MLS’ Single-Entity Structure Is An Antitrust Nullity

MLS’ status as a “single-entity” league is oft reported and mentioned, but not well understood. The league, others like it (such as the NWSL), and their extremely expensive antitrust counsel often hold it up as some sort of legal golden goose. This article will explain why that is a legal and factual fallacy.

This article will proceed in five parts, explaining: (1) MLS’ corporate structure; (2) antitrust law and the single-entity concept; (3) MLS and the single-entity defense historically; (4) relevant MLS club operations today; and, (5) why the single-entity defense is unhelpful to MLS today after the decision in the Moultrie v. NWSL case.

MLS’ Corporate Structure

MLS – which began play in 1996 – is structured differently than the NFL, MLB, NBA, and NHL. In each of those leagues, each individual club is its own legal entity (e.g., the New York Football Giants, Inc.).[1] Those clubs then agree to the creation and operation of their respective leagues by contract, through Constitutions and Bylaws. The leagues themselves are unincorporated associations,[2] i.e., they, generally speaking, are not separate legal entities.[3] Each club continues to operate as its own business and directly employs its own players and other personnel.

While there is no “National Football League, Inc.” there is a “Major League Soccer, LLC.” MLS is a limited liability company and consists of 27 professional soccer clubs. The legal entity which operates each individual club is a member of MLS.[4] Thus, when people talk about MLS being a “single-entity,” the entity to which they are referring is “Major League Soccer, LLC.” Importantly, while the clubs employ their non-player personnel (i.e., pay and provide benefits), players are employed by MLS – all player contracts are executed between the player on one hand and MLS on the other, unlike in the NFL, MLB, NBA, and NHL. It is this last piece of the structure that is intended to provide protection from the antitrust laws.

Antitrust Law and the Single-Entity Defense

Section 1 of the Sherman Act prohibits “every contract, combination or conspiracy in restraint of trade.”[5] The Supreme Court subsequently clarified that only “unreasonable” restraints are illegal.[6] Importantly, to state a Section 1 claim there must be a plurality of actors, i.e., two or more.[7] The leading case on this issue is Copperweld Corp. v Independence Tube Corp. (1983) in which the Supreme Court held that a parent corporation and its wholly owned subsidiary were incapable of conspiring with one another for purposes of Section 1.[8] The single-entity defense was thus born.

Since Copperweld, sports leagues have repeatedly tried to invoke the single-entity defense in antitrust lawsuits.[9] Sports leagues have credibly argued that they are unique products that require a high degree of collaboration to create, e.g., you cannot have a game with just one team, teams need to agree to the rules of the game, etc. While courts have been sympathetic to these views in applying the antitrust laws, no court has ever found that a sports league, in any capacity, is a single-entity and therefore immune from antitrust law.[10] Most notably, in 2010, the Supreme Court unanimously rejected the NFL’s argument that its licensing arm (National Football League Properties) constituted a single-entity for purposes of licensing NFL club intellectual property for use on merchandise.[11]

MLS and the Single-Entity Defense Historically

To understand MLS’ invocation of the single-entity defense, it is important to understand the application of antitrust laws to sports. Sports leagues consist of individual clubs which, among other things, compete in a labor market for players’ services by, for example, offering longer contracts for more pay. This is the process we know as free agency. However, for many years, no such processes existed. Instead, player employment was strictly controlled by rules ageed upon by the clubs and without any player input. Eventually, players began to challenge these rules as violations of Section 1 of the Sherman Act, alleging that they were unreasonable restraints on the labor market agreed upon by competitors in that market. The courts frequently agreed and through lawsuits and other legal actions in the 1970s through early 90s, the players won the right to free agency (and sometimes hundreds of millions of dollars in damages). Today, restraints on the player market – such as salary caps, maximum salaries, service time requirements for free agency and the draft – are protected from antitrust law so long as they are collectively bargained with the players’ union, a concept known as the “non-statutory labor exemption.”

MLS wanted to avoid these lawsuits and also maintain maximum control over the player market. Consequently, in consultation with antitrust lawyers from the other sports leagues, it came up with its single-entity structure.[12]

Nevertheless, MLS’ efforts to avoid antitrust scrutiny were tested almost immediately. On February 13, 1997, MLS players, led by Iain Fraser, filed a lawsuit against MLS and the handful of entities operating clubs at that time, alleging that the restraints imposed by MLS and the clubs over player movement were violations of Sections 1 and 2 (which governs monopolization) of the Sherman Act. The players, who were not unionized at that time, were represented by longtime counsel for sports unions and players, Jim Quinn and Jeffrey Kessler, both then of Weil, Gotshal & Manges. MLS and the clubs responded by asserting the single-entity defense.

The District Court bought the argument. The United States District Court for the District of Massachusetts found that MLS was a single-entity and thus dismissed the plain­tiffs’ Section 1 antitrust claims.[13] The remainder of the plaintiffs’ claims was dismissed after a jury found that the plaintiffs had failed to adequately allege a relevant market in which MLS had allegedly violated the antitrust laws.[14]

The First Circuit disagreed, finding the MLS’ argument that it was a single-entity to be “doubtful.”[15] On appeal, that court found as follows with regard to MLS’s operations:

“[T]here is a diversity of entrepreneurial interests that goes well beyond the ordinary company. MLS and its operator/investors have separate contractual relationships giving the operator/investors rights that take them part way along the path to ordinary sports team owners: they do some independent hiring and make out-of-pocket investments in their own teams; they retain a large portion of the revenues from the activities of their teams; and each has limited sale rights in its own team that relate to specific assets and not just shares in the common enterprise. One might well ask why the formal difference in corporate structure should warrant treating MLS differently than the National Football League or other traditionally structured sports leagues.”[16]

Ultimately, the court declared that the single-entity question “need not be answered definitively in this case.”[17] The First Circuit affirmed the dismissal of the plaintiffs’ claims based on the jury’s determination about a relevant market. The players formed a union soon thereafter, the first collective bargaining agreement was reached in 2004, and the antitrust challenges put to rest for the foreseeable future.

MLS’ failure to receive a legal determination that it is a single-entity in the Fraser case is particularly striking given the league’s operations at that time. In the 1996 and 1997 seasons, there were ten clubs and only six owners: MLS owned and controlled the Dallas Burn, Tampa Bay Mutiny, and San Jose Clash; Phil Anschutz owned the LA Galaxy and Colorado Rapids; and Lamar Hunt owned the Columbus Crew and Kansas City Wiz. If ever there was a time to demonstrate that the league was sufficiently centrally controlled such that it should be considered a single-entity for antitrust purposes, 1997 was the time. As will be explained next, since then the leagues’ operations have considerably decentralized, making the single-entity defense almost entirely implausible.

MLS Club Operations Today

It is important to recognize that the only area in which MLS would claim the single-entity defense is with regard to its relationship with players. On this point, MLS will always point first and foremost to the fact that the players sign their employment contracts with the league and are paid by the league and not the individual clubs. Nevertheless, after that, the clubs do not possess any “unity of interest,” a crucial factor in the Copperweld decision. Clubs, without any material input from the league, control their own rosters and salary budgets – they research, scout, select, and negotiate terms with players (including free agents and transfers), all within the highly competitive international soccer labor market. Indeed, the MLS Constitution declares that teams have the “right and obligation” to “select players for the team.”[18] When a club and player have come to terms, the club presents the details to MLS to do the paperwork, largely as a formality. MLS is generally only involved to ensure that the contracts comply with the collective bargaining agreement and other rules – the same role that all leagues play when it comes to reviewing and approving player contracts. These facts in and of themselves should be fatal to any claim by MLS and its clubs that they are today a single-entity within the player labor market.

MLS and the Single-Entity Defense Today

The prospect of the MLS – or really any league – asserting the single-entity defense was struck a massive blow in June 2021 in the Moultrie case. Olivia Moultrie, born in September 2005, is a tremendous young soccer talent. However, the NWSL’s rule requiring players to be at least 18 prevented Moultrie from playing in the nascent league.

Moultrie sued, alleging that the NWSL’s eligibility rule violated the antitrust laws by unreasonably preventing her from playing. The case has many interesting components, but I will focus here on just the fact that the NWSL responded by asserting the single-entity defense.

The United States District Court for the District of Oregon wholly rejected the NWSL’s argument.[19] The Court, citing the NWSL’s LLC agreement, listed out a wide range of ways in which clubs operate independently including selecting and negotiating with players.[20] The Court further found that “the member teams… are direct competitors in the market for players.”[21] In sum, the Court held that the “NWSL and its member teams are not a single entity under §1 of the Sherman Act despite the League's legal classification as one LLC”[22] and enjoined the NWSL from enforcing the age rule.

The Moultrie case, while only that of a single district court, is a massively problematic precedent for MLS. The NWSL currently only has ten clubs and as a result has much more centralized control than MLS does – perhaps akin to how MLS operated in 1997 at the time of the Fraser lawsuit. Today, MLS is a billion-dollar industry with club valuations in the many hundreds of millions of dollars. Further, each club employs more than a hundred employees to carry out all its varied business functions and endeavors. It is simply fantastical to suggest that such a business is being operated as a “single-entity.”

Nevertheless, it should not matter. Today, MLS negotiates the terms and conditions of player employment with the MLS Players Association (MLSPA), taking advantage of the non-statutory labor exemption to the antitrust laws. At the expiration of a CBA, MLS players could theoretically take a page out of the book of their brethren in the NFL and NBA by decertifying the MLSPA as their bargaining representative and bringing an antitrust lawsuit. However, given the generally precarious financial condition of MLS (to be discussed in my next article), I believe that both the MLS and MLSPA know such litigation – and the work stoppage it would involve – would be traumatic for the league and its future. Consequently, I expect that the MLS and MLSPA will, by bargaining collectively, continue to act like the other sports leagues. Commentators of all kinds should treat the MLS accordingly.

Christopher R. Deubert is the Principal at the Law Office of Christopher R. Deubert, Esq., specializing in sports, litigation, and labor and employment. Chris has more than a decade of experience in sports and the law, including a stint as General Counsel of an MLS club, and has more than 30 academic publications to his credit. For more, please visit www.deubertlaw.com.

[1] See, e.g., Brady v. Nat’l Football League, 640 F.3d 785 (8th Cir. 2011) (“This is an appeal by the National Football League and 32 separately-owned NFL teams”). [2] Montador v. NHL, 15-cv-10989, 2020 WL 11647730, at *17 n.2 (N.D. Ill. Nov. 24, 2020); Senne v. Kan. City Royals Baseball Corp., 14-cv-608, 2021 WL 3129460, at *2 (N.D. Cal. July 23, 2021); NCAA v. Governor of N.J., 939 F.3d 597, 597 (3d Cir. 2019); Am. Needle, Inc. v. NFL, 560 U.S. 183, 183 (2010). [3] All the leagues do have related legal entities that carry on various business aspects of each league, such as broadcasting or merchandising. [4] See Complaint, Major League Soccer, LLC v. Pearson, 21-cv-13940, ECF No. 1, at ¶ 14 (D.N.J. July 21, 2021) (identifying NYRB as the “entity that operates the New York Red Bulls soccer club”); Nowak v. Major League Soccer, LLC, 14-cv-3503, 2015 U.S. Dist. LEXIS 184338, at *1-2 (E.D. Pa. July 20, 2015) (“Each team within the MLS is owned by MLS but is operated by an owner-operator that is a member of MLS. Pennsylvania Professional Soccer, LLC, (‘PPS’) is the owner-operator that operates the Philadelphia Union MLS team, and is a member of MLS.”); see also Defendants Olsen, D.C. Soccer, LLC and Major League Soccer, LLC’s Motion to Dismiss, Horton v. Espindola, 17-cv-1230, ECF. No. 17, at *5 (D.D.C. Sept. 7, 2017) (“MLS is owned by the operators of each of the teams that participate in the League.”) [5] 15 U.S.C. § 1. [6] Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 87 (1911). [7] See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769-70 (1983). [8] Id. at 771. [9] See Gabriel Feldman, The Puzzling Persistence of the Single-Entity Argument for Sports Leagues: American Needle and the Supreme Court’s Opportunity to Reject a Flawed Defense, 2009 Wis. L. Rev. 835, 844-49 (2009). [10] See id. [11] Am. Needle, Inc. v. NFL, 560 U.S. 183 (2010). [12] See Fraser v. Major League Soccer, L.L.C., 97 F.Supp. 2d 130, 132-34 (D. Mass. 2000) (discussing MLS’ structure, operations and origin, including meetings with NFL’s antitrust counsel). [13] See id. at 135–36. [14] See Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 55 (1st Cir. 2002). [15] Id. at 58. [16] Id. at 57. [17] Id. at 56–59. [18] The MLS Constitution is available as Exhibit B to Utah Soccer, LLC d/b/a Real Salt Lake’s Motion to Compel Arbitration and Dismiss or, in the Alternative, Stay the Proceedings, Petke v. Utah Soccer, LLC, Case No. 190907265 (Utah Dist. Ct. Oct. 7, 2019). [19] See O. Moultrie v. Nat’l Women’s Soccer League, LLC, 2021 WL 2478439, at *10-11 (D. Or. June 17, 2021). [20] Id. [21] Id. at *12. [22] Id. at *11.