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.   

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 5^th 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.  

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] 

MLS Player’s Association Ratify 2015-2019 Collective Bargaining Agreement

The MLS Players Association announced their ratification of the 2015-2019 MLS Collective bargaining Agreement on July 16, 2015. In a press release, the player’s association announced some major changes to the agreement.[1] Here are some major points of interest.

The 2015 MLS CBA, Bosman, and how European Law Affects Free Agency in American Soccer

Major League Soccer and the MLS Players Association are on the precipice of a break down in Collective Bargaining Agreement negotiations. One of the major sticking points in the negotiation is the issue of free agency in Major League Soccer. Soccer in the European Union faced similar restrictions over movement of players after the expiration of their contract, which was resolved in the Bosman ruling two decades ago. Through CAS Jurisprudence, the decision in Bosman may render the free agency debate in Major League Soccer moot.

The Bosman Ruling:

In the landmark Bosman ruling, the European Court of Justice held that that rules requiring a payment of a negotiated transfer fee for the transfer of a player after the expiration of his employment agreement was an illegal restriction on a Player’s fundamental right to freedom of movement. [1] Specifically, the ECJ found that said rules “are likely to restrict the freedom of movement of players who wish to pursue their activity in another Member State by preventing or deterring them from leaving the clubs to which they belong even after the expiry of their contracts of employment with those clubs. “[2]

Additionally the court held that “since [the rules] provide that a professional footballer may not pursue his activity with a new club established in another Member State unless it has paid his former club a transfer fee agreed upon between the two clubs or determined in accordance with the regulations of the sporting associations, the . . . rules constitute an obstacle to freedom of movement for workers.”[3] The Court also found that even if the restriction involved movement within a single member state, it would still constitute an illegal restriction on free movement.[4]

As a result, no European club, or national association, can require the payment of a negotiated fee for, or create any other bar against, a player moving to a new club upon the expiry of his employment contract. This thus establishes free agency for all European sports.

The Peñarol Decision

The Principle of free movement was then applied by CAS to cases involving players and club outside of the EU in Club Atlético Peñarol v. Suarez et al.[5] While not citing directly to Bosman, the CAS panel in Peñarol ruled that because FIFA and CAS are entities governed by Article 187 of the Swiss Public International Law Act (the “PILA”), they are required to seek guidance from Swiss public policy.[6] Specifically, the Panel in Peñarol observed that while a choice of law determines the applicable laws, Article 187 states that organizations incorporated under Swiss law cannot preempt Swiss legal norms if said preemption would contravene Swiss public policy, or violate a fundamental right under Swiss Law.[7]

Peñarol thus holds that CAS and the FIFA DRC are bound by basic human rights as recognized by Swiss Law and Public Policy.

Effects of Bosman and Peñarol

Switzerland and the European Union signed the Agreement on the Free Movement of Persons, which became effective on 1 June 2002.[8] That agreement, states that both Switzerland and the European Union Member states recognize the “right of free movement.”[9] This agreement occurred after Bosman.[10] Therefore, the panel in Peñarol essentially found that the Bosman decision applied to cases involving any dispute that fell under Art. 187 of the PILA. Both FIFA and CAS are organizations Established under the PILA, and therefore are bound by Art. 187. Therefore, Peñarol establishes jurisprudence where CAS and DRC panels should apply the Bosman ruling to any contract dispute, regardless where the dispute takes place because those bodies are subject to Art. 187 of the PILA.

 

Application of Bosman & Peñarol to Major League Soccer’s CBA Negotiations

A. Lack of a European Connection

The CBA between the MLS PA and Major League Soccer applies only to employment within the singular league. Because the freedom of movement issue applies only to that league, if a freedom of movement issue made its way to the FIFA DRC or CAS Major League Soccer may argue that there are no bars to freedom of movement. However, Major League Soccer operates three franchises in Canada, and therefore it has the potential to challenge the freedom of movement of players between those countries. Likewise, as Bosman stated, restrictions of movement of players within one “member state” may affect his freedom of movement to another “member state” “by preventing or deterring them from leaving the clubs to which they belong even after the expiry of their contracts of employment with those clubs.”[11]

In Peñarol, there was some connection to the European Economic Area, as a French Club (PSG) was pursuing the player in question. Therefore, Major League Soccer can argue that since the player movement here does not touch the EU or Switzerland, Peñarol should not apply. However, given the above referenced portions of Bosman[12] and the fact that Peñarol applied Swiss public policy to a Uruguayan Football Association rule, the fact that the rule does not affect movement to or within Europe or Switzerland may not matter.

B. Single Entity and Free Movement

There are three possible scenarios for a player when his contract expires. He can a) sign a new contract with his current club; b) join a new club competing under a different national association (an international transfer); or c) join a new club competing under the same national association his current club (a domestic transfer).

If a player signs a new contract with his current so long as the player agrees to an extended term, and that term follows FIFA’s (lose) 5 year contract term rule under Article 18(2) of the FIFA RTSP[13] there are, obviously no legal issues. The player is happy, the club is happy.

If a player decides to transfer to a new club at the end of his contract then the question becomes, does the standard set by Peñarol and Bosman overtake potential provisions in an MLS CBA?

For International Transfers, and transfers to other domestic leagues (NASL, USL Pro), the answer is an obvious yes. The CBA only covers terms of employment within the league itself. If a player signs with a new club in a league in a new country, or even a different league in the US, the CBA should not apply.

The more interesting question is: does Peñarol (and therefore Bosman) invalidate any MLS CBA restrictions regarding out-of-contract transfers between MLS franchises. As stated before Major League Soccer contract disputes may be subject to the FIFA DRC and therefore CAS jurisdiction. If the case went to the DRC, or later appealed to CAS, the player or the new club would most likely request the panels to apply Peñarol and Bosman. However, because of Major League Soccer’s single entity composition the arguments more difficult to apply. [14]

Each MLS franchise is technically a subsidiary of Major League Soccer. Therefore, the league would most likely argue[15] that a free agency dispute is not a freedom of movement issue so much as a freedom of association issue. Specifically, as a single entity, Major League Soccer has the right to negotiate new employment terms with employees, including where in the organization an employee can work, or a method by which the employee is selected to work at its various branches.

Although, because of the nature of the “business” franchises do compete for employees. It is not a stretch to argue that if a player is wanted by a franchise, if the league rules get in the way of the player moving to that franchise, it could still be found to violate the principles of freedom of movement.

If the dispute were between franchises in regards to the signing of a player, it would be very difficult to argue that those franchises are two branches of the same tree. If the league, or another club came between the signing of an out-of-contract player and a franchise, and the franchise brought suit before the DRC, a panel may find that the provisions for player movement after their contract has expired violates basic Swiss public policy. Therefore, like in Peñarol, the provisions regulating player movement after their employment contract has expired are invalid, and MLS players have the right to move freely to any new MLS franchise that will have him.

However, if the dispute arises from a player challenging, for example, a re-entry draft, and all of the franchises in MLS tow the same line, the league’s argument may carry some weight.[16] Freedom association, by all accounts, allows companies to condition terms of employment to working at specific branches of the organization.

 

Final Thoughts

Many have pointed to the fact that free agency is a major sticking point for MLS CBA negotiations. However give nature of the international transfer market, free agency will definitely exist for players moving on free transfers to different leagues, regardless of CBA terms. Likewise given the composition of US Soccer and MLS contract dispute resolution, the possibility of applying Swiss public policy also leaves enforcement of any current or future CBA terms inhibiting free agency in question.

This may hurt the bargaining power of the MLS Players Association. If players can already freely move to new leagues removing restrictions on Free Agency may not be a primary issue for a number of players.

Alternatively, because of the current employment market, FIFA DRC and CAS jurisprudence, and US Soccer and MLS dispute resolution procedures, any provision inhibiting free agency in the CBA could be circumvented depending on how the player goes about challenging the dispute, or where he decides to pursue his career. Therefore, free agency restrictions in the CBA may lose their teeth, depending on how they are challenged.

 

 

[1] Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman, (1995) C-415/93

[2] Id. at ¶ 99.

[3] Id. at ¶ 100.

[4] Id. at ¶

[5] TAS 2005/A/983 & 984, Club Atlético Peñarol v. Suarez et al

[6] Id.

[7] Id.

[8] See, Free Movement of Persons Switzerland – EU/EFTA, Swiss State Secretariat for Migration, https://www.bfm.admin.ch/bfm/en/home/themen/fza_schweiz-eu-efta.html.

[9] See, Agreement between the European Community and its Member States, of the one part, and the Swiss Confederation, of the other, on the free movement of persons [OJ L 114 of 30.4.2002].

[10] Id.; See also Bosman, (1995) C-415/93.

[11] Bosman, (1995) C-415/93 at ¶ 99.

[12] See Supra.

[13] See FIFA Regulations on the Status and Transfer of Players Art. 18(2) “while the maximum length of a contract shall be five years. Contracts of any other length shall only be permitted if consistent with national laws.”

[14] Although, this single entity composition creates other possible problems for the league.

[15] Aside from the fact that Swiss and EU labor law principles should not apply.

[16] Although a re-entry draft may violate art. 18 bis of the FIFA RTSP.

FIFA Dispute Resolution Chamber Jurisdiction Over MLS Contract Disputes

There is a possibility that FIFA has competence to hear contract disputes between certain players and Major League Soccer, over and above the MLS Collective Bargaining Agreement’s provided arbitration procedure for contract disputes. This could effect not only who makes decisions regarding contract disputes North America’s top tier soccer league, but also what laws and regulations control players’ contracts, the league, and governance of the sport.

Jurisdiction of FIFA:

The FIFA Regulations on the Status and Transfer of Players (FIFA RSTP) Article 22(b) gives The FIFA Dispute Resolution Chamber (FIFA DRC) competence to hear “employment-related disputes between a club and a player of an international dimension, unless an independent arbitration tribunal guaranteeing fair proceedings and respecting the principle of equal representation of players and clubs has been established at national level within the framework of the association and/or a collective bargaining agreement.”^[1] The Official commentary to the FIFA regulations states “if the association where both the player and club are registered has established an arbitration tribunal composed of members chosen in equal number by players and clubs with an independent chairman, this tribunal is competent to decide on such disputes.”^[2]

Therefore, for FIFA to have competence to hear a dispute between a player and a club, there needs to be 1) an international dimension, and 2) fail to meet the “fair proceeding” requirements outlined in Article 22(b).

International Dimension

An international dimension, according to FIFA is “represented by the fact that the player concerned is a foreigner in the country concerned.”[3] Essentially, Article 22 gives FIFA competence to hear disputes involving “foreign” players, e.g. players that hold a different nationality of the federation where they compete professionally, or if dual nationals, registered with a different national federation team under Article 15 of the Regulations Governing the Application of the FIFA Statutes, and Article 1 of Annex 2 of the FIFA RTSP.

Purpose of the Employment-Related Disputes Competence

FIFA established the DRC and the above provision in Article 22(b) to allow players a fair procedure for dealing with employment related disputes. In numerous national associations, composition of dispute resolution bodies was stacked in favor of the national association and clubs. In those situations, players had little to no input on the compositions of these bodies, or those deciding their case. Arguably, then, only the interest of the association, and member clubs were represented in those dispute resolution bodies, and therefore were not fair arbitrators of disputes.

 

MLS Arbitration:

The MLS CBA provides for contract dispute arbitration after a “Grievance Procedure.”^[4] The Grievance Procedure functions as a mediation/settlement negotiation, with two negotiators, one appointed by the MLS Player’s Association and one appointed by the league. If no settlement is reached at the Grievance Procedure, the parties go arbitration. This arbitration is heard by a single, impartial arbitrator, appointed “jointly by the parties.”^[5]

Fair Proceedings by National Dispute Resolution Bodies

The test for “fair proceedings” generally falls on whether the decision maker in the procedure represents the interests of both the association and the player. The FIFA commentary on the RTSP states that an association or a collective bargaining agreement must crate the arbitration and it must involve “an arbitration tribunal composed of members chosen in equal number by players and clubs with an independent chairman” to be competent to decide on such disputes.

The MLS Arbitration procedure is established by the professional league (Here, the MLS, not the national association, although it is established via collective bargaining. As well, the arbitration involves a single arbitrator, not a panel consisting of equal numbers of arbitrators selected by the players and clubs with an independent chairperson.

Without a doubt, Major League Soccer’s contract dispute resolution procedure “respect[s] the principle of equal representation” and fairness. It involves not only an arbitrator agreed upon by both parties, but also a mediation procedure involving two mediators one selected by the players, and one selected by the league. These procedures were established through an extensive negotiation process between the Players’ Association and the league.

However, the procedure does not conform to FIFA’s official commentary of what a “fair” proceeding should be. First, a single arbitrator, not a panel of arbitrators, hears the dispute. Second, the league, not the national federation is organizing the contract dispute process.

It’s a toss-up. On the one hand, the MLS procedure includes a neutral arbitrator, and the players and the league, through collective bargaining, agreed upon the procedure. On the other hand, the language of the FIFA RTSP commentary outlines a much different arbitration composition from what Major League Soccer has established.

The real test will be whether a FIFA DRC panel, or eventually a CAS panel, will follow the spirit of Article 22(b), or the letter of the official commentary.

Accepting Jurisdiction of MLS Contract Dispute Resolution Procedures

 

Once a player begins a dispute resolution process via Major League Soccer’s CBA Article 21, they have accepted the jurisdiction of that procedure, and are therefore bound by its rules and its final decision. At that point a binding arbitration process will have commenced, and therefore, The FIFA DRC runs the risk of having conflicting binding arbitration awards, which would lead to legal headaches for the league, FIFA, the Player and, in this case Major League Soccer.

While that is fairly straight forward, it is not clear at what point the FIFA DRC would say the player accepted the jurisdiction of the MLS dispute resolution process. Is it when the player begins the “Grievance Procedure,” or is it when the player initiates the arbitration? It could go either way.

On the one hand, the grievance procedure is a non-binding mediation process, which may not resolve the issue. Likewise, if it does, both parties have agreed, so neither (hopefully) would challenge it. On the other hand, as the “Grievance Procedure” is in integral part to the MLS contract dispute resolution procedure, so The DRC might find that entering into a “Grievance Procedure” mediation is a de facto acceptance of the Major League Soccer Contract Dispute Arbitration’s jurisdiction, and therefore the player is bound by its result.

 

Moving Forward

 

Major League Soccer and the MLSPA are currently in negotiations for their new CBA. It will be interesting to see if Article 21 is amended to meet the exact language of the national dispute resolution standards required by the official commentary of FIFA RTSP Article 22. If so, the league can avoid having to try disputes with international players before the FIFA DRC, which could have dramatic effects on certain disputes (to be discussed later).

^[1] See, FIFA RTSP Art.22(b).

^[2] See, Official Commentary to the FIFA RTSP Art. 22(b).

[3] Ibid.

^[4] See MLS CBA 2004-2010 Art. 21. Note that the current MLS CBA made available by the MLS Players’ Association is only the CBA effective until January 2010. Major League Soccer and the MLSPA distributed press releases outlining the changes. See, Major League Soccer, “MLS releases details of the new CBA,” http://www.mlssoccer.com/news/article/mls-releases-details-new-cba. As well, the 2014 roster rules are available on the MLS website. See, Major League Soccer, “Roster Rules and regulations,” http://pressbox.mlssoccer.com/content/roster-rules-and-regulations. However, no mention is made of changes to the contract dispute portion of the CBA. Therefore, it is assumed that no changes have been made.

^[5] See MLS CBA 2004-2010 Art. 21

Major League Soccer and FIFA’s Third Party Ownership Ban. What You Need to Know.

FIFA announced on December 22, 2014 that as of May 1, 2015, Third Party Ownership would be banned from professional soccer competitions.[1] Unfortunately, for US soccer fans, by virtue of Major League Soccer’s single entity structure, the league itself may be a third party owner. The new global ban now has the potential to completely up-end the US’s top-level soccer league.

Third Party Ownership

Third Party Ownership is, in its simplest form, an agreement between a club, and an investment company to cover the initial cost of a transfer fee, in exchange for a percentage of a future transfer fee that the club may receive when the player is sold to a new club. This practice has become extremely prevalent in Argentina, Brazil, and Portugal, among others, because it allows clubs to add players to their roster that they could not otherwise afford.

Opponents of the practice argue that Third Party Ownership inflates player transfer market values. This in turn decreases the ability of clubs to field competitive squads while staying within their financial means.

Additionally, third party ownership agreements have the potential to take roster and transfer decisions away from clubs, which threatens the integrity of the sport.

Because of this, various leagues, including the English Premier League and the French Ligue 1 have banned Third Party Ownership outright. As well, FIFA instituted article 18bis of its Regulations on Status and Transfer of Players, which banned third parties from influencing roster and transfer decisions.[2]

MLS Single Entity Organization.

Major League Soccer is a “single entity.” This means that all of the teams are technically subsidiaries of the league, and team “owners” are merely stockholders of MLS, who also act as managers of the business affairs of the individual franchises. Put simply, the clubs are local branches of a larger MLS business.

The purpose of the single entity structure is to avoid potential anti-trust lawsuits that other U.S. sports leagues were subject to in the past. Due to case law established in Copperweld Corp. v. Independence Tube Corp., an organization and its wholly owned subsidiary cannot violate Section 1 of the Sherman Anti-Trust Act because they are not separate economic entities and thus cannot enter into a conspiracy (or agreement) to restrain trade.

Sports leagues in the United States have had a special struggle with anti-trust law. Under Radovich v. National Football League, the U.S. Supreme Court held all sports leagues except Major League Baseball were subject to the Sherman Act. However, Mackey v. National Football League allowed leagues to avoid some Sherman Act scrutiny by bargain with players’ unions regarding roster and employment policy via the Sherman Act labor exemption. However, Los Angeles Memorial Coliseum Comm’n v. NFL determined that requiring a vote from other league clubs to approve a move by another club to a new city violated the Sherman act. As well, American Needle, Inc. v. National Football League determined that when leagues grant exclusive licensing deals with manufacturers to use logos and other intellectual property of the constituent clubs they violate the Sherman Act.

If a sports league were a single entity, under Copperweld, it could avoid those legal issues. From that, it is clear that Major League Soccer opted for a single-entity structure to give them more freedom in their ability to organize and regulate their league, and their commercial enterprises.

Single Entity and Player Ownership

Because of the MLS’s single entity structure and roster rules, the MLS is the bargaining unit for international transfers. The MLS negotiates the purchase and sale of players moving in and out of the league. The MLS is also the organization that cuts and cashes the checks when players move in and out of the league on a transfer fees. Therefore, the league owns the economic interest in the player instead of any individual club or franchise.

FIFA’s 18ter

On December 22 2014, FIFA posted its proposed ban on third party ownership. The new regulation, 18ter, which came into effect On January 1, 2015 and comes into force on on May 1, 2015, states:

No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation.[3]

Under 18ter, a “third party” is “any party other than the two clubs transferring a player from one to another, or any previous club, with which the player has been registered.”[4]

Application of 18ter to Major League Soccer

Two issues arise when applying 18ter to Major League Soccer: 1) is the league a third party owner, and 2) has it “entered into an agreement” with its franchises?

Per the definition of a “third party” under 18ter, Major League Soccer is neither 1) one of the two clubs transferring a player from one to another,” nor 2) “a previous club which the player has been registered.” It could be said that since the clubs are subsidiaries of the league, the league is technically all of the clubs. However, since the regulation specifically mentions clubs, and Major League Soccer is more than just a “club,” it most likely fits in the category of “any other party,” and therefore a third party owner.

Whether Major League Soccer enters into an agreement with its franchise subsidiaries when establishing its single entity structure is unclear. From a reading of Copperweld, it seems as though US case law states it is impossible for a parent company to enter into an agreement with its wholly owned subsidiaries. However, a FIFA DRC panel, or a CAS tribunal, not bound by US law, would determine whether an agreement existed. It could be found that the league roster rules, the CBA, and the general arrangement of the league is a de facto agreement between the clubs and their parent league to cede control of players movement into, out of, and within the league. This analysis would lead to a finding that the MLS league structure violates new article 18ter.

Additional Considerations

There is a possibility that Major League Soccer may change its league structure without the push of 18ter. There have been a few recent conflicts between clubs and the league over roster policies. Most notably, Chicago Fire’s lost its bid for US international Jermaine Jones due, at least in part, to MLS Allocation player rules.[5] As well, LA Galaxy Manager Bruce Arena took issue with MLS’s negotiation strategy on a bid for Sasha Kljestan.[6] As the MLS continues to grow, additional similar conflicts may cause Major League Soccer’s reconsideration of its roster and transfer policy, if not completely reconsider its single entity status.

Practicalities

Problems with the single entity ownership issue may begin upon the July 2015 MLS transfer window. As all international transfers must be registered via TMS and all rights holders to the players being transferred must be included, the MLS should be listed on the TMS international transfer. The system may not allow the transfer of registration to go through if the rights holder is not listed as the registering club.

If a TMS issue does not arise, a challenge to Major League Soccer’s Third party Ownership must come from a dispute involving a player or club, and Major League Soccer. [7]

Sanctions

Article 18ter is vague on the result of a finding of a third party owner stating only that “the FIFA Disciplinary Committee may impose disciplinary measures on clubs or players that do not observe the obligations set out in the article.” This is interesting, because it does not allow any punishment for leagues that allow the practice to continue. However, since the sanctioning language is broad, it could force MLS franchises to own the players rights themselves, and not defer them to MLS, should a case before the FIFA DRC or CAS go forward. As well, the wide discretion may allow Major League Soccer a pass as the DRC or CAS could find that no sanction is necessary as league ownership is not a practice that the regulation intended to abolish.

Conclusion

 

FIFA’s new article 18ter may put the MLS single entity structure in jeopardy. Unless either Major League Soccer changes how it organizes its control over player movement in and out of the league, or finds relief somewhere by FIFA or CAS, it may be forced to significantly alter its business model in the near future.

Additionally, if clubs are given more independence and begin to actually compete for players in the transfer market, single entity protection may unravel, causing additional legal headaches for the top-flight North American league.[8]

[1] See FIFA’s press release on the matter: http://www.fifa.com/mm/document/affederation/administration/02/49/57/42/tpocircular1464_en_neutral.pdf

[2] 18bis states “No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.” See FIFA Regulations on the Status and Transfer of Players, Art. 18bis(1).

[3] FIFA RTSP Article 18ter(1)

[4] Berry, Richard R.I.P. TPO: A Guide to FIFA’s Ban On Third Party Ownership, Law In Sport, http://www.lawinsport.com/articles/item/r-i-p-tpo-a-guide-to-fifa-s-ban-on-third-party-ownership#references

[5] Murray, Shane, After missing out on Jermaine Jones, Chicago Fire’s Frank Yallop not giving up on adding “top player,” http://www.mlssoccer.com/news/article/2014/08/28/after-missing-out-jermaine-jones-chicago-fires-frank-yallop-not-giving-addin

[6] Young, Jared, The MLS CBA: Unpacking Don Garber’s recent comments on single-entity, The Brotherly Game, http://www.brotherlygame.com/2014/9/24/6836267/the-mls-cba-unpacking-don-garbers-recent-comments-on-single-entity

[7] Note, however, that a challenge like that would only make it before FIFA and CAS if there was an international dimension, and that the FIFA DRC/CAS found that the MLS Grievance Procedure does not comply with FIFA’s dispute resolution standards.

[8] Additionally, under Fraser v. Major League Soccer the US First Circuit Federal Appeals Court felt that Major League Soccer may not be totally a single entity under Copperweld, however it also held that the fact MLS competes with other leagues in the US as well as abroad for labor, it was not an illegal monopolization of the labor market.

Steven Gerrard’s Transfer to Major League Soccer

Gerrard’s Transfer to the LA Galaxy

Liverpool Legend, Steven Gerrard, announced that he will move to the MLS franchise LA Galaxy at the end of the Premier League season. While a huge deal for both Liverpool and LA Galaxy, a move to Major League soccer from Europe is not without its idiosyncrasies. Because of this, Gerrard’s marquee move creates a great opportunity to review the mechanics on high-profile moves in and out of North America’s top-flight soccer league.

Player Registration

According to FIFA rules, players must register with a club to compete in FIFA-recognized competitions . At the upper level, these registrations are logged via FIFA’s computerized TMS system. FIFA requires the use of the TMS for all international transfers of professional players.

A player can only register to a single club at one time. Even for loaned players, said players can only register with the team they intend to represent on the pitch.  Additionally, registration can only happen (with limited exception) occur during a designated registration period generally referred to as the “transfer window.”

This scenario is generally straightforward. Club A signs an agreement with Club B to transfer Player C’s registration during the designated transfer window. Or, as the Case is with Gerrard, Player A’s contract with Club B expires, and player A signs and registers with Club C.

However there are two difficulties regarding players competing in leagues outside of MLS moving to MLS franchises. First, the fact that the MLS season and therefore registration periods (transfer windwos) are different than most professional soccer seasons throughout the world. Second, because of MLS’s single entity structure and roster rules, what types of designated categories the player fits determines where the Player will go, and how much say the player will have regarding which MLS franchise the player is moved to.

Registration Period

Under most circumstances, a player can only change club registrations during designated registration periods. Most major professional soccer leagues follow an August to June season. Most leagues have two registration periods during those seasons, generally, one running through July and August and a second, mid-season, in January. However, the MLS season begins in March and runs through October. Therefore its registration period runs between mid-February and mid-March, and then again, mid-season, in July.

This poses an obvious complication for Gerrard, and any player moving between the MLS and foreign leagues. Specifically, deciding on the best time period to register with the player’s new american soccer franchise.

So long as a transfer is within the registration period for one of leagues involved, the registration can be changed. Gerrard’s Liverpool contract will expire in July, the end of his Premier League Season. He will then presumably (more on that later) register with the Galaxy with no transfer fee (or as it is better known in International soccer parlance, move in a “Bozeman” transfer) as he will be a free agent.

After the July transfer, Garrard will have played a full Season of EPL, Capital One Cup, FA CUP, and UEFA matches with Liverpool, since last August, after playing in the World Cup in the summer before that Season. The World Cup is also sandwiched between the end of the 2013/14 season and the beginning of the current 2014/2015 season. Additionally, by July, Major League Soccer will be midway through their season. With Gerrard playing so much football and moving stateside so late in the MLS season,  Fans may not see Gerrard competing on American soil until either the MLS playoffs (if the Galaxy qualify), or possibly may have to wait until the start of the Major League Soccer 2016 season. There is even a potential for Major League Soccer to loan Steven Gerrard back to Liverpool for the first half of Premier League 2015-16 season and join at the beginning of the 2016 MLS season.

Single Entity

A quick note: If the Player is moving to the MLS (like in Gerrard’s case), the player and the foreign club (if the player is still within the contract term with the foreign club) must negotiate with Major League Soccer, not one of the individual franchises. Luckily, “Designated Players” (like Gerrard) have more bargaining power with what franchise they move to, as they are more desirable to the League.

Designated Player, MLS CBA and MLS Roster Rules

Additionally, Major League Soccer has detailed roster rules, which all franchises must comply. These rules put various players into different categories, which have different effects on how players are brought to clubs and how their compensation is calculated towards the league’s salary cap.

Steven Gerrard will transfer as a Designated Player. Per the collective bargaining agreement between the MLS player’s association and Major League Soccer, each squad has a specific number of Designated Players whose individual salaries will not exceed $387,500.00 in the capped roster budget. In 2014 that number was three, although there have been rumors that the 2015 MLS CBA may increase that number. Therefore, Gerrard’s alleged $6M per year salary will only count towards $387,500.00 of the LA galaxy’s salary budget for cap purposes.

Likewise, unlike allocation players, Super Draft players, and lottery players, Gerrard’s Designated Player status allowed him some control over deciding where he wants to move within the league. Allocation slots and team selection order (for USMNT players coming into the MLS) depend on prior team performance and player transfer success. Super draft selections depend on player desirability and club performance the season before. Lottery selections follow the same process as Super Draft selections but occur when a player has signed with Major League Soccer after the Draft has occurred.

For Designated Players, a franchise must merely desire to sign a player, have an available Designated Player slot open and have the player desire to sign with the Franchise. Seeing as the LA Galaxy has an open Designated Player slot after the retirement of Landon Donovon, and seeing as in an interview Gerrard stated, “they [The LA Galaxy/MLS] basically told me what I wanted to hear,” it seems those requirements have been met.

One note: the MLS CBA gives Major League Soccer the ability to move players as they see fit. Specifically the MLS CBA[1] states that “a Player may be required, without his consent, to relocate to any Team in the League as directed by MLS.” This means, if for some reason, major chances come in the league, or the league feels the need to move Gerrard to a different franchise/media market within the league, it can do so without Gerrard’s consent. Whether that is legal pursuant to FIFA rules, FIFA DRC jurisprudence, or CAS jurisprudence is another story. While it is permissible within the rules, it would be an absolute PR nightmare for the MLS if Gerrard, or any player in that position protested, so it seems an unlikely event.

 

 

[1] The only full version of an MLS CBA available to the public expired on January 1, 2010. The following CBA effective until January 1, 2015 was never published, although a memo outlining changes was distributed. That memo made no mention of this section (15.1), so it is fair to assume it is still a valid provision. However, a new CBA is being negotiated at the moment, so this discussion may become completely moot depending on what comes from those negotiations.

Will Clubs be Banned for not Breaking-Even? A Review of Recent FFP Cases

By Daniel Geey and Andrew Visnovsky

Introduction

The recently published high profile decision involving Malaga gives important insights into the decision making rationale of UEFA’s Club Financial Control Body (CFCB) and the Court of Arbitration for Sport (CAS) in relation to the UEFA Club Licensing and Financial Fair Play Regulations edition 2012 (the FFP Regulations). Malaga was sanctioned for breaching the ‘overdue payables’ section of the FFP Regulations.

Break-even Decisions will begin in Spring 2014 and the lessons learned from the Malaga and other recent ‘overdue payables’ cases set out below are instructive for a number of sanctioning reasons.