You can read Part I here.

There’s likely to be a lot of news coming out this week in Lawsuit Land, so before I get overloaded between my actual work and whatever else happens, I figured it would be a good time to continue the story on the amended NASL complaint, which added MLS as a formal defendant in the federal anti-trust suit.

I last left off discussing the specific prayers for relief in the amended complaint: The NASL request for a declaratory judgment stripping USSF’s regulatory authority as well as the request for (treble) damages. Again, I’m going to leave the damages issue to another post, as a discussion on that is a story in and of itself. So let’s start off with what has long been what I think has been the NASL’s main beef with the USSF: The Professional League Standards (PLS).

The infamous Professional League Standards have long been focus of NASL’s ire, going back to well, the beginning of this version of the NASL’s existence. Okay, maybe not that long, but at since at least 2013, when USSF proposed updating the PLS. They were  subsequently updated in 2014, and the relationship between the NASL and the USSF really took a turn in 2015 when the NASL Commissioner Bill Peterson made it clear that he wanted to position the NASL to challenge MLS as a Division 1 league.

Things got even worse that year, when the USSF proposed modifying the standards again, which caused the NASL to essentially threaten a lawsuit. The USSF ended up not amending the PLS in 2015, but the NASL has used that as evidence that the USSF was conspiring with MLS to kill the league by increasing the standards right as the NASL was preparing to apply for Division 1 status. With that as a backdrop, let’s dive back into the amended complaint.

PLS; What Are They Good For:

Not to belabor the history of PLS, but the essential purpose of them (in the eyes of USSF), was to establish “reasonable” (my word) league standards, so that there would not be a “wild-west” situation in United States soccer, whereby leagues were fiscally irresponsible and unstable, and thereby coming and going, damaging the credibility of professional club soccer in the United States. Whether you believe that is up to you, but that’s the rationale (I highly encourage you read former USSF President Sunil Galati’s declaration in this case, whatever you think of him, it’s very enlightening) from the USSF.

The NASL has long argued that when the USSF was granted the 1994 World Cup (with the stipulation requiring the creation a professional league), the seeds for the conspiracy to construct a monopoly were sown. That point is repeatedly made throughout both complaints. Now, that conspiracy presumably is effectuated by the USSF imposing those PLS and by periodically altering them so as to make it difficult for any league (save MLS) to comply with them, thus ensuring that MLS is the favored Division 1 league.

I’ve previously argued (complained) that the NASL’s theory regarding the USSF’s rule making authority was all over the place; they would come close to arguing that the USSF had no rule making authority at all, until the judge would ask explicitly if that’s what they were arguing for, at which point they’d would back down. While that was in the context of their quest for a preliminary injunction, I think its fair to say the NASL is going for the jugular at this point.

This is a change from their original complaint. The argument here is that there is no central governing body which regulates how the NFL (or other US-based leagues for that matter) does its business, nor regulates the circumstances under which a new league forms to compete with them. As noted above (and with a little jab at the NFL regarding their own anti-trust past), there have been multiple leagues that have formed over the years, though none have survived for one reason or another.

Also of interest is the time spent discussing the International Basketball Federation (FIBA), the global governing body of basketball around the world for international competitions and USA Basketball, the “local” governing body here in the States. Obviously, the NASL is contrasting those governing bodies, (who do not have any regulatory authority over professional basketball in the US) to the FIFA/USSF relationship.

There was barely any space spent discussing regarding league standards in other US sports (or global governing bodies) in the original complaint, yet now we get multiple pages spend discussing the fact that none of the other leagues in the United States are subject to a governing body which regulates professional sports in this country (and Canada). This certainly speaks to the fact that it appears that NASL is going after USSF’s ability to govern professional sports at all through PLS.

I previously referenced the Champions World case, which held that USSF does not have an anti-trust exemption and has no inherent authority to govern professional soccer as a matter of law. That ruling has not been tested, but it’s fair to say it will be…soon. Of note is that based on the ruling from both the district court and the court of appeals, the position of USSF as a regulatory body has arguably been strengthened, so NASL has some work to do. If you like, you can listen to a discussion on this issue.  </end plug>

 

Professional League Standards & Practices:

Which isn’t to say that USSF would be out of the woods, even if they survive a challenge to their authority as a regulating body. The NASL is also challenging the USSF’s implementation of those standards as discriminatory, in furtherance of the conspiracy and as overly restrictive. In this part (yeah, there’s going to be a Part III), let’s deal with the PLS as applied.

Even if the USSF is held to have the ability to impose PLS, NASL is going to argue that the standards themselves are too restrictive, and their complaints, as I said, date back to 2013 at least. Their amended complaint goes into significant detail outlining why. There are six areas they are primarily concerned about: Number of teams, time zones, stadium capacity, pitch size, player development, and financial viability.

1. Number of teams: This has been an especially sore spot for the NASL, in light of the…let’s call it “acquisition” of their franchises by MLS and USL, as several other teams have gone out of business; though it can be fairly argued that a couple of them didn’t have much to do with USSF at all (still trying to figure out what they were thinking with Rayo OKC). In any case, the argument here is really about why USSF cares how many teams are in a particular league. Of course, as was discussed during the original oral argument over the preliminary injunction, having a national team with say four teams would be silly, but the NASL argument was that should be up to the individual league, not USSF. In their amended complaint, the NASL focuses on the NHL functioning for years with limited teams. Interestingly, they didn’t reference the XFL, which seems to be the most analogous example (especially since they’re coming back); the fact that these leagues with limited teams went out of business isn’t really relevant from their point of view. If first you don’t succeed, after all. Of interest is that USSF’s argument on this point is more that USSF’s judgment is reasonable, and that the court is not equipped to make this determination. My guess is this will get turned into a battle of the experts.
2. Time zones: Another major source of grief for the NASL. The time-zone requirement has changed a couple of times. The NASL doesn’t believe this requirement is necessary at all, and even if it is, argues that the USSF has changed it to make it more difficult for the NASL to comply. This argument therefore combines a bit of the fundamental issue over governance, as well as the conspiracy to make it difficult for NASL to obtain D1 status. Of course, the argument from USSF is that they’re trying to require D1/D2 teams to have a national footprint to promote the sport, but from NASL’s point of view, the question is whether USSF should be requiring this at all, and if this the most effective means of doing so. Interestedly, NASL references collegiate sports in their amended complaint, as conference such as the ACC or Pac 12 only cover one or two time-zones at best. Those are amateur sports obviously, so I am not sure if those examples are analogous or persuasive. The USSF’s response to this was that when MLS added Canadian teams, it was necessary to modify the time-zone standards to ensure that it was clear that leagues in the US were establishing a national footprint in the US proper.
   As to whether the court ultimately finds this argument persuasive is tough to say. The court found it sufficient at the preliminary injunction stage. Or it may be more accurate to say that the court didn’t find that the NASL was clearly likely to prevail based on the limited evidence before them.
3. Stadium capacity: So this is a bit of a weird one, and I’m not sure what to make of it. The current 15,000 seat requirement for ALL teams a Division 1 league seems like a high bar, as NASL points out. Interestingly, this *is* somewhat analogous to college sports; well college football that is, where there are stadium/attendance requirements. In any case, there is nothing preventing NASL teams from securing stadiums of that size, subject to being able to afford it and navigating the required local bureaucratic red tape. What’s interesting is that NASL’s complaint here (in both complaints) is that not being afforded D1 status effectively prevents them from building those stadiums…because local governments won’t fund 15,000+ stadiums for Division 2 teams. Which is…a bold argument to make in this era of taxpayer complaints about public funding of stadiums.
   I’d say that NASL is on firmer ground arguing that a) MLS was granted these waivers for quite some time, and b) All over the world, there are teams in top leagues with less capacity than this doing quite well. They of course cite A.F.C. Bournemouth as their primary example. USSF’s response in their memo opposing the injunction was that this standard is hardly unique, as outlined here:
   
   Of note in that excerpt from the USSF’s memo is that the transfer of the Coyotes was justified by the league imposing their standards; not by some overarching regulatory body. So I’m not sure if that really helps USSF’s case.
4. Pitch size: NASL included in the Amended Complaint an argument that the requirement that all pitch sizes be 70 x 110 is discriminatory and isn’t even mandated by FIFA, and therefore is overly restrictive. This appears to be more about taking a shot at New York City FC, as they spend most of their time arguing that while NYCFC says they comply, nobody actually believes it.
5. Player development: Of more concern to the NASL are the Player development requirements, which essentially state that in order to facilitate the growth of soccer in the US, each league must commit themselves to helping develop young/lower level players, with “[e]ach US‐based team must maintain teams and a program to develop players at the youth level,” which “may be satisfied by fielding teams in a Federation academy program.” Which, as NASL concedes is a “laudable goal.” So what’s the problem? Money. To do this, you’re either setting up an academy, creating a reserve squad or a USL team, if not a combination. That costs a lot of money, which is something that fledgling league trying to establish themselves can focus on right away. Thus the NASL is arguing that this is anti-competitive, as it forces the league to have its teams expend a significant amount of money before they are able to compete at a division one level. It’s an interesting argument; I’d probably argue this is pro-competitive (after all, developing more players clearly would provide a massive benefit to soccer in the US), but that it may be overly restrictive. We’ll see what the court thinks. Given that even MLS teams are experience issues with this, it may be persuasive.
6. Financial viability: Another area ripe for argument, on both sides. The financial viability requirements are a major issue in US soccer. There may not be a single requirement which shapes how leagues are formed, or whether they can be formed at all. Now, the premise behind financial viability standards is pretty sound, as even NASL concedes. Given the unstable history of professional soccer in the United States, having teams (or leagues) start a season, and fold halfway through the year (thereby leaving players, employees and vendors unpaid for their work), is simply untenable, in USSF’s eyes. Thus a number of basic requirements are outlined in the PLS. One of the sources of NASL’s issue with these requirements centers on the required performance bond, which allows for payment of those owed money and for a team to operate in the event that team is financially distressed. But the real issue is the so-called “net-worth requirement.” At the Division one level:
   Basically, any principal owner has to have $40 million in the bank (for lack of a simpler example), and a group of owners has to have $70 million in the bank between them. Per team. And this provision was added in 2014, having not been considered by USSF prior to that time. And you can’t count the team or your house. At the Division 2 level, it’s $20 million in the bank. Okay.Now as I said, it’s hard to argue that having standards that prevent teams from closing up shop in the middle of the night and stiffing people isn’t pro-competitive. However, NASL’s argument centers on the restrictive nature of those requirements, as well as the timing of its implementation. Their main argument being that having to provide the performance bond every year ensures that teams and leagues will not disappear in the middle of the season. Additionally (and interestingly), NASL references the fact that not every NFL team could satisfy this requirement as the Green Bay Packers are publicly owned. Further, NASL argues that the Bundesliga as a league would not satisfy the PLS for a Division 1 league in the U.S., given the unique community structure of that league.So it’s an interesting argument, and the individual net-worth requirement is coming under increasing scrutiny. However, this argument will likely center on degree, as opposed to kind. There is likely a plausible argument to make that the financial requirements imposed by USSF are too onerous and discourage growth (especially at the Division 2/3 levels), but it would be surprising if the court finds that imposing any financial standards is invalid. With respect to the timing of the implementation of the “net-worth” requirement, it’s a good question for USSF to answer, and I’m not sure just claiming “evolving standards to match the changes in pro soccer in the U.S.” routine is going to be sufficient for the court.

Again, I think this is a good place to stop, so that’s it for Part II of the story. Stay tuned for Part III, where I’ll dive into the alleged conspiracy tying this all together [insert ominous thunder]. I promise to get Part III out quickly, since as I said, this could be a newsy week.