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Fraser the journeyman, bastardized association football, and monopoly: MLS had its day in court

Gen. Wm. Tecumseh Sherman's brother is famous

Only ten months after the first ball was kicked in a top-tier professional soccer league since 1984 a class action suit was filed against Major League Soccer. Fraser v. Major League Soccer, L.L.C., 284 F.3d 47 (1st Cir. 2002). One author called this case a rite of passage for the new league. MLS, all operators/investors, and the US Soccer Federation (USSF) were alleged to have violated the Sherman and Clayton Antitrust Acts (starting at 15 U.S.C. § 1) by not operating like a single entity structure and illegal price fixing of players' salaries. Fraser made its way through the Federal court system until on October 7, 2002 the United States Supreme Court denied a petition for writ of certiorari, or in layman's terms SCOTUS declined to hear the case. 537 U.S. 885, 123 S.Ct 118 (2002). The First Circuit Court holding stands. In this post I summarize the reasons why the Federal judges did not find the players' claim of Sherman Act violations persuasive.

Be warned, I didn't write this in one sitting and took the effort to be thorough. Full legal cites will be written where appropriate. I tried to keep it clean and straightforward in order for all to read. Other random things are addressed. I also attempt to place the case in context of today's circumstances. And hopefully you learn something about the American legal system in the process.

The long post follows the jump.

Case History

In February of 1997 a suit was filed in the District Court of Massachusetts. MLS concluded its first season in October of the previous year and already had a suit to contend with. I don't presume to know how MLS felt about the suit but I can imagine a collective groan. Litigation is expensive and the fledgling league just found another expense on their hands. (The total cost of litigation for MLS was above $10 million). Others may have already seen parallels to a work stoppage in the NASL days that was funded by the NFL Players' Association. Steve Gans, a Boston attorney, said "Of all the things that led to the NASL's demise, that [strike] was one of the top five things." (Great Boston Globe article behind that link on the NASL work stoppage)

In case you're wondering how the players funded the Fraser litigation when they were complaining about low pay it was again assisted by funds from the NFLPA. (NASL also took NFL to court over a policy NFL thankfully never adopted, namely barring owners from owning an interest in other professional teams. NASL v. NFL, 670 F.2d 1249 (1982). Future MLS founder Lamar Hunt publicly opposed it.). With all that stated, lets move on to the actual case history.

Preliminary Rulings

Before Fraser ended at the United States Court of Appeals for the First Circuit in Boston (1st Circuit Court) significant judgments shaped the case. First, class action lawsuits need to be certified as class actions, which the plaintiffs (players) successfully did in this case. 180 F.R.D. 178 (D. Mass. 1998). For quick reference:

In order to be certified, the class must meet the four prerequisites to the maintenance of a class action under Rule 23(a) of the Federal Rules of Civil Procedure: (1) "numerosity"-the class must be "so numerous that joinder of all members is impracticable"; (2) "commonality"-there must be "questions of law or fact common to the class"; (3) "typicality"-the claims or defenses of the class representatives must be "typical of the claims or defenses of the class"; and (4) "representativeness"-the class representatives must "fairly and adequately protect the interests of the class."

Fraser v. Major League Soccer, L.L.C., 180 F.R.D. 178, 180 (D. Mass. 1998).

On the same day the judge also ruled on the players' motion and MLS' cross motion for summary judgment, or "let's end this before trial because I know the other side must lose." Fraser v. Major League Soccer, L.L.C., 7 F. Supp. 2d 73 (D. Mass. 1998). Judge O'Toole held that: [1] issue of whether transfer fee rule constituted antitrust violation was ripe for consideration and was not moot, and [2] rule did not constitute per se violation of Sherman Act's prohibition against restraints on trade. In other words, both motions were denied. The players asked for a summary judgment on issue [1] and MLS asked for a summary judgment on issue [2].

Skip ahead two years. MLS prevails in a partial summary judgment motion. Fraser v. Major League Soccer, L.L.C., 97 F. Supp. 2d 130 (D. Mass. 2000). On April 19, 2000, Judge O'Toole (name definitely sounds like he's from Boston) held in favor of MLS on two of the four counts levied against them by the players. First, [1] MLS was a single entity which could not be liable under Sherman Act § 1 for arrangements among team operator-investors, and [2] MLS league structure did not violate Clayton Act's prohibition on acquisitions or mergers which might substantially lessen competition or tend to create a monopoly.

The judge didn't buy the players' claim that although MLS looked like a single entity "the organizational form is really just a sham that" engages in illegal monopolizing practices. 97 F. Supp. 2d 130, 132.

On the Clayton Act violation, "[t]he creation of MLS did not reduce competition in an existing market because when the company was formed there was no active market for Division I professional soccer in the United States." 97 F. Supp. 2d 130, 140-41. I went to a lot of professional indoor soccer league matches in the 90s. I can truthfully say that I wasn't watching Division I soccer quality. The judge is right. The soccer market was a barren wasteland of major minor indoor leagues and high school field inhabiting clubs (like Crystal Palace Baltimore in 2010 at Paul Angelo Russo Stadium).

A twelve week long trial commenced on Sherman Act § 2 (whether MLS monopolization or attempt/combined/conspired to monopolize by preventing any other Division I soccer violated the Act), where a jury returned a special verdict in favor of MLS. The players appealed the jury verdict. Thus we finally get to the holding case. (And twelve weeks is very long for a civil trial. If you're obnoxiously serious about reading the trial details I purposely skipped, the case number is Civil Action No. 97-10342-GAO. Knock yourself out.).


Fraser v. MLS, LLC

Fraser is a fairly notable case, over 200 secondary sources have cited it since the 2002 judgment. This means sports junkies in law school had a case to discuss in their legal journals. It still holds a lot of interest today because of what was not settled in the case or how a similar suit may be treated differently today.

Coincidentally, the holding in the case may have been for naught. The opinion was issued in March 2002 and MLS was on the verge of collapsing after the 2001 season. A recent MLSsoccer.com article highlighted the precarious situation. "The Throw-In: Did eliminating Tampa, Miami save MLS?" Disbanding the league was an option on the table.

The Facts

In introducing the facts of the case, the judge details the structure of MLS (pre-2002 Soccer United Marketing creation and contraction) and the history of its formation in order to determine if there were violations of the Sherman Act. Several details are enlightening:

In 1988 when the United States was awarded the FIFA World Cup, the USSF promised a Division I soccer league. USSF also decided to only sanction one Division I soccer league. In what seems like a foregone conclusion really matters. The heart of this case is about competition for wages and player employment.

In 1993, three separate organizations presented competing plans to develop Division I soccer to the USSF board. The three were: League One America (one man wanted to create a bastardization of association football rules with field chevrons, multiple points for long distance goals, and color coded positions corresponding to your uniform color. No joke! Read Ch. 1.); the American Professional Soccer League ("APSL"), an existing Division II league (later named A-League where the Portland Timbers' modern era began); and Major League Professional Soccer ("MLPS"), the precursor to MLS, headed by the USSF's own president, Alan Rothenberg. Not surprising, the chums went with one of their own.

MLS was a group of independent investors governed by a board of governors. There were passive investors and team operators. MLS owned the teams, controlled the intellectual property rights, tickets, supplied equipment, and broadcast rights. MLS negotiated all stadium leases and assumed all related liabilities, paid salaries of referees (today MLS does not, USSF does) and most importantly controlled player employment. MLS recruited, negotiated, paid, and determined where players would play. Marquee players were balanced among the league.

Investor/operators controlled hiring of team staff, local broadcast licensing, paid one half of the rent (MLS covered the other half), and formed the majority of the MLS board. Their role in selecting players was limited: trades were allowed with other MLS teams but independent bids on MLS players were not allowed.

MLS paid each investor/operator a "management fee": One-half of the tickets and concessions, the first $1.125 million of local broadcast revenues plus 30% share of any amount above the base, one-half of MLS Cup and exhibition revenues, and all overseas tours revenues. Basically, nearly all revenues went to MLS to be kicked back to the investor/operators.

The Holding

The court held that MLS is a single entity for the purposes of Sherman Act § 1 as well as treated like a single economic actor. Some have urged sports leagues to be treated as single entities because they must collaborate to produce a product. But the Circuit Court doesn't adopt that approach. Nor does the court agree with the characterization that the substance of the league is simply a conspiracy to fix player salaries. The investors decided to own and manage all the teams as one and competition within the company is not required, nor is it essential teams be independent in sports leagues.

Corporate integration is not conclusive. Investors act also as team managers which is outside ordinary stockholder roles. While MLS is trying to be an entrepreneur with its own assets and revenues, it limits competition among investor/operators. In the end, the court stated "the single entity problem need not be answered definitively in this case." 284 F.3d 47, 59 (1st Cir. 2002). The summary judgment is upheld.

On the section 2 claims, the monopolization of the Division I soccer market, the players had to prove that MLS engaged in a wrongful act to exclude competitors from the market. The jury, however, found no market subject to monopolization that was alleged by the players. The players argued the findings were tainted by trial errors. Tough luck. The players didn't preserve their objections to the jury instructions on markets so only plain error is reviewed. In other words, only clear bias and prejudice would taint the jury verdict.

[Appeals about Alan Rothenburg as a witness, exclusion of documentary evidence, a chart used at trial, and a Flounder defense witness permitted to testify I skipped.]

Concerning the conspiracy to monopolize, there was no dispute that MLS aimed to be the only Division I league and USSF helped them achieve it. But the illegality of the agreement is not clear. The exclusivity agreement MLS got might be unlawful if it threatened adverse competitive effects, and this required proof someone who was the only Division I purchaser in the US would control prices in an economic market.

Lastly, the Clayton Act summary judgment was affirmed. MLS formed an entirely new entity which represented the creation of an entirely new market. The demise of NASL meant there was no enterprise providing Division I soccer in the US prior to MLS. MLS didn't subtract any existing competitors. Strangely, the players assert that without MLS formation, the investors would have entered the market as a traditionally structured league. The judge writes "it is quite possible these investors would have found the alternative structures unattractive and simply abandoned their effort altogether-hardly a pro-competitive outcome." 284 F.3d 47, 71. (NASL was the boogeyman, and a different structure was clearly favored by the investors.) The evidence on the APSL showed it was not well financed and managed as MLS, and had a great risk of failure in the long run. Just giving them Division I status would not increase competition to an already minor league.

AFFIRMED.


Today's Significance?

American Needle and Reebok

The National Football League is not a single entity like MLS, until they argued that they are. For three decades American Needle enjoyed a contract with NFL Properties, which is owned by the 32 NFL teams, to make apparel. Other apparel companies had contracts too. In 2002, Reebok got a completely exclusive right to all apparel licensing. American Needle sued under federal antitrust law:

American Needle argues that by agreeing to license only with Reebok, the NFL and its teams -- which have sometimes sued the NFL itself -- are competitors engaged in a Section 1 violation. An exclusive contract for NFL apparel shuts out American Needle and other apparel companies from negotiating with individual NFL teams and it means that Reebok, without competition from other those companies, can charge higher prices.

Why American Needle-NFL is most important case in sports history [hyperbolic title]

The outcome? NFL cannot be 32 NFL individual teams and still argue it can make decisions collectively on its NFL "brand" according to SCOTUS. Justice Stevens wrote in the unanimous ruling against NFL, "Competitors cannot simply get around antitrust liability by acting ‘through a third-party intermediary or ‘joint venture.' " Am. Needle, Inc. v. Natl. Football League, 130 S. Ct. 2201, 2215-16 (2010). NFL teams are competitors, unlike MLS's more center focused structure. Be aware that "The actual legality of any joint practice [such as competitive balance, rules], the Court made clear, was not being decided in this case - including the specific tactic of joint marketing of the right to use team trademarks." Analysis: No antitrust "Trojan horse". The Supreme Court, as it often does, carefully limits the ruling so it doesn't expansively rock the boat in the legal world.

MLS should not be worried. SCOTUS did not answer the expansive question about whether sports leagues are exempt from federal antitrust laws like Major League Baseball (Federal Baseball Club v. National League, 259 U.S. 200 (1922)), and it focused narrowly on intellectual property and licensing agreements.

MLS has changed

Could MLS be open to another suit today? Of course! Anyone can sue anybody. The next question asked is whether you have a proper claim. As stated above in the case, the single entity question remains unanswered.

Since 2002, the post-Contraction event of MLS has been marked by more stabilized revenues, more markets, recognizable names, stadiums suited for soccer, increased franchise values and franchise fees, SUM, liberalized salary caps, roster expansions, developmental academies, kit advertisements, increased online content, and more. The facts describing MLS's relationship with investor/operators in Fraser doesn't seem to fit with today's Portland Timbers FO. As far as I can tell, things have changed for investor/operators. Without have the actual investor/operator agreements in front of me I could not truthfully tell you what those are. Pure speculation I will not do.

Although two examples of investor/operator increased powers surrounds Designated Player signings and stadiums. Each team can individually select and sign to the club itself, and not MLS, a DP. The first $335,000 is paid out by MLS, the rest directly from the pocket of the investor/operator.

Another change is in the stadiums. In a law review article titled Facility Issues in Major League Soccer: What Do Soccer Stadiums Have To Do with Antitrust Liability?, 14 Marq. Sports. L. Rev. 551 (2004), the author makes the point, only two years removed from the holding in Fraser, that MLS may become open to attack on its single entity status. MLS investor/operators were going to build soccer specific stadiums to ensure maximized control of ticket revenue and concessions, and they were going to build their own stadiums and assume personal liability. It wouldn't be an MLS centrally led endeavor and could potentially erode the "unity of interest" standard that is a defense to antitrust lawsuits. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), the case is the dominant precedent in Fraser.

Presciently, MLS investor/operators have backed their stadium financing with personal guarantees. Merritt Paulson did just that.

The $31 million project will be financed primarily by Paulson and his limited liability company, Peregrine LLC, according to details of the agreement released Thursday.

Any upfront expenditures by the city toward the renovation will be secured by the next 25 years' worth of PGE Park operating revenues, a personal guarantee made by Paulson to the city, Kauffman said.

MLS is breaking down of its single entity status? Maybe.

Then again, my one big caveat is I'm no expert and I have no basis for giving legal advice (and I'm not a barred attorney ........ yet). Let us just enjoy another great season to watch our boys in green carry us through highs and lows.

2010 MLS Collective Bargaining Agreement

One thing to note is that federal antitrust law cannot touch any of the agreements in a collective bargaining agreement. Meaning that MLS can still gain a desired policy through negotiating it with the MLSPU. However, not every single policy to prevent looking less like a single-entity can be achieved in the CBA.


Random Things

The full name of the suit is:

Iain FRASER; Steve Trittschuh; Sean Bowers; Mark Semioli; Rhett Harty; David Scott Vaudreuil; Mark Dodd; and Mark Dougherty, Plaintiffs,

v.

MAJOR LEAGUE SOCCER, L.L.C.; Kraft Soccer, L.P.; Anschutz Soccer, Inc.; Team Columbus Soccer L.L.C.; Team Kansas City Soccer L.L.C.; Los Angeles Soccer Partners, L.P.; Empire Soccer Club, L.P.; Washington Soccer, L.P.; and United States Soccer Federation, Inc., Defendants.

Tidbits about the players named as plaintiffs.

Iain Fraser was a journeyman, as nearly all North American professional soccer players were prior to 1996. He has a few caps for Canada and was in his 30s when the suit was filed. Steve Trittschuh was a journeyman (forget it, they were all journeymen), got a few US caps and appeared in the 1990 World Cup in Italy and was in his 30s when the suit was filed (trend developing). Sean Bowers was a few months under age 29 at the time of the suit filing, but spent his entire career save for three years in MLS playing indoor soccer professionally (and Wikipedia currently has him still playing). Mark Semioli had one of the more stable professional careers of his peers and spent six seasons in MLS. Rhett Harty, youngest of the bunch and was 26 at the time of the suit filing and his career is most notable for playing for Stanford (not the MetroStars IMHO). David Scott Vaudreuil's "career spanned fifteen teams in over six leagues", enough said, he wins the journeyman award. Mark Dodd has the most stable career with three teams over ten years and several US appearances. Mark Dougherty is currently the USWNT goalkeeper coach.

Tidbits about the owners named as defendants.

Robert Kraft (Kraft Soccer LP) still owns the New England Revolution as owner/operator. While "Bobby" earns praises as NFL's best, respected soccer writer Grant Wahl has placed his club last in Grant's MLS Team Ambition Rankings. Anschutz Entertainment Group (AEG) still runs the Los Angeles Galaxy and has a large stake in the Houston Dynamo (which they're looking to sell after owning ten [?] MLS teams once). Team Columbus LLC is now run by the son of the late Lamar Hunt, Clark Hunt. The Hunts once owned three MLS teams (See a trend yet? Dallas Burn and Kansas City Wizards). That number is down to two (Columbus, Dallas). Team Kansas City LLC was Hunt's until On Goal LLC showed that even a less respected club can turn around. Empire Soccer Club LLC gave way to AEG and then Red Bull GmbH and unlike FC Red Bull Salzburg, the Red Bulls name follows more common North American conventions (plus I believe by law they cannot be Red Bull New York although I couldn't find a source). Washington Soccer LP no longer owns DC United. The most recent ownership change happened after the largest stakeholder was snuffed by DC's politicians (again), leaving William H.C. Chang (and SF Giants part owner) to hold the pieces. Sadly, Chang isn't rolling in the dough to personally fund a stadium for MLS' most storied franchise. Did you know USSF's last name was USSFA or US Soccer Football Association? Yup. All the way until 1974.

If you made it this far, CONGRATULATIONS. Brownie points if you clicked on all the links AND read them.

Alright guys, I don't believe I have to say this but, just in case, please do not submit anything racist, homophobic, sexist or otherwise not appropriate for even the younger Timbers fans.

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