Legal Analysis
MLS' Single-Entity Status Driving Free Agency Battle
UCLA Law Professor Steven Bank contends that it is MLS' desire to retain its single-entity system, and not the issue of free agency itself, that is making the league obstinate in CBA negotiations.
THE MOST RECENT RUMBLINGS from the trenches of the negotiations over a new collective bargaining agreement between Major League Soccer and its players has made it clear that free agency is the major stumbling block.
The players have certainly made it clear that free agency is their No. 1 priority. MLS Players Union executive Bob Foose told the Orlando Sentinel’s Paul Tenorio that “There is no negotiation going on at this point with regard to free agency. That makes it impossible to get a deal done. If that’s going to stay the same, I certainly don’t see a deal getting done.” Los Angeles Galaxy defender Todd Dunivant, a member of the Union’s executive board, echoed these sentiments, telling SI.com’s Brian Straus that “Free agency has to be in this deal for the players to play on opening day. I think that’s the bottom line.”
Just as clearly, Major League Soccer indicated that free agency is not on the table from its perspective, leaving it out of the owners’ most recent proposal to the players. During the last round of CBA negotiations five years ago, the league agreed to a re-entry draft that at least allowed some level of player movement for those players whose contracts had expired or options went unexercised. Players still don’t have freedom of movement, though, under this system. It simply prevents one team from blocking the movement of a player to another team that might want to claim them under the draft.
For the league, the concern is that free agency will lead to spiraling costs. After all, if teams have to bid for players in an open market, that bidding should drive up the price or at least make predictions about prices uncertain, especially with deep-pocketed new owners entering the league.
The union, by contrast, maintains that the existence of a salary cap removes all such concerns. Free agency may help some players get fair value compared to salaries of similar players around the league, but it wouldn’t allow teams to spend beyond the league-mandated cap, whether hard or soft with a luxury tax similar to the one employed in the NBA.
In many respects, however, the real issue isn’t free agency per se, but the league’s distinctive single-entity system.
In the NFL, for instance, the Seattle Seahawks and New England Patriots are considered different legal entities. In MLS, by contrast, the most recent MLS Cup participants—the Los Angeles Galaxy and the New England Revolution— are, in many respects, treated as divisions of the same legal entity and its players are employed by MLS.
The league is a limited liability company and the owners are investor-operators in the LLC. By operating as a single entity, the league shields itself from antitrust suits under the theory that a corporation cannot conspire with one of its divisions or subsidiaries in restraint of trade.
MLS long ago substantially weakened its single-entity structure by permitting more and more discretion to the investor-operators, leading the First Circuit Court of Appeals in Fraser v. Major League Soccer to characterize MLS in 2002 as a “hybrid” between a single company with a complete unity of interest and a collection of independent competitors. The court did not need to reach the question of whether MLS was still a single entity, though, because it affirmed a jury finding that the players had failed to prove that the league, which was then in its infancy and might be viewed differently if the case were brought today, had the market power to unreasonably restrain competition.
Since Fraser, there has been further movement away from the unity of control characteristic of a single-entity system. For example, the designated player system for signing superstar players like David Beckham and Thierry Henry means that those players are primarily paid by the individual investors rather than by MLS. Similarly, the new soccer-specific stadiums that have been developed across the league are owned by the individual investors rather than by MLS.
True free agency might weaken the single-entity structure even further and lead a court to find in the players’ favor in a subsequent antitrust suit.
The single-entity structure is one way the league shields itself from an antitrust violation, but a collective bargaining agreement is another. There was no player’s union or CBA when Fraser was decided, so the single-entity structure was essential. Since 2003, when the players’ union was certified as the players’ representative for purposes of the National Labor Relations Act, the league has effectively been operating under a belt-and-suspenders approach in guarding against an antitrust claim: The CBA was one defense against such a claim, but if that failed or if the union decertified and several players individually filed suit, the single-entity structure would be an additional defense. However, if free agency reduced the viability of the single entity defense, then the threat of an antitrust suit in response to a breakdown in collective bargaining agreement negotiations would be much more serious.
Victory in an antitrust suit would upend all cost containment measures MLS does or could potentially employ, including salary caps, time of service restrictions, and other mechanisms commonly used by other American sports leagues. In this sense, the players’ argument that MLS could maintain cost certainty and containment through such traditional mechanisms must ring a bit hollow to the owners. If the league grants free agency, even of the restricted type employed in other leagues, then the owners may lose their back-up single entity defense, which would potentially expose them to the threat of completely unrestricted free agency of the type leading to financial ruin for many clubs in Europe.
This isn’t to suggest that the players would sue under the antitrust laws, or even that they would have a good chance of success if they did, but the heightened seriousness of the threat would give them far greater leverage in negotiations over future collective bargaining agreements than they have currently.
It is this potential shift in power and its potential for raising costs, rather than free agency itself, which may be causing the owners to hold firm in negotiations.
Steven Bank is Paul Hastings Professor of Business Law and Faculty Director, Lowell Milken Institute for Business Law and Policy, UCLA School of Law. He has taught courses in tax and business entity law, including a soccer law seminar entitled “Law, Lawyering, and the Beautiful Game.
In the NFL, for instance, the Seattle Seahawks and New England Patriots are considered different legal entities. In MLS, by contrast, the most recent MLS Cup participants—the Los Angeles Galaxy and the New England Revolution— are, in many respects, treated as divisions of the same legal entity and its players are employed by MLS.
The league is a limited liability company and the owners are investor-operators in the LLC. By operating as a single entity, the league shields itself from antitrust suits under the theory that a corporation cannot conspire with one of its divisions or subsidiaries in restraint of trade.
MLS long ago substantially weakened its single-entity structure by permitting more and more discretion to the investor-operators, leading the First Circuit Court of Appeals in Fraser v. Major League Soccer to characterize MLS in 2002 as a “hybrid” between a single company with a complete unity of interest and a collection of independent competitors. The court did not need to reach the question of whether MLS was still a single entity, though, because it affirmed a jury finding that the players had failed to prove that the league, which was then in its infancy and might be viewed differently if the case were brought today, had the market power to unreasonably restrain competition.
Since Fraser, there has been further movement away from the unity of control characteristic of a single-entity system. For example, the designated player system for signing superstar players like David Beckham and Thierry Henry means that those players are primarily paid by the individual investors rather than by MLS. Similarly, the new soccer-specific stadiums that have been developed across the league are owned by the individual investors rather than by MLS.
True free agency might weaken the single-entity structure even further and lead a court to find in the players’ favor in a subsequent antitrust suit.
The single-entity structure is one way the league shields itself from an antitrust violation, but a collective bargaining agreement is another. There was no player’s union or CBA when Fraser was decided, so the single-entity structure was essential. Since 2003, when the players’ union was certified as the players’ representative for purposes of the National Labor Relations Act, the league has effectively been operating under a belt-and-suspenders approach in guarding against an antitrust claim: The CBA was one defense against such a claim, but if that failed or if the union decertified and several players individually filed suit, the single-entity structure would be an additional defense. However, if free agency reduced the viability of the single entity defense, then the threat of an antitrust suit in response to a breakdown in collective bargaining agreement negotiations would be much more serious.
Victory in an antitrust suit would upend all cost containment measures MLS does or could potentially employ, including salary caps, time of service restrictions, and other mechanisms commonly used by other American sports leagues. In this sense, the players’ argument that MLS could maintain cost certainty and containment through such traditional mechanisms must ring a bit hollow to the owners. If the league grants free agency, even of the restricted type employed in other leagues, then the owners may lose their back-up single entity defense, which would potentially expose them to the threat of completely unrestricted free agency of the type leading to financial ruin for many clubs in Europe.
This isn’t to suggest that the players would sue under the antitrust laws, or even that they would have a good chance of success if they did, but the heightened seriousness of the threat would give them far greater leverage in negotiations over future collective bargaining agreements than they have currently.
It is this potential shift in power and its potential for raising costs, rather than free agency itself, which may be causing the owners to hold firm in negotiations.
Steven Bank is Paul Hastings Professor of Business Law and Faculty Director, Lowell Milken Institute for Business Law and Policy, UCLA School of Law. He has taught courses in tax and business entity law, including a soccer law seminar entitled “Law, Lawyering, and the Beautiful Game.
