Breaking Competitive Balance II: Young Players, ‘Young Money,’ and Building a Roster of Experienced MLS Talent

Even with a Salary Cap zeroed in on parity, only 5 clubs of a potential 12 have made it to the MLS Cup in the 6 seasons since MLS introduced Targeted Allocation Money (the “TAM era”).  Two clubs, the Seattle Sounders and Toronto FC, have faced each other three times in the six TAM era MLS Cups.  Seattle themselves have made four of the six TAM Era MLS Cups. 

From that, it seems clear that a pathway to sustained, regular MLS Cup success exists. As we will discuss, one of those factors are teams with high-quality, experienced, players. 

However, MLS provides numerous initiatives via its salary cap to incentivize signing young, inexperienced, players who may provide future transfer value for their clubs.  This creates a disconnect and a friction between the model that the MLS salary cap incentivizes – signing young players – and the model proven to establish sustained MLS Cup success – fielding an experienced squad. 

The question becomes, is there a way to marry both MLS’s incentives to invest in young talent, and the data that shows a strong correlation between having an older, more experienced clubs and winning MLS Cup?

This a second piece in the Breaking Competitive Balance Series.  You can view the inaugural piece, MLS Salary Cap 101, HERE

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MLS Free Agency: Geoff Cameron Case Study

Last week, FC Cincinnati announced that former USMNT defender Geoff Cameron had signed with the club.[1] With the changes in MLS’s Free Agency[2] eligibility rules, it’s possible Cincinnati availed itself of the signing mechanism to bring on Cameron, which creates a great opportunity for us to break down the new MLS Free Agency rules, and how they affect eligible players’ return to MLS.   

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Transfer Analysis: Daryl Dike, Purchase Options, and Player Valuations

Daryl Dike has had an incredible professional career.  One that has lasted less than a year and a half.  After being drafted 5th overall in the 2020 MLS SuperDraft, Dike had a standout MLS performance for Orlando City SC in his first professional season.  This rookie performance caught the eyes of Championship club Barnsley who offered him a loan in February of 2021.   Scoring nine goals since February, and averaging a goal every 129 minutes in the Championship so far, Dike is now one of the top strikers in the USMNT player pool, has had his loan extended until the end of the championship season, and is reportedly turning heads at Premier League clubs like Everton and Leeds.

Reports have hinted that Barnsley and Orlando agreed on a $20M purchase option, with a 20% sell-on fee. [1]  At the time, many considered such an impossible value for Dike to reach.[2]  Now, with the way he is playing in the championship, that number is starting to sound more realistic.    

With Dike shining in the Championship, it seems time to talk about his purchase option, assessing his value, and how it might affect his move up the football ladder.  

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MLS Salary Cap 101

Major League Soccer (“MLS”) has two distinct, and intertwined, defining features that set it apart from the rest of global soccer: Its single-entity structure, and its salary cap.

While standard in most major American sports leagues, salary caps are near-nonexistent in soccer elsewhere in the world.  Earlier this year (2021), an arbitration panel threw out the English Football League’s attempt to establish a salary cap for League 1 and League 2 (the third and fourth tier of professional soccer in England), after the English player’s union (the PFA) challenged the regime.[1]

One of the central philosophies behind MLS’s American-style salary cap is to maintain competitive balance amongst its clubs.[2]  This balance, to MLS, is fundamental to its growth strategy for North American soccer, and the league writ large. 

To MLS, parity reduces the predictability of competitive results, which creates a more interesting product for prospective fans and neutrals, which in return will lead to growth in popularity of the sport and the league —or so the theory goes.

For MLS clubs, however, competitive dominance -not balance- is top of mind.  The fundamental basis of the parity theory is that it creates a potential for all teams to win.  Essentially the draw for fans is the hope that there is a possibility in every matchthat their team will win.  So, a club on an individual basis will grow interest, fan support, market share, and revenue faster if they increase their likelihood of winningby become consistent winners.

This makes sense.  The biggest clubs and teams in the world are the ones that have the biggest histories of winning.  Real Madrid, Liverpool, the Yankees, the Lakers, all built their global fanbases with the contents of their trophy cabinets, not the fact that their matches and games had extremely unpredictable outcomes.

Therefore, soccer clubs, including those in MLS, should fight to maintain competitive dominance, not balance to grow their fanbase and improve their bottom line.

This is the first piece in a series discussing strategies MLS clubs can leverage to break the league’s competitive balance and create a model for sustained sporting (and therefore, hopefully, commercial) success in MLS. You can read the subsequent pieces here: II.

As the 2021 MLS season kicks off this weekend, it makes the most sense to start by breaking down MLS’s Salary cap in straight forward terms, to better understand the constraints by which MLS Clubs must follow as they build their rosters.[3] 

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A dispute over training compensation in US Soccer: Youth Soccer Clubs v USSF, MLS & MLSPU

1Several American Youth Soccer Clubs sued the MLS Players’ Union (MLSPU) and three former and current MLS players in the Eastern District of Texas federal court in July 2016 to enforce the training compensation and solidarity payment provisions[3], contained in FIFA Regulations on the Status and Transfer of Players (RSTP). The complaint[4] was brought in United States District Court of the Eastern District of Texas by Youth Soccer clubs, Dallas Texans Soccer Club, Crossfire Foundation, Inc., and Shocker’s FC Chicago LLC (together, the Youth Clubs). These clubs were training clubs for Clint Dempsey, DeAndre Yedlin, and Michael Bradley respectively. The Youth clubs name the MLS Players’ Union (MLSPU) Dempsey, Yedlin, Bradley, and “all those similarly situated” as defendants in their complaint. On March 29, 2017, the Court dismissed the case on jurisdictional grounds.

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Current MLS Agent Regulations Explained

Agents negotiating player contracts with MLS franchises faced huge changes in 2015. FIFA promulgated new regulations governing agents negotiating player employment contracts, which came into force on 1 April 2015. FIFA now defines agents representing clubs or players in negotiations related to player employment contracts (either individuals or organizations) as “intermediaries.” As a result, the United States Soccer Federation released a memorandum outlining its intermediary regulations effective April 1, 2015. Likewise, Major League Soccer and the MLS Players Association agreed to terms of a new collective bargaining agreement this past summer, which defines the scope and terms by which agents may operate when negotiating player employee agreements with MLS franchises.

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THE LEGALITY OF DAILY FANTASY SPORTS BETTING IN THE US

Since 1919, when the then-heavily favored Chicago White Sox intentionally lost the World Series, sport gambling and sport betting have been at the forefront of the national sports conversation.1The event ultimate led to the Professional and Amateur Sports Protection Act of 1992 (the “Bradley Act”),2 which effectively bans sports gambling in the United States.

However, using an exemption in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA),3 numerous businesses have created a legal alternative for American sports gambling in the form of daily fantasy sports.

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Periscope: An Old Problem in a New Medium

Periscope and Meerkat: the New Frontier in Sports Piracy

Two apps are pushing into a new realm of social media. Periscope and Meerkat both allow individuals to stream video and audio of current events in real time to followers. It’s easy to see how this may become a problem for sports broadcasters, teams, and event organizers.

The problem of live broadcasts and rebroadcasts of live sports events is not new. However, these apps have the potential to create dynamic fan interactions with sporting events. Sport organizers, broadcasters, teams, and leagues balance their interests of protecting their rights, while still allowing this increase in fan engagement through the apps.

The Apps:

Periscope, and Meerkat allow users to live-stream video and audio to followers on their own channel. This allows users to display live events as they happen to anyone interested. These apps have garnered attention from major investors, Periscope being owned by social media giant Twitter. Periscope and Meercat essentially offer the same service, although Periscope allows individuals to broadcast to any user, Market users’ broadcasts are limited to twitter followers, or people viewing their twitter feed.

Periscope made the news when the season premier of Game of Thrones was live broadcasted on the app by numerous users, forcing Periscope to issue a number of takedown notices from HBO.[1] More recently, rampant piracy of the Mayweather/ Pacquiao fight, cause over a hundred takedown notices to be posted between the two apps.[2]

These events should, and most likely have, raised the antennas of sports broadcasters, leagues, and major event organizers. This will happen for major sporting events, and organizers, broadcasters, and leagues need to establish a plan to deal with broadcasts.

The Broadcast

In the United States, sporting event broadcasts are protected by 17 U.S.C. §102.[3]. Jurisdictions differ about whether the underlying sporting events are considered “news” or protected creative works, but most take the stance that there is a modicum of creativity in the broadcast themselves that a re-broadcast can be considered a misappropriation of the broadcast’s copyright.

Even if the event is protected under copyright law, it can be re-appropriated if use of the copyrighted work meets one of the requirements for a “fair use” exemption. For example, if someone was live-broadcasting their child’s first steps with the super bowl in the background. Since the super bowl is merely an element of the underlying video, and not the purpose of recording that video, the “rebroadcast” of the event may not not infringe on the NFL’s copyright. The same could be said for reaction videos of sporting events, or even short clips of sports broadcasts that users post to show what they’re currently up to.

The Live Event:

Live sports event tickets constitute a revocable license to attend the event subject to certain conditions.[4] One of those conditions typically bars attendees of events from recording and/or broadcasting the event. If an attendee is caught recording or broadcasting the event, the event organizer can normally eject that attendee from the event.

Balancing Interests

 

Sports event organizers and broadcasters face an old problem in a new medium. The use of these broadcasting apps can both generate interest in their products and hijack the distribution of their product. Current ticket licenses may conflict with a push for fans to broadcast their experiences at the games. Likewise, current Broadcast license language may cause a similar problem. However, sports organizations have been trying to engage fans to use Periscope to both watch content generated by the organizations, and to generate content surrounding their event or brand.[5]

Organizers and broadcasters need to take into account their current policies, how they intend on using Periscope and Meerkat for fan engagement, and how they intend to protect their product. Promoting use of these live-stream apps may undermine ticket license restrictions and violate broadcast agreements. Without a nuanced approach, and understanding of the social media space, leagues, teams, and organizers could face blowback from fans receiving takedown notices of streams, or event ejections for seemingly innocent behavior.

[1] http://www.dailymail.co.uk/sciencetech/article-3044211/Periscope-s-piracy-problems-HBO-issues-takedown-notices-Twitter-s-app-used-broadcast-Game-Thrones.html

[2] http://www.theverge.com/2015/5/8/8565983/periscope-meerkat-piracy-boxing-mayweather-pacquiao

[3] Per § 102 commentary, “broadcasts” are creative works “fixed” in a tangible medium and therefore protectable. See, “Notes” 17 U.S.C. § 102, https://www.law.cornell.edu/uscode/text/17/102

[4] See, Dan Fitzgerald, “Can They Take My Tickets? The Legal Rights of Sports Teams and Fans” at http://ctsportslaw.com/2008/10/22/can-they-take-my-tickets-the-legal-rights-of-sports-teams-and-fans/

[5] See, Penguins On Periscope, https://www.periscope.tv/w/VxRNWDExNTQ4N3w1NjA4MDY5RHCzKinlTeQ8uGcIc0BC1tmQk9lRFVZgufJf-Spo3_8=