LEAGUE IS BORN
As a condition of awarding the United States the 1994 World Cup, FIFA required the USSF to establish a "viable" first division soccer league as soon as possible. USSF undertook a careful analysis of the history of professional soccer in the United States, and concluded that past professional soccer leagues failed from within because of uncontrolled cost escalation. In looking to avoid mistakes of the past, the potential for diluted revenues and sponsorship dollars and massive wage spending for marquee "over the hill" European players, USSF decided to establish a single, tightly controlled league to ensure viability.
Three different entities vied for the opportunity to be this only first division soccer league. The entity that eventually became MLS was the winner. MLS was formed as a state of Delaware limited liability company. All player contracts would be negotiated with, and directly controlled, by the league. The team "owners" were actually investor/operators in MLS, and thus owned membership in MLS, not the "teams." The teams were owned by MLS.
This is what is described as a "single entity" model. (You will hear "single entity" countless times in the coming weeks/months.) Unlike the NBA, NHL, NFL etc., which are confederations of independent owners, the league was calling all the shots as the sole employer.
The league was established as a single entity for two reasons: First, as the league was the sole employer of the players, wage wars between teams, the demise of NASL, could be avoided. Second, as a single entity, MLS could claim exemption from U.S. antitrust laws.
THE PLAYERS CHALLENGE MLS IN COURT
When MLS was established, there was no player’s union and no CBA. MLS began official play in 1996. In 1997, a group of players joined together to sue MLS in federal court for anti-trust law violations.
In general, U.S. anti-trust law prohibits employers from colluding or conspiring to limit competition. One clear method the law says limits competition is through suppressing or controlling wages of employees. Clearly MLS was doing this. So how would MLS avoid this legal challenge?
There are two immunities to anti-trust law, either the employer has a CBA with the employees, or the employer is a single entity. At this time, MLS did not have a players union or a CBA, so MLS could only claim they were immune from anti-trust laws entirely upon MLS being a single entity.
The theory behind single entity immunity is that a single employer cannot collude or conspire with anyone to limit competition, as MLS is the only "person" involved. In 2002, the United States Court of Appeals for the First District announced the Fraser decision, holding that MLS is a single entity and thus immune from anti-trust laws. (This is, admittedly, an over-simplification of the Fraser decision, but it will suffice to understand the current CBA impasse.)
It is important to understand that since 2002, the Fraser decision has been criticized, largely because the court only looked at the incorporation paperwork, and not to how the league actually operated, to determine that MLS was a single entity. There is an exception to the single entity immunity, and that is the single entity is operating as a sham, simply to avoid anti-trust laws. In other words, does how the single entity operates in the real world show it is a single entity in name only?
In order to reach a conclusion that a single entity is a sham, the court engages in a thorough examination of how the entity actually operates in the real world, versus on paper. This sham exception is playing quite large in the league’s mind right now – the last thing that MLS wants is for a court to look in depth at how MLS has operated since the Fraser decision in 2002. Perhaps the greatest indication of the league’s fear of this examination is that MLS agreed to a CBA shortly after "winning" the Fraser case. MLS now has a "belt and suspenders" argument for immunity from anti-trust laws.
THE MYTH OF THE MLS "SALARY CAP"
MLS does not have a salary cap. A salary cap is a mechanism, agreed to within a CBA, imposed upon INDEPENDENT employers within a federation of employers to control wage costs. A single entity model is conceptually incompatible with a salary cap – if there is only one employer, a "cap" would simply cap all employee salaries at a single level.
Beyond a salary cap being conceptually incompatible with the single entity model, numerous published accounts confirm this. What is referred to as "salary cap" is simply a starting point. MLS has a salary budget, which was set by the management committee of MLS, and is now set within the CBA. The league’s true allocation of salary budget among the various teams is nebulous best, with unequal allocations perfectly allowable through various maneuvering and league approved mechanisms.
Only certain roster spots count against salary budget. The league can choose to pay transfer fees for foreign players coming into the league, which in Europe would be charged on a per contract year basis against that team’s budget. Allocation money is given to each team on a Byzantine basis, which can be used to "buy down" salary budget charges. Generation Adidas players carry different salary budget rules. Designated Player total salary counts against budget only up to a certain amount, less if the DP joins a team half-way through the season, less if the DP is under a certain age, and an even different amount if the DP is an international Designated Player. Base salary, guaranteed salary, signing bonuses being allocated across the life of contracts versus year paid... Players like Beckham can be given an option to become an owner/operator at $20 million by the league, which option is now worth $100 million, and that $80 million windfall somehow doesn’t count as league salary. (Or, presumably, U.S. income tax or capital gains tax.)
A CPA with an Ouija board couldn’t figure out the MLS salary structure.
MLS has always been a league where "All animals are equal, but some animals are more equal than others." MLS can pick and choose destination teams for marquee players and decide how much of the non-salary expense the league is willing to pay. The distribution of league revenues is unequal and tied to how financially successful an owner/operator’s team is. Some investor/operators are allowed to play in crap, non-soccer stadiums, or in the outfield of baseball parks, or on artificial turf, others must build soccer stadiums to get into the club.
WHY HISTORY IS IMPORTANT TO THE CURRENT CBA MESS
To understand the current CBA negotiations, it is necessary to understand the single entity model, the prior court challenge to the single entity model and the structure that allows the league to pick and choose "winners" among the various teams. In order to understand MLS free agency debate, for example, this background is critical.
Part 2 of this series will examine MLS free agency against this background