While the MLS, NASL and USL seasons near the finish line, what appears to be the most significant contest in American pro soccer played out in a Brooklyn courtroom on Tuesday.
There, before U.S. District Court Judge Margo Brodie, attorneys representing the NASL and U.S. Soccer Federation presented arguments in a three-hour hearing that, to this point, has been the defining moment of a case that’ll likely leave a lasting impact on the sport. Brodie is expected to issue a ruling Friday that, according to the NASL, will either save or sink the league.
The broad narrative is well-established. Now in its seventh season, the NASL is fighting the loss of second-tier sanctioning for 2018 while taking aim at American soccer’s structure in the process. It’s challenging the USSF’s right to enforce standards and division labels (and thus its right to regulate the market), as well as the federation’s relationship with MLS through their Soccer United Marketing joint venture. That relationship represents a conspiratorial incentive to limit or eliminate competition, the NASL argues. The Federation, meanwhile, aims to protect its authority to regulate—and in its view, grow—American pro soccer and argues that the NASL itself is to blame for its struggles.
The lawsuit could take up to two years to litigate, but the NASL claims it doesn’t have nearly that much time if it’s going to survive. It’s seeking an immediate mandatory injunction that will restore its D2 status for 2018 and for as long as the trial proceeds. That’s what Brodie is expected to decide Friday. The USSF has invited the NASL to reapply for D2 and implied it could also choose to play next season as a D3 circuit. The NASL has argued it doesn’t have time for the former. It says it needs certainty as soon as possible, and that current members will leave and expansion teams will back away without D2 status. Further, the NASL claims its cost structure, business model and mission prohibit playing as a third-tier league.
“In the face of the fact that if we don't get injunctive relief this week, we will go out of business, applying [for D2] to find out several months from now that the [USSF] board will then say we've decided not to reconsider has no meaning to this league right now,” NASL attorney Jeffrey Kessler told Brodie.
Just about everything was debated and contested Tuesday, including what had to be proven or demonstrated in order to warrant the injunction; the source and scope of the USSF’s power and the nature of conspiracy; whether certain legal precedents applied to the current case and more. It was complex, to say the least.
While we wait for Brodie’s ruling, however, there were a few interesting hints and pieces of information that are worth highlighting:
How the Judge is leaning
Brodie’s decision to delay a ruling until the end of the week isn’t unusual and doesn’t offer a boost or advantage to one side or the other. Through her remarks and questions, however, she did indicate that some arguments and filings already had been more persuasive than others.
Brodie said toward the start of the hearing that she agreed the NASL “will be irreparably harmed if I don’t issue the injunction” and that the balance of hardships—meaning how the harm the NASL will suffer without the injunction compares to the harm the USSF will suffer if it’s granted—“barely tips in [the NASL’s] favor."
She added, however, that she understood “what [the USSF says] about being the rule-making body here and having concerns that their rules will be obeyed.” Brodie appeared to be sympathetic to the federation’s right to regulate the sport. But that doesn’t put U.S. Soccer above the law.
“It's not a matter of saying the USSF can't act as the governing body and do whatever it thinks is right. That's one thing,” Brodie said. “It’s really the issue of is that body compliant with the law? And, clearly, a court could find that you're not if there's evidence to support that."
The burden placed on the NASL to convince the court an injunction is required is a large one, thanks in part to its length and breadth and in part because, in Brodie’s view, the status quo is a U.S. soccer landscape with only one D2 league (the USL).
“Your status quo for 2018 is you're not division 2 and so you're asking me to, in effect, set aside [the USSF’s] decision made by their rule-making body to find that you shouldn't be division 2 for 2018,” she told Kessler. “So, that, to me, that is a big ask and that, in fact, holds in their favor considerably. They are the rule-making body. They get to make these decisions.”
Brodie didn’t seem interested in Kessler’s argument concerning the peculiar nature of the USA’s pro soccer structure. What happens elsewhere isn’t of concern to an American court.
“Soccer in most of the other places in the world is a sport that is the No. 1 sport in that country unlike in the U.S., and so what works in those countries may not work in the U.S.,” she said. “The fact that the federation decided that it needed to get something different than what is being done around the world does not make it wrong. At the end of the day, you still have to show that somehow these regulations violate the antitrust law.”
In the end, the NASL’s case will rise or fall depending on that final point.
“The real issue in my mind is about whether or not plaintiff can show a concerted action here,” Brodie told Kessler. “I'm going to need you, counsel, to explain to me why there is enough here to suggest that there is, in fact, an unlawful conspiracy.”
During the hearing, Brodie seemed to be willing to accept that it was possible. But as of Tuesday, she wasn’t convinced.
“There is definitely some smoke there,” she said, before making it clear that genuine fire was required and up to that point, the NASL hadn’t shown it to her.
“I do not have any evidence from which I believe I can draw the ultimate inference that you want me to draw,” she said. “Which is that USSF, when it takes actions, it does so independently, that it does exclude interested parties, that the process for amending the standards beginning with the task force, the recommendations from the task force, that all of that is done in a manner that most boards act.”
She continued, “I think what you are suggesting to me is that may or may not be true, but the fact that they have all of these conflicted parties on board who may influence the decision, whether or not they are actually voting, suggests that that is enough there and it is unclear to me whether it is.”
Some light finally is cast on SUM
Very little is known about Soccer United Marketing, the company owned and financed by MLS owners that markets TV rights and sponsorships for league properties, U.S. national team games, CONCACAF competitions and other events.
For Kessler and the NASL, SUM's very existence is evidence of conspiracy. By tying its financial gain to SUM and therefore, MLS, U.S. Soccer’s neutrality must be compromised. Even if the likes of MLS commissioner Don Garber and USSF president Sunil Gulati recuse themselves from votes in which they have a potential conflict of interest, their influence remains. In addition, the NASL argued that any member of the USSF board, even if they represent amateur or youth factions, would be incentivized to favor MLS because of SUM’s impact on the federation’s bottom line.
U.S. Soccer’s lawyers obviously disputed that reasoning.
“If you were to conclude that the independent U.S. Soccer directors, the directors who are representing youth soccer—if they're supposedly conflicted, can't vote, and that counts as a conspiracy—then you're essentially saying they've all entered into a conscious agreement to achieve an unlawful purpose. And there's just no evidence of that,” attorney Christopher Yates said.
Some of SUM’s impact was discussed Tuesday.
SUM markets the USSF’s TV rights and sponsorships, but it’s been unclear whether the federation receives full value for those properties since they’re pooled with SUM’s other ventures. What’s become apparent this week is that both MLS and USSF receive a guaranteed amount of annual revenue from SUM and that anything earned above and beyond that minimum is split, with 70% of the additional money going to MLS and the remaining 30% to the USSF.
The SUM agreement was entered into evidence under seal. The nature of that agreement is unknown, but Kessler implied it’s not a permanent written contract.
“The fact that [USSF’s] single largest source of income is now first in an oral contract and it is only in the term sheet that says under negotiation for three years is further evidence of the fact that these organizations are so joined together,” he said.
Kessler repeatedly hammered at the economic ties between MLS and the USSF.
“They have this unique relationship, again, unlike any other federation in the world, where they view MLS's interest as being the same as their interest …. [and] in order for the USSF to make more money, MLS must make more money. They have tied themselves economically together,” he said.
Kessler continued, “When we finally got their agreement, despite what their economist says, the way the agreement works, for them to get their 70/30 split, a certain amount of revenues have to first be hit. There's a target above the minimum. The only way that can be hit is if MLS is popular enough to draw in enough money so they hit their target, and then, above that, they get that split. If MLS is weaker, if they are not as attractive to TV, if they are not as attractive to sponsors, that number is very, very hard to hit.”
Kessler argued that regardless of motive, that arrangement was anti-competitive.
Kessler and the USSF’s attorneys debated the percentage of federation revenue derived from SUM. Kessler said SUM was U.S. Soccer’s “single largest source of income” while Yates downplayed its impact, calling it “20% or less.”
U.S. Soccer’s 2016 financial statements show $49.9 million in revenue from “Sponsorship, television, licensing and royalties,” which was 39.8% of its annual total. But not all of that comes from SUM. The federation’s deal with Nike, for example, is unrelated but included in the first figure.
USSF attorneys revealed Tuesday the September vote to deny D2 sanctioning to the NASL was 9-1. Among those who recused themselves were Gulati, Garber, Atlanta United technical director Carlos Bocanegra, attorney and USL counsel John Collins, and North Carolina FC owner Steven Malik. The only board member who voted in the NASL’s favor was U.S. Adult Soccer Association president John Motta, who’s been considered a potential candidate in next year’s USSF presidential election.
Regarding the nine who voted to strip D2 sanctioning, Yates said, “If your Honor were to grant [the NASL] an injunction, your Honor is essentially concluding that these people have entered into a conspiracy. And that would be wrong, because none of them did.”
The future of the NASL
If there’s an NASL in 2018, it could have as many as 13 or 14 members, SI.com understands. That’s one or two more than the 12 required to meet U.S. Soccer’s D2 standards. The identity of those potential 13 or 14, however, is uncertain.
The NASL played with eight clubs this season (the league semifinals are set for Sunday). Kessler told the court Tuesday that there are letters of intent from six expansion teams ready to join if D2 sanctioning is restored via an injunction.
NPSL power Detroit City is known to be one of them. The others, according to the Soc Takes blog and additional reports, are Boca Raton FC, Boston City FC, FC Arizona, Virginia Beach City FC and Hartford City FC. All currently compete in the semi-pro NPSL. The NPSL’s New Orleans Jesters are one of two teams thought to have committed to join the NASL in 2019.
SI.com reported in mid-September that North Carolina FC intended to switch to the USL, and attorneys from both sides confirmed that in court Tuesday.
“[Malik] wasn't committed because if we're not going to be division 2, he doesn't want to be there. So where is Mr. Malik now? He's joining division 2. He's joining the USL. Why is he doing that? Because he knows they're going to be division 2,” Kessler said.
Current NASL teams FC Edmonton and San Francisco Deltas also may depart. FCE appears to be on its way to the new Canadian Premier League and, according to USSF counsel Russell Sauer, the Deltas are set to shut down after their first season.
“At the September 1 [USSF board meeting] meeting, [NASL commissioner Rishi Sehgal and New York Cosmos owner Rocco] Commisso told U.S. Soccer that San Francisco was folding and not playing next year unrelated to their division 2 sanctioning," Sauer said.
SI.com could not independently confirm the Deltas’ departure. That uncertainty accounts for the difference between 13 and 14 potential clubs next year.
Joining the aforementioned six expansion teams and the returning members—the Cosmos, Miami FC, Indy Eleven, Jacksonville Armada and Puerto Rico FC—are two confirmed expansion teams, California United and San Diego's 1904 FC. The Deltas may make it 14. Or Brodie could knock it down to zero.
Sauer expressed some skepticism about the NASL’s sudden success attracting new investors.
“It's always, ‘We're close. We’re about to enter into agreements with new teams. They’re going to close soon.’ Nothing happened,” he said. “We get to September of 2017 and we couldn't tell, U.S. Soccer couldn't tell whether they had five teams, six teams or seven teams. We know they didn't have eight because [NCFC] had already indicated it was leaving. San Francisco, they told us, was leaving and Edmonton was leaving so they're down to five.
“They then discussed [California United and San Diego] ... But those two owners had not yet been qualified and to this day, haven't been qualified as meeting the division 2 ownership financial requirements. So, now we hear, after the lawsuit's filed, that ‘Oh, my goodness, we have six letters of intent.’ And then about a week ago, they then claimed we've got these new team agreements.
Sauer concluded, “But if you look at the letter of intent, undated, nonbinding and it says on its face, in Section B, the owners themselves don't meet the financial requirements. Well, the new team agreements … make it clear that those teams cannot survive financially on their own.”
In the end, the NASL’s short-term survival is now in Brodie’s hands. We’ll know by the end of the week.