Why MLS’s Single-Entity Structure Should be Shown a Red Card

BY: JASON RE

Major League Soccer has always done things differently than its European counterparts. One of these differences is MLS’s single-entity structure - a corporate structure that creates numerous obstacles hindering the growth of the league and sport overall. This single entity-structure stifles players’ freedom of movement and choice, rewards complacency while punishing ambition, and is diametrically opposite the concept of a promotion-relegation system. As long as the league remains a single-entity, these problems will persist.

MLS uses what is known as a “single-entity” corporate structure, meaning that the league owns all of the teams and player contracts centrally as one legal entity. The clubs themselves are not independent legal entities. This single-entity is legally known as “Major League Soccer, L.L.C.” and encompasses the league, the teams, the team “owners”, and players. This single-entity structure is governed by its Limited Liability Agreement, which establishes a Management Committee consisting of representatives acting as “investors” in the league. These investors are then provided with rights to operate and “own” MLS teams. Thus, each MLS team has an investor-owner that is a shareholder in the league. In fact, further decreasing competition, MLS allows investor-operators to “own” more than one team in the league. In order to control costs, the league shares revenues and holds players contracts instead of players contracting with individual teams. The players are hired by the MLS as employees of the league itself rather than the teams, and the players are then assigned to a club. This is a needlessly restrictive system on player choice and movement, disincentivizing top players from coming to the league and hindering clubs in their recruitment efforts. For example, a top player from overseas may want to come over to MLS if they live in Los Angeles, New York, or Miami – but what if they get placed in Minnesota? Not to mention that their freedom of movement once in the league is restricted with the strict free agency rules. There is a serious risk on missing out on top players who might want to come to the league. Under this structure, the MLS also controls the revenues and expenses of the league and its teams, with all revenue generated by the league belonging directly to the MLS. Similar to investors receiving dividends in a limited liability company, the MLS will then distribute profits (or losses) to its team “owners”. This structure is inherently anti-competitive and anti-ambition, as struggling clubs may be held up by the more profitable, while the more ambitious clubs are slowed in many ways by being tethered to underperforming or absent owner-investors. The early years of MLS were financially tenuous, making the single-entity structure vital to the league’s survival, as a rising tide raises all ships.

Another key reason that the league utilizes a single-entity structure is to protect from liability under US antitrust laws – specifically, to keep its “single-entity defense” of the U.S. Sherman Antitrust Act. The clause in question has been interpreted to mean that parties cannot engage in a conspiracy to restrain trade if they are part of a single entity. Thus, because of this structure, the league is allowed to control costs, salaries, league membership, and all aspects of the sport in the country while skirting anti-trust laws. MLS has been careful to appear as a single-entity; requiring expansion fees for new teams, splitting revenue from broadcasting deals, and owning all the teams’ intellectual property rights. The First Circuit Court of Appeals found definitively that MLS was a legal single-entity structured corporation in Fraser v. Major League Soccer, a case brought by a group of players. The court legitimized the league’s practice, allowed the use of a “single-entity” defense and certified it as the nation’s top professional soccer league.

In Europe, this single-entity structure is not used. For example, the Premier League – the most popular and profitable in the world – is a private company that itself is wholly owned by its 20 members clubs that make up the league at any given time. Each individual club is wholly structurally and legally independent, a structure that is employed by other American professional leagues. This allows greater flexibility and fewer restrictions, as the clubs are generally free to operate themselves as they see fit with little intrusion. This also allows for an open promotion-relegation system – an interconnected multi-league ladder in which top teams at the end of each season move into a higher division, while the bottom teams drop to a lower division. A promotion-relegation system increases investment in lower soccer leagues, increases attention on matches between struggling teams as stakes are higher, and disincentivizes “tanking” as there would be a punishment for finishing at the bottom of the league.

Jason Re is a rising 3L at The George Washington University Law School in Washington, DC where he is the VP of Sports for the Entertainment & Sports Law Association, as well as a published author with Forbes, the eSports & the Law newsletter, and The Entertainment & Sports Lawyer Journal. He can be reached by email at [email protected] or on Instagram at jason.re24.