A Look at the MLS Constitution (Part 1)

An interesting document was included among the hundreds (and hundreds) of pages of filings in the Mike Petke lawsuit against Real Salt Lake for breach of contract: The MLS Constitution. The document is essentially a 25-page outline of how MLS as an organization operates.

A couple of caveats: First, this document has not been authenticated in that it’s unclear whether it’s the entirety of the document (though it was represented to be as much by RSL). Second, this document only gives a partial view of how the league is structured. To get the complete picture, there are several other documents we’d need to see (called “Governing Documents”): The MLS LLC operating agreement and the SUM operating agreement. Neither of those documents are public. However, the Constitution does make numerous references to those documents, which I’ll discuss below. With that said, it was filed by Real Salt Lake and there would be consequences for misleading the court by filing an incomplete document, let’s take a look.

INTRO:

The Constitution begins with an introductory explanation as to what the document is, and means. It’s essentially a compilation of several other documents–including the Operating Agreement and SUM agreement (MLS documents in italics).

“The Constitution is a compilation and summary of (i) key sections of the Governing Documents of Major League Soccer, L.L.C. (“MLS”) and Soccer United Marketing, LLC (“SUM”); (ii) certain resolutions of the Board of Governors; (iii) certain League Governance matters; and (iv) other material agreements that impact Members and Owners.”

The Governing Documents are what essentially bind the owners to operate in a particular way. Unfortunately, those specific documents remain private, but now we know what they are at least:

(i) MLS LLC Agreement:

The MLS LLC Agreement is the basic ownership agreement for MLS that addresses such areas as (1) rights and benefits of each class of equity, (2) the distribution of profits and losses, (3) the corporate governance of MLS, (4) the consequences for failure to make capital calls and (5) the limitations on Members to pursue certain soccer-related activities (such as owning other soccer teams in North America or conducting the activities of non-North American soccer teams in North America). All Members (including Team Operators and Class B Members) are bound by the MLS LLC Agreement.

(ii) SUM Operating Agreement:

The SUM Operating Agreement is the basic ownership agreement for SUM. The original SUM Operating Agreement was adopted in 2002 upon the formation of SUM. Like the MLS LLC Agreement, the SUM Operating Agreement addresses matters such as: (1) the rights and benefits of each class of equity, (2) the distribution of profits and losses, (3) the corporate governance of SUM, and (4) the requirement that Members (including Team Operators) provide SUM a first opportunity to participate in certain soccer-related business opportunities.

(iii) Team Operating Agreement:

The Team Operating Agreement governs the relationship between MLS and the Team Operator and provides the basic framework for the operation of a Team. Each Team Operator has entered into a Team Operating Agreement with MLS. The Team Operating Agreement addresses matters such as: (1) the rights and responsibilities of a Team Operator, (2) the allocation of revenues and expenses between MLS and the Team Operator, (3) the Team Operator’s local marketing and operating territory and (4) the procedure for terminating the Team Operating Agreement or an Owner’s ownership interest in the Team Operator.

(iv) MLS Canada LP Agreement:

(v) MLS Canada ULC Agreement:

(vi) MLS Luxembourg SarL Articles:

MLS Canada LP, MLS Canada ULC and MLS Luxembourg are wholly owned subsidiaries of MLS that hold the rights to the Canadian teams and allow MLS to conduct business in Canada.

(vii) SUM Dutch Holdings LLC Agreement:

(viii) SUM Netherlands Cooperatief U.A. Agreement:

SUM Dutch Holdings LLC and SUM Netherlands Cooperatief U.A. are wholly owned subsidiaries of SUM and hold the right to exploit the MLS commercial rights in Canada.

As I’ve previously written about, FIFA does not typically allow leagues to have teams in other countries when there is a viable league in their home country. At the time Toronto FC first came into the league, there was no viable league in Canada, so MLS received a waiver from that rule to operate teams in Canada. It is an open question as to how long FIFA authorizes those teams to operate; I’ve heard there is a 10-year waiver for MLS to operate in Canada.

Board Resolutions:

The Board of Governors has the authority to adopt policies that apply to the operation of the League and its Teams. Certain resolutions not already incorporated into the Governing Documents, which are summarized in this Constitution are:

(i) The Diversity Initiative;

(ii) The Anti-Tampering Policy; and

(iii) Board Governance Policy;

League Governance:

The Commissioner/CEO has the authority to establish League Governance that govern the day-to-day operations of the League, MLS and SUM. The League Governance is set forth in a series of manuals that are revised and distributed to the Teams on an annual basis. It is important that Team employees are familiar with the detailed rules that govern their operational areas.

Competition Guidelines: The Competition Guidelines contain the applicable rules and regulations relating to:

League competition and playing rules;
Negotiation and execution of player contracts;
Player salaries;
Player transfers; and
Player roster rules.

Team Commercial Guidelines: The Team Commercial Guidelines contain the rules that govern the sale of corporate sponsorships and other commercial rights by Team Operators as well as the creation, ownership, modification and use of MLS and Team intellectual property and logos, including:

A list of the product, service and retail categories in which Team Operators may sell local sponsorships;
The procedure for executing contracts and obtaining League approval;
The rights and benefits that may be provided to local Team sponsors;
and
The guidelines for the sale of jersey sponsorships, stadium
sponsorships and on-site activation.

Game Operations Manual: The Game Operations Manual contains rules and regulations that govern:

Game presentation, procedures and operation (including pregame, game and postgame);
Team and Stadium Security;
Field regulations;
On-field discipline;
Game officials; and
All additional operational matters surrounding an MLS game.

Broadcasting Manual: The Broadcasting Manual contains rules and regulations that govern production standards, requirements and general guidelines for MLS game broadcasts, including:

The requirements for local broadcast rights;
The size of the local broadcast territory;
The requirements to produce a broadcast feed for all home games; and
Coordination with the League for approval of local broadcast
agreements and production.

Public Relations Manual: The Public Relations Manual governs the role of each Team’s public relations department, including:

Treatment of credentialed media;
Information dissemination;
Production of media guides;
Photographer responsibilities; and
Coordination with broadcast partners.

MLS Medical Policies and Procedures Manual: The Medical Policies and Procedures Manual governs medical treatment of players for the League as a whole, including:

Insurance coverage;
Medical records;
Medical treatment and procedures; and
Substance Abuse and Behavioral Health policy.

MLS Venue Design Guide: The MLS Venue Design Guide contains general design requirements and recommendations for minimum standards for MLS stadiums, including:

Seating Capacity;
Television Camera Positions;
Press Facilities;
Locker Rooms; and
Playing Field.

MLS Training Site Design Guide: The MLS Training Site Design Guide contains general design requirements and recommendations for minimum standards for Team training sites, including:

Site Accessibility;
Broadcast and Media;
Press Facilities;
Team Facilities; and
Playing Field.

Other Documents:

The Collective bargaining agreement between MLS and the MLSPA is public, of course, but none of the other agreements are. That said, according to the constitution, these are the documents which form the basis for MLS as an entity.

(i) The Collective Bargaining Agreement between MLS and the Major League Soccer Players Union; (ii) The Group License Agreement between MLS and the Major League Soccer Players Union; (iii) The MLS Rights Agreement between MLS and SUM; (iv) All National Media Agreements; and (v) Certain National Sponsorship Agreements and Licensing Agreements.

Team rights:

The Constitution outlines the rights and obligations of the team owners to MLS as an organization. Given the single-entity structure of the league, it’s hardly surprising that MLS exercises…let’s call it strong oversight over how its teams operate. The team has the ability to sell tickets, employ staff, choose players and sell sponsorships. That said, the league exerts significant control in many of these areas. Specifically sponsorships:

As noted above, a Team Operator’s relationship with MLS is governed primarily by its Team Operating Agreement. Pursuant to the terms of the Team Operating Agreement, a Team Operator has the right and obligation to conduct the following activities in its “Home Territory” (i.e., generally, the area within the 75-mile radius from the Team’s home stadium):

Sell Tickets in its Home Territory;
Employ Team Staff and Coaches:
(i) The Team Operator hires a Team President, General Manager, Coach and other Team Staff; and

(ii) The hiring process for any coach or team soccer-related technical personnel must comply with the League’s Diversity Initiative.

Select Players for the Team:
(i) As described more fully in the Competition Guidelines, all Players are paid by MLS and player contracts are negotiated by the League Office.
(ii) Teams are not permitted to separately compensate players.
Sell Local Team and Stadium Sponsorships:
(i) Teams must use the League Office standard local sponsorship agreement form (or other League-approved form) for all sponsorships and submit any such agreement to the League Office for approval.
(ii) As described more fully in the Team Commercial Guidelines, Teams may sell local sponsorships in specified commercial categories, while they are restricted from other certain commercial categories, including those categories that are sold exclusively by SUM on a national basis.
(iii) Teams may not sell local sponsors the rights to conduct activities outside of the Home Territory.
(iv) Teams may not sell local sponsors the rights to any MLS special event or program (e.g., MLS First Kick, MLS All-Star, MLS Cup, Futbolito)
(v) Teams may not issue any consumer product licenses or manufacture any merchandise.
(vi) As detailed in the MLS Stadium/On-Site Commercial Guidelines, all stadium-related sponsorships must comply with the League Rules.

5. License Local Media Rights:

(i) As with local sponsorships, all local media agreements must be on the League Office standard local television and radio distribution form agreements, and, further, must be drafted by and approved by the League Office.
(ii) As described in the Broadcasting Manual, Teams may license certain games to a local broadcaster.
(iii) Local media agreements must:

Reserve all national rights for MLS/SUM use, including terms that:
(1) protect the rights of national broadcast partners (e.g., scheduling, exclusive windows, recapture, side-by-side, etc.); (2) reserve digital distribution (e.g., internet, mobile), VOD, subscription service, pay- per-view, theater, film, out-of-market television, home video, highlight, re-air and international distribution rights; and (3) grant the ability for MLS to use the local clean and/or dirty feed to exploit national reserved rights (e.g., providing the clean feed for Univision and the dirty feed for MLSsoccer.com and international distribution);
Retain the copyright in the telecast for MLS and the ability for MLS to use graphics and announcer calls in perpetuity for any reserved rights;
Ensure production meets MLS Minimum Production Requirements;
Provide game records and highlight melts to MLS archive;
Protect first right of negotiation for Official MLS Sponsors to purchase broadcast commercial inventory; and
Retain two (2) thirty-second (:30) commercial spots for MLS use. 6. Execute Stadium Leases:

6. Execute Stadium Leases:

(i) Each Team Operator shall enter into and assume all rights and obligations for a Stadium Lease.
(ii) Each Stadium Lease shall be subject to approval by MLS and include provisions as MLS specifies including, without limitation, protection of scheduling rights, protection of sponsorship rights within the “field of play”, third-party beneficiary rights and the right for MLS to “step-in” and take over the lease in the event of a Team Operator default.

COMING NEXT: PART II (SUM) Cue ominous music…