A look at the MLS Constitution (Part V): Board of Governors Committees and Transferring Ownership

Sports team ownership is definitely like a clubhouse, and MLS is no different. Although as many of you know, the owners don’t actually own the teams, they own the league, which owns the teams. Confused yet? Think of MLS as a big office building which a group of people own, and they each have their own office inside that building where they operate their secondary businesses–MLS teams. Within that structure, they divide up responsibilities for operating the business through “committees,” in which the various owners convene in smaller groups to help conduct MLS affairs. The following is a description of those committees.

Section 4. Board of Governors’ Committees

A. Commissioner’s Appointment. The Commissioner and the Board of Governors each has the authority to establish committees for any purpose and the Commissioner has the sole and exclusive authority to appoint the members and the chair of each such committee in his discretion. Each committee will have a representative membership as determined by the Commissioner in good faith. All committee members will serve staggered terms of three years each. The Commissioner will serve as an ex officio member of all MLS committees and may appoint other ex officio members to any MLS committees. The Commissioner may serve as chair of any committee. The Commissioner may at any time dissolve any committee.

B. Committees. Such committees may include, but are not limited to, the following:

1. Advisory Finance Committee. The Advisory Finance Committee assists the League Office and the Board of Governors in their oversight of MLS’s treasury, financial accounting and budgeting functions and in the approval of Team indebtedness and certain Transfers by Owners of their ownership interests in the Team Operator.

2. Competition Committee. The Competition Committee assists the League Office and the Board of Governors in their oversight of MLS’s player budget, player expenditures and player assignment system. The Committee will recommend the annual player budget and formulate division of player expenditures, devise League Rules regarding principles of player assignment and expenditures, and review any player expenditure not contemplated within the player budget.

3. Expansion/Transfer Committee. The Expansion Committee assists the League Office and the Board of Governors in their oversight of (i) the process and procedures relating to League expansion, including asset pricing, market priority and selection and new ownership approval and (ii) the development of the League’s overall expansion strategy.

4. Technical Committee. The Technical Committee assists the League Office and the Board of Governors in their oversight of League Rules and other matters relating to competition, including rules of play.

5. Labor Committee. The Labor Committee assists in the development of an overall labor strategy with outside labor counsel, and will meet during the collective bargaining agreement negotiating period, and as necessary.

6. Media Committee. The Media Committee assists in the formation and development of an overall media strategy, created to maximize the value of League content in broadcast, digital, wireless and international distribution.

7. Philanthropy. The Philanthropic Committee serves as an advisory board for MLS W.O.R.K.S. and makes recommendations regarding philanthropic initiatives.

As you can imagine, the MLS owners don’t let just anyone into the business, and you can’t get out without following protocol. The following outlines how membership in MLS can be transferred.

Section 5. Transfer of Membership

No Transfer of any Ownership Interest may be made unless the Member complies with the provisions of Article 8 of the MLS LLC Agreement, which are generally summarized in this Section 5.

A. General. Generally, the Transfer, including any sale, pledge, hypothecation, assignment or other transfer or encumbrance, of any Ownership Interest must be approved by a Super Majority Vote (excluding, for this purpose, the Member by or in which a Transfer is proposed).

B. Application. Promptly after any agreement relating to the Transfer is reached, the applicable Member (on behalf of itself or the transferring Owner, as applicable) must submit a written request for approval to the Commissioner. All such agreements must expressly provide that the consummation of the Transfer is subject to receiving all necessary approvals from MLS and SUM. The Commissioner may instead accept a request for approval directly from a prospective Owner in two instances: (i) when the prospective Owner has a security interest in the Ownership Interest proposed to be transferred that has previously been approved by MLS or (ii) when, in the Commissioner’s sole judgment, the best interests of MLS would be served.

C. Request for Information. The Commissioner has the right to request and require the transferring Member or Owner and the proposed transferee to furnish to the Commissioner copies of all agreements relating to the Transfer and any other information about the Transfer, the proposed transferee, each prospective Owner and any other people or entities that are associated with the proposed transferee or any prospective Owner. The transferring Member or Owner is responsible for the timely receipt of all information requested by the Commissioner or the League Office.

D. Transferee Compliance. Any agreement to Transfer any Ownership Interest and any application requesting approval of such Transfer must include a binding agreement of the proposed transferee and each prospective Owner stating that if the Transfer is approved by MLS, the proposed transferee and each prospective Owner will abide by (and cause their respective Owners, Affiliates and Subsidiaries to abide by) all League Rules.

E. Background Evaluation. Upon receipt of an application and requested information about a Transfer, the Commissioner will conduct a background evaluation of the Transfer and proposed transferee and prospective Owners. Upon the completion of a satisfactory background evaluation, the Commissioner will submit the proposed Transfer and other relevant information to the Board of Governors for approval (except for any Transfer that does not require Board of Governors approval under Section 5.G below or in the MLS LLC Agreement). At this time, the Board of Governors may request the personal appearance of the proposed transferee and its owners in front of the Advisory Finance Committee and/or the Board of Governors. A Transfer will only be effective if and when it is approved by a Super Majority Vote (except as expressly provided in Section 5.G below or in the MLS LLC Agreement).

F. Expenses. Whether or not the Transfer is approved, the transferring Member (or the Member in which a Transfer is proposed) is responsible for the payment of all expenses incurred by MLS in investigating, reviewing, and processing the application (including, but not limited to, attorney’s fees).

G. Advisory Finance Committee Approval of Certain Transfers. The following Transfers are permitted without a Super Majority Vote of the Board of Governors:

1. If a proposed Transfer involves (x) a ten percent (10%) or smaller Ownership Interest in a Member, or (y) the Transfer of an interest in a Member to a different entity owned by substantially the same Owners in substantially the same proportions (provided that the aggregate direct and indirect changes in ownership, if any, do not exceed ten percent (10%)), in each case, as determined by the Commissioner in his sole discretion, then the Advisory Finance Committee may approve such proposed Transfer without submitting it to the Board of Governors for approval, unless (A) the Transfer would result in any Person (or group of Persons acting in concert) that has not been approved by the Board of Governors or the Advisory Finance Committee directly or indirectly owning an Ownership Interest of ten percent (10%) or larger in a Member or (B) the effect of such a proposed Transfer is or may be to change the ownership of effective control of such Member.

2. The restrictions in Article 8 of the MLS LLC Agreement regarding Transfers are not applicable to a proposed Transfer of any securities that are publicly traded on any generally recognized stock exchange or over-the-counter market, unless (i) the interest proposed to be transferred represents a direct or indirect interest of five percent (5%) or larger in a Member, (ii) the Transfer would result in any Person(s) that has not been approved by the Advisory Finance Committee or the Board of Governors directly or indirectly owning an interest of at least five percent (5%) but less than ten percent (10%) in a Member, (iii) the Transfer would result in any Person(s) that has not been approved by the Board of Governors directly or indirectly owning an interest of ten percent (10%) or larger in a Member, or (iv) the effect of such proposed Transfer is or may be to change the ownership of effective control of such Member.

3. If a proposed Transfer is in the form of a pledge, lien or hypothecation of an Ownership Interest in connection with the incurrence by any Member or Owner of any indebtedness, the Advisory Finance Committee shall have the power, in its sole discretion, to approve such proposed Transfer without submitting it to the Board of Governors for approval, upon and subject to such conditions as the Advisory Finance Committee may determine.

H. Trust Transfers. Any addition, replacement or substitution of a trustee or a beneficiary of a trust that is an Owner is a Transfer of the entire interest owned by that trust. A Transfer from a Member or any Owner to such Member or Owner’s trust is a Transfer of such interest and is subject to the Transfer provisions of this Section 5 and the MLS LLC Agreement. However, upon notice to the League Office, Transfers to a Member or Owner’s trust are permitted without a vote by the Board of Governors so long as the trust is formed for the sole benefit of, , one or more of the Member’s or Owner’s family members (subject to approval of the beneficiaries and/or trustees, as deemed necessary by the Commissioner).

I. Prohibited Transfers. Unless otherwise determined by the Board of Governors, MLS will not approve a proposed Transfer of any Ownership Interest to (i) any governmental or quasi- governmental authority, agency, or instrumentality, (ii) any non-profit or charitable organization or foundation, or (iii) any person or entity not satisfying any minimum ownership criteria that may be established by the Commissioner, the Advisory Finance Committee or the Board of Governors.

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