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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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=

Crossfit Governance, How The Sport of Fitness is Regulated.

CrossFit, and its method of competitive cross training, has exploded in popularity since its inception 15 years ago. It has become a worldwide phenomenon, challenging the nature of the fitness and sports industry. With the Reebok CrossFit Open around the corner, it is a good time to ask some questions about how the young and growing sport is governed.

What is Crossfit?

 

CrossFit was established as a training philosophy in 2005. This philosophy focuses on “functional” movements, and incorporates cross training, olympic weightlifting, bodyweight fitness, gymnastics, powerlifting, among many other disciplines. Over time, the methodology has branched out to various specialized crossfit[1] programming: CrossFit Kids, CrossFit Football, CrossFit Endurance, etc. CrossFit now accredits trainers, licenses its name to be used by affiliate gyms world wide, and has arranged sponsorship deals with the likes of Reebok for exclusive use of the “CrossFit” name on apparel.

Competitions:

 

One of the focal points of CrossFit, and the crossfit community is the triad of competitions under the umbrella of the Reebok CrossFit Games: the Open, the Regionals, and the Games. These fitness tournaments eventually culminate in awarding the title of “Fittest Man and Woman on Earth” to the champions of the Reebok CrossFit Games. This competition catalyzed sport of “crossfit” or as CrossFit would like you to call it: “The Sport of Fitness” or maybe a little more helpful the sport of “competitive fitness.” CrossFit now operates a few additional competitions, namely, The CrossFit Team Series, and the Reebok CrossFit Invitational.

Through the popularity of the training program, and the proliferation of CrossFit affiliate gyms globally, numerous crossfit/competitive fitness competitions have begun to sprout up. These competitions range from low-level amateur competitions[2], to extremely competitive elite competitions, like the Grid League.[3] Some of these competitions involve individuals competing over a few days, some involve teams competing throughout a season lasting months. despite their differences, all these competitions follow the same basic tenants that were originally established by CrossFit 15 years ago, and the competitive foundation laid by the Reebok CrossFit Games.

Who Organizes and Governs the Competitions:

CrossFit regulates its own competitions. It has its own competition rules, and its own anti-doping policy.[4] The implementation of these rules, and the implication of their violation is confined to only “CrossFit sanctioned” competitions.[5]

The vast majority of the competitions outside the Reebok CrossFit Games triad, the Reebok CrossFit Invitational, and the CrossFit Team series are not “CrossFit sanctioned.”[6] Save for a public shaming, a violation of CrossFit’s competition rules do not directly effect an athlete’s participation in the litany of other competitions that operate within the competitive fitness umbrella. Likewise, each one of those competitions, whether a competitive league with a multi-week season, or a one-off event bears the burden of governing themselves: establishing their own competition rules, regulations, and standards as well as enforcing them.

Marketing a Brand:

The fact that CrossFit does not more widely govern competitive fitness events lies in its desire to protect its brand. Because of lucrative licensing deals, and gym franchising, CrossFit stands to lose a large portion of its revenue stream if the term “CrossFit” becomes genericized. CrossFit’s zeal for brand protection is clear from the CrossFit Journal’s (an online publication produced by CrossFit) legal page. There, you can find a number of articles on successful brand protection suits, but much less regarding sport governance and regulation.[7]

Many of these suits involve gyms and sports product manufacturers using the term crossfit to market their businesses to their target audience, without CrossFit’s approval. These companies argue (for the most part) that the term “crossfit” is a generic term describing certain activity/training style that anyone can do. Therefore, the term crossfit cannot be a protected term, just like the term “baseball” or “hockey” cannot be a protected term.

However, CrossFit argues (for the most part) that “CrossFit” is a brand name that has created its own goodwill, which certain companies are attempting to hi-jack, which will confuse the consumer. They Liken themselves to Coca-Cola: lots of people make soft-drinks (fort their purposes, athletic training programs and competitions), but there’s only one Coke (or for their purposes, CrossFit).[8] Generally, courts find this argument persuasive, and side with CrossFit.[9]

Therefore, CrossFit stands to benefit from non-CrossFit affiliated competitions, and refraining from governing the entirety of the sport. Avoiding wider governance shows that CrossFit is one of many organizations in the space of the sport of “competitive fitness.” Therefore, the name CrossFit informs consumers of a specific source of a specific product, and ability of CrossFit to protect the use of that name benefits consumers, and is appropriate.

The Governance Issue:

Since CrossFit stands to benefit from refraining from becoming a governing body for the entirety of “competitive fitness,” how is the sport regulated? How does that affect those participating in the sport?

In short, the sport is regulated on an ad-hoc basis, competition to competition.

For athletes, this means a few things. First, they are subject to numerous rules and regulations, and competition standards, all enforced separately. Therefore, a competition violation resulting in a ban from one competition will not apply in a different competition. Likewise, athletes could be forced to defend themselves in multiple disputes with multiple competition organizations, (each following different procedures, and rules), for a singular action allegedly taken by the athlete. For example, an athlete could be charged by multiple competition organizations for violating each competition’s doping regulations resulting from a single alleged event, and be required to defend all of them in different forums.

More likely, however, is that since a majority of the competitions are short one to two day annual occasions, the massive cost of mounting enforcement of sport governance means that the rules (if they exist in the first place) are enforced loosely ineffectively, and irregularly, if at all. Potential Arbitration, possible law suits, or engaging a drug testing facility for enforcing doping standards are all costs that a single day competition in a fledgling sport will have difficulty covering.

Is an Independent Governing Body the Solution?

Should an organization come together to govern competitive fitness competition? Possibly. It benefits CrossFit, as they can further protect their intellectual property and good will by further showing that they are just another soda in the competitive fitness cooler. Likewise, it would (hopefully) create a straightforward and transparent sports governing system for athletes competing in competitive fitness events through the world.

However, creating a new global governing body will take away some authority from CrossFit, and other major competition organizers like the Grid League to control their competitions.

Ultimately, it would be up to these competition organizers to agree on some sort of over-arching governing body. As the sport grows, there may be a push to create a global governing body to meet the demands of a sport growing at exponential levels.

[1] For some simplicity, I will be using “crossfit” when talking about the sport/training method and “CrossFit” when talking about the brand.

[2] For Example, The Festivus Games, https://festivusgames.com/

[3] https://www.npgl.com/; see also, Wodapalooza http://www.thewodapalooza.com/; Kill Cliff East Coast Championships, http://ecchampionship.com/blog-2/

[4] See e.g., The Crossfit Games Rulebook, http://media.crossfit.com/games/pdf/2015crossfitgames_rulebook_150106.pdf; 2015 CrossFit Drug Testing Policy, http://media.crossfit.com/games/pdf/2015CrossFitGames_DrugTestingProgram.pdf

[5] See 2015 CrossFit Drug Testing Policy Art. 11.

[6] It should be noted that it is often difficult to ascertain whether a competition is “CrossFit sanctioned.” Many competitions are sponsored by Reebok (the exclusive CrossFit apparel sponsor) or even the Reebok CrossFit Store, but make no other mention to a CrossFit affiliation. Although, it can be fair to assume that if the competition refers to itself as a “fitness competition” or some other vague term, and not a “CrossFit competition,” it is safe to assume it is not a “CrossFit sanctioned” event.

[7] See, CrossFit Journal, Legal, http://journal.crossfit.com/legal/

[8] See, Saran, Dale, If It Doesn’t Say CrossFit, It’s …, The Crossfit Journal, at 4, http://library.crossfit.com/free/pdf/CFJ_CF_Saran2.pdf

[9] See, E.g. Burton, E.M., Victory In Quebec, The Cross Fit Journal, http://library.crossfit.com/free/pdf/CFJ_Quebec_Burton.pdf

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