Earlier this month, two American soccer teams, Miami FC of the North American Soccer League (NASL) and Kingston Stockade FC of the National Premier Soccer League, North Atlantic Conference, brought a claim in the Court of Arbitration for Sport (CAS) against The United States Soccer Federation (USSF), The Confederation of North, Central American and Caribbean Association Football (CONCACAF) and FIFA for allowing MLS to operate a closed league system thereby preventing other teams from being promoted into it based on sporting merit.

Miami FC CEO Sean Flynn publicly commented that the action is based on the belief that “the benefits of soccer should be shared by the many, not the few, and that soccer’s top division should include the best teams, not the teams that pay certain sums of money.”

Promotion/Relegation systems

According to FIFA’s 2017 Annual Global Club Football Report, 84.5% of top-tier professional football competitions in the world use what is called a ‘promotion/relegation’ system, exemplified by the system used in English football. Deloitte have estimated the value of Premier League promotion at a minimum of £170 million – financially one of the biggest prizes in world football. In Europe we take promotion and relegation for granted, but for most teams – from the Premier League all the way to the Mid-Sussex Football League Division Nine – this is what motivates fans and players; the dream of promotion or the heartbreak of relegation.

In the USA, the emotional rollercoaster that is the promotion/relegation system does not extend to Major League Soccer (MLS), the USA’s only top-tier sanctioned league. The league operates as a single entity structure which means that the owners of teams enter into a partnership whereby the league owns all broadcast and intellectual property rights and partners (owners of teams) share certain sources of revenue. The fixed franchise-based model that is popular in other US sports means that MLS, as a corporate entity, considers several criteria in choosing to award new franchises. These include determining financially secure and committed owners, ownership of, or approved plans for, a stadium, the local population and realistic size of the market for the club, and whether or not there is already an established local fan base. The franchise-based model used by most sports in the US should not be confused with the single entity structure which is unique even for American sports.

The structure of MLS

The single entity structure is largely attributed to the historical context of US soccer in the years before MLS was created – the boom and bust years. American soccer had endured years of instability, some teams grew faster than others, players’ wages spiralled out of control and many clubs became insolvent often due to the financial disparity. Following the 1994 World Cup in the USA, the USSF promised FIFA that it would establish a top division professional soccer league in the USA and MLS was born. To protect the league against instability, to ensure guaranteed returns for investors and to deter the possibility of anti-trust challenges, the league decided to use a closed league system managed by a single entity structure.

The claim

The nature of arbitration means that the precise details of the challenge are unknown, but it is understood that the claim is centred around Article 9(1) of the FIFA Statues which dictates that entry to domestic leagues must be based principally on sporting merit:

“A club’s entitlement to take part in a domestic league championship shall depend principally on sporting merit. A club shall qualify for a domestic league championship by remaining in a certain division or by being promoted or relegated to another at the end of the season.”

MLS and the legal framework of world football

The MLS is a limited liability company and a member of the USSF – the official governing body of soccer in the United States. The USSF is an affiliate member of both CONCACAF and FIFA, a consequence of which is that it is bound by their statues. CONCACAF is the continental governing body for football in North and Central America as well as the Caribbean region. The obligations of each of these entities can be traced to the FIFA Statutes.

CONCACAF has its own Statutes, Article 2 of which sets out the objectives of the Federation:

“to ensure that the bodies and Officials of CONCACAF and its Member Associations observe the statutes, regulations, decisions, disciplinary code and code of ethics of each of FIFA and CONCACAF.”

Article 12 of the CONCACAF Statutes governs the obligations of its Member Associations, which include the USSF:

to comply fully with the statutes, regulations and decisions of FIFA and CONCACAF as applicable to Member Associations at all times (including the FIFA code of ethics and the Code of Ethics) and to ensure that these are also respected by its own members, Leagues, Clubs, Officials and Players as applicable to them.”

The USSF uses Bylaws instead of statutes, number 103 of which provides that:

“The Federation and its members are, to the extent permitted by governing law, obliged to respect the statutes, regulations, directives, and decisions of FIFA and of CONCACAF, and to ensure that these are likewise respected by their members.”

Under Bylaw 212 (1) a condition of both obtaining and maintaining membership is to:

“…except as otherwise required by applicable law, comply with all Bylaws, policies and requirements of the Federation, and all statutes, regulations, directives and decisions of FIFA and CONCACAF, each as they may be amended or modified from time-to-time, to the extent applicable to that classification of Organization Member.”

A possible defence

As mentioned above, since this is an arbitration, we do not know the arguments that are being deployed by any of the parties.

The USSF will however almost certainly rely on Article 9(2) of the FIFA Statutes which does allow for other considerations when deciding on participation in domestic leagues:

“In addition to qualification on sporting merit, a club’s participation in a domestic league championship may be subject to other criteria within the scope of the licensing procedure, whereby the emphasis is on sporting, infrastructural, administrative, legal and financial considerations. Licensing decisions must be able to be examined by the member association’s body of appeal.”

The expansion committee determines the admission of new MLS franchises and consists of ownership representatives from five clubs including Jonathan Kraft (New England Revolution), Andrew Hauptman (Chicago Fire), Anthony Precourt (Columbus Crew SC), Phil Rawlins (Orlando City SC) and Jay Sugarman (Philadelphia Union). They may argue that in addition to the criteria described above, sporting merit is also taken into account when making decisions on the admission new franchises.

Another potential defence could be grounded in the requirements for suspension and expulsion under the FIFA Statutes. Article 14 and 15 provide for this in circumstances where there is a ‘serious violation’ of the Statutes. The Respondents may therefore argue the position that this violation is not ‘serious’, particularly given that it is something FIFA knows about and has not chosen to address previously. In 2008 FIFA published an article titled ‘FIFA to tackle areas of concern’ which specifically referred to the promotion/relegation system and was the precursor to Article 9:

“Concept: Results on the pitch decide whether a club goes up or down a level in every championship around the world except in the United States and Australia, where there are “closed” leagues. Recently it has been possible to achieve promotion artificially by buying or moving a club. FIFA wishes to make sure that this cannot happen again.

Objective: To protect the traditional promotion and relegation system for clubs based purely on sporting criteria – which is the very essence of football.

Application: The decision was taken at the FIFA Executive Committee meeting on 15 December in Tokyo. The article will now be submitted to the Congress next May for approval and implementation as a “new article” within the rules governing the application of the Statutes.”

Despite this, no action has been taken by FIFA, CONCACAF or the USSF to make amendments to the MLS system. It is important to note that the MLS is also not the only league that uses a closed system, the Australian A-League and the burgeoning Indian Super League being good examples.

The US soccer dilemma

Although its appeal on the world stage has grown and it has been increasingly able to attract premium players (albeit usually at the twilight of their career), MLS is not a league that competes with the top European leagues in terms of quality. Commercially, MLS has been the most successful iteration of US soccer and this, together with the fact that FIFA have sanctioned the league as the only top-tier provider in the US and Canada, provides the owners with a strong hand. The reality is that some of the best arguments for abandoning the closed league system are commercial. In November 2016 the Deloitte Sports Business Group published a study analysing promotion and relegation in US professional club soccer. It noted that the current system protects loss and capital call minimisation at the expense of profit maximisation. The report suggests that if the league can (i) come to a decision on the optimum number of teams in the existing US leagues; (ii) manage the stability of second-tier leagues; and (iii) protect the equity of long-term league investors, then a system of promotion/relegation would benefit the growth and development of the sport in the US. However until such a time that current investors can be convinced that it will benefit them in the round, they are unlikely to willingly subject themselves to risk. Whether the CAS can force that decision upon them, remains to be seen.