3515_isi_kraftrobert_hcs_mls_20071118_509 Howard C. Smith/isiphotos.com
Legal Analysis

Who Won the MLS Labor Negotiations? Single Entity

Major League Soccer cut a deal with its players that closely resembles a proposal sketched out on ASN last month—an arrangement that allows player movement but retains the league's single-entity structure.
BY Steven Bank Posted
March 05, 2015
10:07 AM
ONE OF THE FIRST THINGS pundits try to do after the settlement of a labor dispute is assess who “won” the deal. This is usually a futile task.

First, the details of the new collective bargaining agreement haven’t even been drafted yet by the lawyers, nor has the term sheet that the parties agreed to been publicly released. The details that have leaked out are usually sketchy at best and omit several material facts. Second, even if the agreement is fully formed and publicly released, evaluating a winner among the two parties requires a prediction about future revenues and future competition.

In this case, however, it’s easy to tell who won the labor dispute. The winner was Major League Soccer’s single-entity legal structure.

This deal offers free agency, but not in the traditional sense. It is free agency in the single-entity sense. Although the details are still trickling out, the basic contour of the deal is identical to a compromise proposal I described back on February 11 for how to offer a form of free agency within a single-entity system. Rather than allowing the open bidding that is characteristic of free agency in leagues made up of economically independent teams, the parties agreed to allow player movement accompanied only by a pre-set capped salary increase.

According to the Orlando Sentinel, for players making under $100,000 per year, the maximum increase they can be offered by a new team would be a 25 percent raise. For players making between $100,000 and $200,000, the maximum increase would be a 20 percent raise. Finally, for players making in excess of $200,000 per year, the maximum increase would be 15 percent.

My proposal was modeled off of the University of California, which allows a campus like UC Berkeley to recruit a professor from a different campus like UCLA, but caps any raise they can be offered to “one step” on the salary scale. I simplified things by calculating that at approximately 8 percent, but, as with the reported MLS deal, the percentage differs depending upon where the professor is on the salary scale. Most critically, it is based on the University of California’s economic considerations rather than open bidding among individual campuses.

One wrinkle in the MLS deal that I did not discuss in my proposal is a limit on when a player could exercise his right to explore a move to a different team. According to reports, a player would have to be at least 28 years old and have service time of at least 8 years in the league to be eligible for free agency.

In many respects, however, this seniority requirement is quite consistent with the practice, if not the actual policy, of many multiple-division, single-entity businesses. For example, in universities this means that professors usually move only after receiving tenure, which is often granted between five and seven years after the initial appointment. In MLS, the equivalent to pre-tenure years might be the development contract years and the pre-guaranteed contract years, which started at age 24 with at least three years of service under the 2010 CBA.

The current deal appears to add at least one more contract cycle after that before permitting players free agency.

It’s not unlike vesting requirements for receiving benefits in a company. Player movement is the carrot the league has held out as an inducement for players to stay within the league for their entire careers.

In effect, the new MLS deal is designed to allow a limited form of free agency while preserving the single-entity system that the league’s owners feel is an essential part of their business model and a critical defense against a potential antitrust suit if the next CBA negotiations go south.

The deal allows free movement, but it doesn’t let different divisions of the single entity artificially bid up the price in the absence of independent evidence of market value via an offer from outside of the single entity. The point was to preserve the single-entity structure. Given that single-entity constraint, the basic structure of this deal (if not the actual numbers for the capped raise percentage and the years of service) was likely the best the players were going to get.

Full, unrestricted, free agency of the kind now in operation in post-Bosman European football is antithetical to the single-entity structure. It requires a fully functioning market with economically independent teams bidding on a player to establish his market price. Even restricted free agency in operation in most American sports leagues would still require economically independent teams to bid on the players.

If the teams are economically independent, however, then MLS would likely flunk the single-entity defense for antitrust purposes. By contrast, freedom of movement with a pre-set raise that is a function of league policy rather than market forces does nothing to establish the economic independence of the teams and therefore likely does not threaten the single-entity defense.

In this sense, Real Salt Lake goalkeeper Nick Rimando is wrong when he told the Salt Lake Tribune that “we have to be proud of the fact that we're the first professional league to ever get a form of free agency without a strike or going to the courts."

Yes, the players got freedom of movement without a work stoppage or going to the courts. But they did not get free agency as it exists in other sports leagues. As I described in a piece on March 1, if they want true free agency, they would have to dismantle the single-entity structure—and that would likely require litigation.

According to multiple reports, many players are upset about the union’s capitulation at the bargaining table, especially on the issue of free agency. This reflects a certain naiveté. Companies typically don’t bargain away their business model and MLS did not in this case.

In fact, the new CBA only reinforces the owners’ commitment to the single-entity structure. That may or may not have been in the best long-term interest of MLS in its quest to become a top-tier league, but it assured that the true winner of the negotiations over this collective bargaining agreement was the single-entity structure.

What's your take on Steven's take? Tell us in the Comments section below.

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."

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