MLS And The USL Are In Competition – Whether They Like (Or Admit) It Or Not

I have heard or read both MLS and USL officials claim that the leagues are not in competition with each other. Both leagues seem convinced of the upward trajectory of soccer in the United States and an apparently boundless population of new soccer fans. But is that true? This claim is particularly skeptical in light of the fact that MLS clubs are pulling their affiliates out of the USL and starting a separate league, MLS NEXT Pro. This article will explore the relationship between MLS and the USL and generally argue that reality is not quite what the two leagues claim it to be.

As an initial matter, it is important to understand that soccer in the United States is organized unlike the other major professional sports leagues (NFL, MLB, NBA, and NHL). In 1978, Congress passed the Amateur Sports Act,[1] which granted what is today known at the United States Olympic and Paralympic Committee (USOPC) the authority to govern all Olympic-related athletic activity in the United States. As part of the statute, the USOPC is authorized to certify a national governing body (NGB) for each sport.[2] Pursuant to that authority, the USOPC has certified the United States Soccer Federation (USSF) as the NGB for soccer in the United States. While there are NGBs for football, baseball, basketball, and hockey in the United States, the professional leagues preceded those organizations and do not themselves derive their standing from those NGBs.

In contrast, MLS and USL are formed pursuant to and governed by USSF Bylaws and Policies. Most significantly, USSF Policies dictate that there shall be three levels of men’s professional soccer (Divisions I, II, and III).[3] The Divisions are separated by different standards for cities of play, stadium sizes, financial viability, television broadcasts and more.[4] For example, a Division I league (such as MLS), requires at least fourteen teams and stadiums that hold at least 15,000 fans. Division II stadiums are only required to hold 5,000 people.

While MLS is the only league ever certified as Division I, there has been a rotating cast of Division II and III leagues. Today, the USL Championship (USLC) is the sole Division II league while there are two Division III leagues: USL League 1 (USL1) and the National Independent Soccer Association (NISA) (which, to be honest, I’ve almost never heard anything about and seems precarious).

Importantly, this current structure is the subject of ongoing litigation. The North American Soccer League (NASL), a Division II league from 2011 through 2017, has an ongoing lawsuit against USSF, MLS, and the USL, alleging that the three parties, in violation of antitrust law, illegally conspired to divide up the American soccer market. The NASL folded after it failed to obtain a preliminary injunction,[5] but the suit is ongoing (comments by MLS and USL that they are not competing would not seem helpful from an antitrust perspective). The NASL’s departure paved the way for the USLC to move from Division III to Division II and for the creation of USL1.

With the NASL out of the picture, the American soccer market appeared to be stabilizing. In 2015, MLS folded its own Division III Reserve League and reached an agreement with the USL to coordinate on player development.[6] In the 2021 season, USLC had 32 clubs, 11 of which were owned, controlled, or otherwise affiliated with MLS clubs. USL1 had 12 clubs, five of which were affiliated with MLS clubs. Consequently, American soccer seemed to be morphing into a major/minor league structure similar to that which exists in baseball, hockey, and basketball (despite the USL’s strange position that it is not a “minor league”). Indeed, the USL seems to have had considerable success building smallish stadiums in small and mid-size cities as part of economic development plans, not unlike what has often happened in minor league baseball.

I will pause here to note an important component of MLS clubs’ involvement in the USL. The MLS LLC agreement[7] contains a covenant not to compete, in which each MLS club agrees, among other things, not to “anywhere in North America, carry on, own, manage, join, operate or control, or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, member, consultant or otherwise with, or permit its name to be used by or in connection with, any soccer-related business which, directly or indirectly, competes with or is otherwise similar to the business of [MLS].” As a result of this provision, MLS must approve each MLS club’s involvement in the USL. This provision could potentially be subject to antitrust attack, as rules prohibiting sports team owners from owning teams in other sports have previously been struck down.[8] Nevertheless, the rule stands.

If it appears that American soccer has found a previously unattainable homeostasis, why is that being disturbed once again? The MLS and USL development partnership ended at some uncertain recent date (I would guess that the NASL case played a role in that). But then MLS announced that beginning in 2022, it is going to operate its own Division III league,[9] recently named MLS NEXT Pro. To populate the league, the clubs previously playing in either the USLC or USL1 and which were owned by or affiliated with an MLS club, will be leaving the USL immediately or in the near future.[10]

The USL insists that it does not perceive the new MLS league as a problem but I see at least two major issues.

First, the sudden departure of clubs from USL1 threatens the league’s licensing. The USSF’s standards require Division III leagues to have at least eight teams. Consequently, USL must – and seemingly is on track to – replace the departing MLS-affiliated clubs to maintain its sanctioned status. While this problem may be solved for now, Division III soccer clubs are not a stable (or profitable) business enterprise and there is sure to be turnover among the clubs in future years.

Second, the USL and its clubs have now lost a significant part of its marketing cache by losing affiliation with MLS clubs. Part of the draw of seeing any minor league athlete is knowing that they are in the pipeline to one day reach the major leagues. And USL clubs undoubtedly sought to market their players as the future of MLS. This is largely no longer going to be the case. Young players will no longer use the USL as a stepping stone to MLS – instead, they will jump from their MLS Division III club to MLS.

As a result, the USL begins to resemble independent minor league baseball. As most anyone knows, Minor League Baseball (MiLB) is a network of more than 100 teams competing at various levels of baseball below that of MLB. Most of these clubs are owned, controlled, or otherwise affiliated with MLB clubs. The MLB clubs provide economic support and marketing cache for the clubs to remain viable, while working to develop the MLB club’s next generation of players (the relationship between MLB and MiLB has been fraught in recent years but those issues are beyond this article). When affiliation agreements expire, the MiLB clubs scramble to find a new MLB partner. The failure to do so can be catastrophic to the club. To this point, some MiLB leagues – the independent leagues – have generally operated without any affiliation with MLB clubs. Not surprisingly, they have historically been far less stable, as both the leagues and the clubs in them come and go from time to time.

Is that the future of the USL? Of note, I think there is another important fact cutting against the idea that there is enough soccer interest to go around for both MLS and the USL. None of these organizations is profitable. I went through the financial situation of MLS and its clubs in my article from last week, and suffice to say, there is no reason to believe that of the USL and its clubs is any better (in fact, it is almost certainly worse). Competition has proven fatal to numerous American soccer leagues and clubs in the past. I think the new MLS Division III league is a body blow to USL, whether it admits it or not. Time will tell whether it is a knockout.

[1] 36 U.S.C. §§ 220501-220552. [2] 36 U.S.C. § 220521. [3] Policy 202-1, United States Soccer Federation, Inc., Policy Manual, available at https://www.ussoccer.com/governance/bylaws. [4] The 2014 USSF Professional Standards are available here: https://kennethrusso.com/ussf-professional-standards/. [5] See N. Am. Soccer League, LLC v. U.S. Soccer Fed’n, Inc., 883 F.3d 32 (2d Cir. 2018). [6] https://www.si.com/soccer/2015/05/26/mls-usl-partnership-player-development. [7] The 2012 version of the MLS LLC Agreement can be found at Nowak v. Major League Soccer, LLC, 14-cv-3503, Dkt. 23 (E.D. Pa. Apr. 23, 2015). [8] See North Am. Soccer League v. Nat’l Football League, 670 F.2d 1249 (2d Cir. 1982). [9] https://www.espn.com/soccer/major-league-soccer/story/4415507/major-league-soccer-to-launch-development-league-in-2022; MLS Next Pro: ‘We’re going to use this new league as a way to test concepts’ – The Athletic [10] https://theathletic.com/2136000/2020/10/13/mls-reserves-league-usl/