THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE

SCHOOL OF LABOR AND EMPLOYMENT RELATIONS

MAJOR LEAGUE SOCCER AS A SINGLE-ENTITY SPORTS LEAGUE: HOW THE LEAGUE’S SETUP HAS AFFECTED PLAYERS’ BATTLE FOR FREE AGENCY, SALARY NEGOTIATIONS, AND COMPETITIVE BALANCE WITHIN THE LEAGUE

ANDREW SABA SUMMER 2016

A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree in Labor and Employment Relations with honors in Labor and Employment Relations

Reviewed and approved* by the following:

Paul Clark Professor of Labor and Employment Relations Thesis Supervisor

Alan Derickson Professor of Labor and Employment Relations Honors Adviser

* Signatures are on file in the Schreyer Honors College. i ABSTRACT

Major League Soccer (MLS) is unique among professional sports leagues in that it was originally established as a single Delaware Limited Liability Company. The NFL, NBA, NHL, and MLB, in contrast, are set up as unincorporated associations of independently-run teams. Teams are considered separate employers each competing against one other for players’ services. In the MLS, the league is the single employer of all players. “Investor-operators,” as they are called in the MLS, own a financial stake in the league, rather than in an individual team. The single-entity structure of the league greatly affects collective bargaining negotiations between the Major League Soccer Players’ Union and the MLS. In other professional leagues, when bargaining hits an impasse, the players can renounce and disclaim the union as their sole bargaining representative. Once the union is renounced and disclaimed, players can sue the owners under antitrust laws in order to gain leverage in negotiations. The MLS’ single-entity structure effectively grants it an exemption from this antitrust litigation, which leaves the union with less leverage in negotiations. This thesis will examine how the MLS has upheld its single-entity defense when other leagues have tried many times to establish themselves as a single-entity, but have failed to do so. It will also examine how the single-entity structure has affected collective bargaining negotiations and if the league is more or less susceptible to antitrust litigation today, given its growth in recent years. In addition, it will examine the future of the league’s single-entity status as it continues to grow. Finally, it will examine to what extent the single-entity structure has hindered the MLS player’s battle to gain free agency and whether not having free agency has caused fewer gains (compared to other leagues) in collective bargaining with the MLS.

ii TABLE OF CONTENTS

ACKNOWLEDGMENTS ...... iii

Chapter 1 The Origin of the MLS as a Single-Entity Sports League ...... 1

Chapter 2 Failures of the Single-Entity Defense in Other Leagues ...... 5

Chapter 3 Has “Single-Entity” Become a Superficial Label for the MLS? ...... 15

Chapter 4 Free Agency in Professional Sports ...... 23

Chapter 5 MLS Analysis ...... 52

REFERENCES ...... 58

iii

ACKNOWLEDGMENTS

I’d like to thank Doug Allen, Professor of Labor and Employment Relations, for his tremendous help and guidance throughout this process. 1

Chapter 1

The Origin of the MLS as a Single-Entity Sports League

In 1968, the first major American professional soccer league was formed. It was called the North American Soccer League (NASL). At its onset, it did not enjoy much success. Things changed in 1975, however, when Brazilian star Pele, considered one of the greatest soccer players ever, joined the New York Cosmos. Soon, the Cosmos were selling out the Meadowlands in East Rutherford, New Jersey, and playing games in front of 70,000 people. As a result, the league began to expand rapidly. New franchises were awarded quickly, and the number of teams in the league doubled from 12 to 24 in just a few years (Mendelsohn, 2003).

At the time, the Cosmos were the “New York Yankees” of the NASL. They dominated the league, winning four championships in six years. The team was owned by Warner

Communications, which could afford to pump money into the roster and afford international stars like Pele. Most of the other owners in the league were individual owners or small partnerships that simply couldn’t keep up with the financial power of Warner. Desperate to compete with the Cosmos, team after team spent millions on aging international stars with little success. Many of the new owners were not “soccer people,” and quickly gave up after they stopped receiving a return on their investment. Teams began to fold, and the popularity of the league quickly faded (White, 1). On March 28, 1985, the league suspended operations after only two teams committed to playing that season.

In 1988, the Fédération Internationale de Football Association (FIFA) granted the United

States’s bid to host the 1994 World Cup. It was to be the first World Cup hosted outside Europe 2 or Latin America. In the years leading up to the World Cup, one of FIFA’s major concerns about the state of soccer in the United States was that there was currently no professional soccer league in place. In exchange for the successful bid, the U.S. promised to create a league, which ultimately led to the creation of Major League Soccer. At the time, there was only a small fan base for soccer in the United States as well as major competition from the other four established sports leagues.

The founders of the MLS were faced with a difficult dilemma. They needed to attract high-priced talent in order to create a premier, first division soccer league. At the same time, however, they needed to learn from their NASL predecessors. There needed to be more parity in the MLS, and costs needed to be controlled. As the New York Cosmos were selling out stadiums, small-market teams like the Rochester Lancers only played in front of 5,000 people.

Other teams simply could not spend with the Cosmos, and as a result, they could not compete. In order to control costs and have an equal distribution of players, the founders of the MLS wanted strict salary restraints and player movement rules (Mendelsohn, 2003). Many of the founders were already involved in other sports leagues in the U.S. These leagues had previously attempted to restrict player movement and apply salary restraints, which courts consistently found to be in violation of Section 1 of the Sherman Antitrust Act. In order to avoid antitrust litigation while still implementing rules they saw as necessary for the success of a professional soccer league in the U.S., these men decided to create the MLS as a single-entity, thereby avoiding any

“combination” in restraint of trade (Mendelsohn, 2003).

3 Obstacles to Becoming a Pure Single-Entity Sports League

The original formula, as these founders quickly realized, was not a plausible one. They structured the MLS as a single limited liability company governed by a board of directors who were to be appointed by league investors. Initially, men like Alan Rothenberg, the World Cup

USA 1994 Chairman and CEO who was tasked with leading the creation of this league, wanted the league to own and operate all of the teams. That is, the board of directors would assign players, team personnel, as well as set local ticket and concession prices. Investors would simply own shares in the MLS. Rothenberg and his investors quickly found, however, that this plan would never attract the amount of investors the league needed in order to be successful

(Mendelsohn, 2003). As Mendelsohn puts it, “This plan, however, failed to attract enough investors as potential investors wanted to operate their own franchise and have the ability to make decisions concerning their multimillion dollar investment, not to mention receive the notoriety that comes along with owning a professional sports franchise” (Mendelsohn, 2003, p.72). The initial plan needed to be altered in order to get the new league off the ground and running.

Rothenberg approached his potential investors with a revised plan; one he hoped would retain the league’s single-entity structure while still attracting enough investors to maintain a successful league. Under his new plan, the MLS would still retain formal ownership of all franchises in the league. The league would, however, issue a special class of stock to potential investors. These investors came to be known as “investor-operators,” and with this special class of stock they were each given almost full operating control over their franchise. Profits and losses were to be distributed among investor-operators equally, like any other limited liability company. Although there was competition in a few areas, Rothenberg and his investors insured 4 they would avoid it in several crucial areas, thereby retaining their coveted single-entity status

(Mendelsohn, 2003).

First and foremost, because the MLS owns all franchises, investor-operators do not directly sign players for their respective teams. Players sign a Standard Player Agreement with the MLS, who then assigns players to a specific team. Under the initial agreement, the league would consider several factors when assigning players, including the maintenance of a salary cap, the competitive balance throughout the league, and a team’s needs both on and off the field

(Mendelsohn, 2003). No longer could a New York Cosmos sign all the best talent and expect small market teams to be able to compete. Rothenberg and his investors could now maintain a competitive balance throughout the league to ensure teams would not burn out once again trying to keep up with one dominant team. Setting up the league as a single-entity allowed Rothenberg and his investors to solve the problems that led to the NASL’s downfall. Rothenberg did not just have this goal in mind, however. He wanted the league to be set up as a single-entity to avoid what had become a big problem for other major professional sports leagues in America: the threat of antitrust litigation by players.

5 Chapter 2 Failures of the Single-Entity Defense in Other Leagues

When players bring an antitrust suit against the league, they must first do away with what is called the league’s “non-statutory labor exemption.” All leagues, whether a hybrid single- entity or independent group of economic competitors, have protection from player antitrust litigation when they have anticompetitive practices that are agreed to in bargaining by a union and the league and the bargaining relationship is still in existence. This protection is what is called the non-statutory labor exemption. In order to cease the bargaining relationship, players renounce and disclaim the union as their sole bargaining representative, alleviating the non- statutory labor exemption, and allowing the players to sue the league under antitrust laws.

Sports unions choose to renounce and disclaim, rather than decertify, with the NLRB.

Renouncing and decertifying requires a temporary dissolving the union. In order to renounce and disclaim, the union has to disclaim its interest in representing employees in a bargaining unit. A simply majority vote of the members of a union is required to start the process. In order for the process to be deemed legitimate by the courts, however, unions must also cease all actions that make it a union. For example, unions must stop collecting dues and initiating grievances on behalf of members. Once this process is complete, the players may proceed in a antitrust suit against the league (Love).

When players bring this suit, they must prove that the anticompetitive practice has taken place in a relevant market. They must defeat the single-entity defense as well as prove the relevant market. For example, the relevant market for the Fraser was the labor market for player services. The relevant market can be extended to any concerted anti-competitive conduct by the 6 league, including things like a draft, salary cap, standard player contract, etc. This background information will prove helpful while examining the cases below.

MLS was not the first professional sports league to try and establish themselves as a single-entity. For decades, other traditional sports leagues attempted to establish themselves as single-entities. Federal courts, however, have consistently rejected these attempts. The MLS is the only league that has been successful in defending their single-entity status in Federal court.

They won a narrow victory in Fraser v. Major League Soccer in 2001. To understand why the

District Court ruled in the MLS’s favor, it is helpful to examine why other leagues have failed in trying to prove a single-entity defense.

The first attempt by a professional league to prove a single-entity defense actually proved to be a successful one. In 1974, the United States District Court for the Central District of

California ruled that the NHL was a single-entity for antitrust purposes in San Francisco Seals,

Ltd. v. NHL. The owner of the San Francisco Seals had attempted to move his franchise to

Vancouver, and the NHL Board of Governors refused his request. The owner claimed this refusal was a violation of Section 1 of the Sherman Antitrust Act. The reasoning behind that court’s rule was that member teams of the league were not economic competitors and therefore the league could be considered a single entity. As Abbott states, however, “This approach today is the exception, not the rule” (Abbott, 2001, p.8).

A potential breakthrough for the single entity defense in professional sports happened in

1984, in a Supreme Court decision: Copperweld Corp. v. Independence Tube Corp. In the case, the Supreme Court held that a corporation and its wholly owned subsidiary did not violate

Section 1 of the Sherman Act because they cannot be considered separate economic actors. In other words, they are incapable of “conspiring” (to reduce competition) under the meaning of the 7 act. For sports leagues, this ruling opened the possibility for the argument that the league and the teams within it are a single-entity, with the league acting as a parent company and the teams as subsidiaries. The ruling did, however, distinguish between parent-subsidiary relationships and joint ventures. Parent-subsidiaries actions are “unilateral” rather than “concerted” within a joint venture (Jakobze, 141). A parent and its subsidiary have a complete unity of interest. They have completely common objectives and goals. Section 1 does not apply to behavior that is “wholly unilateral.” In a joint venture, however, separate economic actors work together. These actors’ interests are not wholly unilateral, and they are “conspiring” with one another to ensure the success of the league/corporation, which is a violation of Section 1. Although many leagues have attempted the single-entity defense under this ruling, they have largely been unsuccessful. More often than not, they have been ruled to be joint ventures by the courts, rather than parent- subsidiaries (Jakobze, 2010).

Throughout its history, the NFL has attempted, on several occasions, to establish itself as a single legal entity. They have failed multiple times, with courts consistently focused on the fact that NFL teams are independently owned and compete against one another in several off-field ventures (Mendelsohn, 2001). With the Copperweld ruling, the NFL saw a new window of opportunity for its single entity defense. In McNeil v. NFL (McNeil II), the NFL argued that the

Copperweld ruling overruled previous case law in which the NFL was unsuccessful in establishing themselves as a single-entity. In the case, eight players claimed that the NFL’s attempt to set a wage scale for all practice squad players’ salaries was a violation of antitrust law.

Paul Tagliabue essentially made the same argument as his predecessors, stating, “the business relationship among NFL member clubs is not that of independent economic competitors but rather that of co-owners engaged in a common business enterprise, the production and marketing 8 of professional football entertainment” (Mendelsohn, 2003, p.80). The District Court ruled against the NFL, failing to see how Tagliabue’s argument materially differed from the ones that preceded him. They focused once again on the fact that NFL teams were independently owned and competition existed between them, therefore making them a joint venture under Copperweld, not a parent-subsidiary.

The NFL did not give up after McNeill II, however. Instead, they tried to narrow their single entity defense to specific situations. In American Needle v. National Football League, the

NFL attempted to establish itself as a single entity for the purposes of collectively licensing its intellectual property. Up until 1963, each NFL team had individual ownership of its intellectual property – its name, colors, and logos. In 1963, NFL teams formed a separate entity called NFL

Properties, LLC, to do collectively what each team already did individually (Jakobze, 2010). In the coming years, the league licensed intellectual property to multiple vendors who made and sold items such as jerseys, memorabilia, and other apparel. In 2001, the National Football

League Players Association (NFLPA) granted exclusive licensing rights to Reebok for the next ten years while allowing all other existing competitors’ licenses to expire. One such license was

American Needle, Inc., which previously held a license to manufacture headwear for the NFL.

American Needle sued the NFL under antitrust law after the NFLPA granted Reebok its exclusive license. American Needle claimed that because each team individually owned its logo and trademarks their authorization to NFLPA to grant an exclusive license to Reebok to restrict competition from other vendors was a conspiracy (Jakobze, 2010). The NFL claimed that the

NFLPA constituted a single entity while collectively promoting the league through licensing intellectual property from the teams as a whole. Therefore, it would be a parent-subsidiary relationship rather than a joint venture under Copperweld. 9 The NFL initially won victories in both the Northern District Court of Illinois as well as the Seventh Circuit. As the Seventh Circuit stated, “nothing in (Section) 1 prohibits the NFL teams from cooperating so the league can compete against other entertainment providers”

(Jakobze, 2010, p.144). In contrast to the courts before it, this court stated that football could only be carried out jointly and “NFL teams share a vital economic interest in collectively promoting NFL football…to compete with other forms of entertainment” (Jakobze, 2010, p.144).

The collective product that the parent (the NFL) and its subsidiaries (individual franchises) were promoting here, as the court noted, was NFL football. The court was basically stating there was a wholly unilateral interest in this situation, to promote NFL football, therefore making the league and its teams a parent-subsidiary relationship, rather than a joint venture. In a historic decision, these rulings made the NFL a single-entity for the purposes of collectively licensing its individual property.

The NFL was so confident in its argument that they joined American Needle when the company petitioned the Supreme Court for review. The league was seeking a broad single-entity certification from the Court. With a broad single-entity certification, the league could potentially establish wide restraints in multiple areas of their business, including player movement (Jakobze,

2010). In a unanimous decision, the Supreme Court ruled that the NFL and its teams were not a single-entity for the purposes of Section 1. In response to the NFL’s claim that the league created the NFLPA to market their franchises through a single outlet, making them a single-entity in that area, the court stated, “(teams) are still separate, profit-maximizing entities, and their interests in licensing and team trademarks are not necessarily aligned” (Jakobze, 2010, p.145). In response to the NFL’s claim that the league and its teams share a unilateral interest in promoting NFL football, the court reasoned that although the teams are partially united in their interest to 10 collectively promote NFL football, each franchise still has distinct, potentially competing interests. In its decision, the court focused on seven factors in denying the NFL’s single entity defense: NFL teams were independently owned, independently managed by owners whose objectives are not common, teams compete with each other on the playing field, compete to attract fans, compete for gate receipts, compete for players and coaches, and that teams had the potential to compete for their separately owned intellectual property (Jakobze, 2010). American

Needle was the closest the NFL came in its attempts to establish itself as a single-entity, but hubris in their legal arguments ultimately led to yet another failure.

The NFL is not the only league that has attempted to use the framework of Copperweld to establish themselves as a single legal entity. Unlike their NFL counterparts, in 1996 the NBA surprisingly had some success with their argument in Chicago Professional Sports Ltd. v. NBA

(WGN). The United States Court of Appeals for the Seventh Circuit ruled that the NBA could be considered a single-entity for some purposes, but a joint venture for others (Mendelsohn, 2003).

Although the lower appeals court ruled the NBA could not be considered a single-entity for antitrust purposes, the appeals court reversed the decision. The Chicago Bulls and WGN sued the

NBA for placing a restriction on the number of games that could be broadcast on a superstation, claiming these restrictions violated Section 1. The Seventh Circuit interpreted the Copperweld test differently than previous courts (i.e., the ones in the NFL suits) had in the past. The Court stated that requiring a “complete unity of interest” under Copperweld would be absurd. The

Court stated that any large firm has competing interests, and that it is virtually impossible to have a “complete unity of interest.” As Mendelsohn states, “The Seventh Circuit, in other words, adopted a functional approach to the single-entity analysis, emphasizing the reality of the organization is more important than its form” (Mendelsohn, 2003, p.82). Antitrust laws are in 11 place to distinguish unilateral from concerted action within a firm. As the Court stated, only

“(c)onduct that ‘deprives the marketplace of the independent centers of decision making that competition assumes’ without the efficiencies that come with the integration inside a firm” can be considered concerted action (Mendelsohn, 2003, p.82).

The Court held that a sports league could, in fact, be considered a single entity. It is a single firm pushing a single product; the league does not strip the market of independent centers of decision making, and cooperation is essential for the league’s success. The Court did, however, stop short of declaring the NBA a single-entity in every aspect of its business. To advertisers and television broadcasters, the league could be considered a single-entity. In the player market, however, the league was clearly a joint venture (Mendelsohn, 2003). The Court believed each sports league has aspects of a parent-subsidiary relationship as well as a joint venture, so the single entity determination should be made one league at a time. The Court even took this analysis a step further, stating that a sports league can be considered a single-entity in some areas, and a joint venture in others. After multiple failures with the single entity defense by the NFL, the ruling in Chicago Professional Sports Ltd. v. NBA (WGN) clearly opened a new window of opportunity for the single-entity defense in professional sports. This window was one that a new sports league, Major League Soccer, intended to capitalize upon.

The MLS’s Narrow Victory in Fraser vs. MLS

Chapter 1 discussed Rothenberg’s vision for his new league and his desire for a single- entity sports league. He wanted to create a single-entity league to avoid the difficulties the NASL ultimately succumbed to as well as to ensure the financial success of his new league. When the

MLS began in play in 1996, however, this new structure had not yet been challenged in the courts. It remained to be seen whether all aspects of Rothenberg’s vision would be seen as a 12 single-entity, rather than a joint venture. This issue was decided in Fraser v. MLS, after ten

MLS players filed suit against the league, the investor-operators of each team, and the United

States Soccer Federation, citing several claims. Their main claim was that the league and several of its investors “have unlawfully combined to restrain trade or commerce in violation of Section

1 of the Sherman Anti-Trust Act, 15 U.S.C. § 1, by contracting for player services centrally through MLS, effectively eliminating the competition for those services that would take place if each MLS team were free to bid for and sign players directly” (Fraser v. MLS, 97 F. Supp. 2D

130, 131 (D. Mass. 2000)).

In response to the players’ claims, the MLS and its investor-operators argued that they were a single-entity, and therefore incapable of violating Section 1. In its argument, the league relied heavily upon its organization as a limited liability company. They argued that an LLC is analogous to a corporation, with investor-operators acting as officers or shareholders rather than owners of individual franchises. Therefore, the league could not violate Section 1, because concerted action between a corporation and its officers or between officers is not possible

(Mendelsohn, 2003). There is, however, an exception for when an LLC is treated like a corporation for Section 1 purposes. This exception is called the “personal stake exception.” As

Mendelsohn states, “The personal stake exception states that if members of the LLC are acting in their own self-interest and not in the interest of the entity, then their actions are subject to Section

1” (Mendelsohn, 2003, p.85). The player tried to use this exception to their advantage and argue that the owners in the league held divergent self-interests. Therefore, the personal stake exception would come into play.

In the MLS, the leagues rules allow investor-operators to sell special shares of stock, allowing a fair market return on their initial investment (Mendelsohn, 2003). The players argued 13 that because any franchise’s value is positively related to its success, the owners have motivation to act in their own interests at the expense of the league and other franchises. In an historic ruling, the Massachusetts District Court upheld the MLS’s single entity defense. The court rejected the players’ argument concerning the personal stake exception. The court reasoned that in professional sports, the value of one franchise is negatively affected by other teams’ weaknesses. The court contrasted this market with one in which a firm’s valuation would grow as competitors grew weaker. As the court stated, “Every (investor-operator) has a strong incentive to make the league-and the other (investor-operators) as robust as possible. Each

(investor-operator’s) personal stake is not independent of the success of the MLS as a whole enterprise” (Mendelsohn, 2003, p.86). Where previous appellate courts had rejected these arguments made by other traditional sports leagues throughout their respective histories, this court accepted a similar one made by the MLS.

What scholars call the most important aspect of the Fraser decision, however, was the players’ inability to prove any relevant geographic and product market to the jury. The jury found the proper geographic market to be worldwide and the proper product to be all professional soccer players (Bernhard, 2007). Therefore, especially at this time, the jury determined that the MLS did not have market power in any relevant market. The First Circuit was able to avoid the question of the league’s single-entity status because if the league did not have market power, it could not unreasonably restrain trade, monopolize, or attempt to monopolize. The MLS faces significant competition from several top-flight soccer leagues from all over the world. The NFL, NBA, NHL, and MLB, in contrast, all have market power as the top league in their respective sports worldwide. While the First Circuit avoided the question of the 14 league’s single-entity status when the players failed to prove a relevant market, the district court sided with the MLS’s argument.

The court, however, stopped short of explicitly declaring the MLS a single-entity.

Instead, they called it a hybrid organization and a hybrid single entity (Jakobze, 2010). Still, this decision was a stark contrast to almost all other decisions before it. The strength of the victory, however, is still under examination. The question remains to be seen whether the decision will have an impact on the single-entity defense in other sports leagues. As Mendelsohn puts it,

“Given the split among the various circuits regarding the single-entity status of traditional leagues, and the fact that the recent decision in Fraser was only issued by a district court, the strength of this decision is by no means clear” (Mendelsohn, 2003, p.87). At the time, the players had no union in place. With the financial support of a union, the players may have been able to afford better legal support and presented stronger arguments. Many scholars and members of the media have labeled the single entity structure of the MLS a “sham.” It has yet to be tested in court again, and the league has grown substantially since the Fraser decision in 2001. With its growth, the MLS has acted more like a traditional, joint venture sports league, rather than the hybrid single-entity the Massachusetts District Court in Fraser deemed it to be.

15 Chapter 3

Has “Single-Entity” Become a Superficial Label for the MLS?

Since its origin, the MLS has struggled to compete with the four traditional sports leagues in the US. Soccer simply was not popular enough in order for the league to enjoy the financial success the four traditional leagues have enjoyed. For years, the MLS tried varying strategies to boost the popularity of their league. As Morrell states, “For years it’s been the league that cried relevant. Hyped up events — from hosting the World Cup in 1994, to luring legendary British midfielder David Beckham to the L.A Galaxy in 2007, to recent international success of the men’s and women’s national teams — offered promise to finally catapult domestic soccer into national prominence, only to provide an small, incremental boosts after all the dust and fanfare settled” (Morrell, 1). In recent years, however, the popularity of soccer has skyrocketed among the American population, signaling a change in these trends for the league.

Although MLS TV ratings are still laughable, English Premier League games have outdrawn the NHL on weekend mornings (Duffy, 2015). Even though the MLS ratings are not anything to marvel at, the league has grown exponentially. After beginning with ten teams in

1996, there are now twenty teams, with four more expansion teams scheduled to be implemented by 2024. The league was once desperate for owners; and now, as recently as 2013, the Columbus

Crew was sold for $68 million (Morrell, 2013). The MLS just signed a new television deal with

ESPN, Fox Sports, and Univision worth a total of $720 million over the eight-year contract

(Tannenwald, 2014). As the league has grown, it has moved further and further away from its single-entity beginnings through rule changes and business dealings. The single-entity label is beginning to look more and more superficial as the success of the league grows. 16 In order to gain international recognition, the MLS and its owners knew it would have to convince star talent to come play in the US. The league was finally able to accomplish this goal when David Beckham signed with the Los Angeles Galaxy in 2007. Beckham is considered one of the best English soccer players of all time, and he was a huge signing for the league. In order to attract this type of talent, it was going to cost a team a lot of money. As discussed earlier, through its single-entity setup, the MLS signs all players, assigns them to a team, and pays their contracts. At the time of the Beckham signing, the MLS’s salary cap for its teams was a meager $2.1 million. With international stars making many times more than that number every year, the MLS was going to have to find a way to fit these star salaries into their salary cap system. Thus, the Designated Player Rule, or Beckham Rule, was implemented. The league would pay $400,000 (in 2007), the max contract for a player in the MLS, with the owners picking up the rest of the tab (Bernhard, 2007). Beckham was signed to a five year, $6.5 million

(base salary) contract. In reality, the deal was much closer to five years, $250 million, because

Beckham received a percentage of the Galaxy’s revenues throughout the life of his contract

(Badenhausen, 1).

The advent of the Designated Player Rule, could have severe antitrust implications for the

MLS, although it has not yet. A crucial factor in the district court’s decision in Fraser was the fact that the league contracted directly with all its players (Bernhard, 2007). By allowing owners to pay a large portion of these Designated Player contracts, the league is no longer paying all its players directly. These contracts also cause independent expenses for each investor-operator to skyrocket, diminishing the “unity of interests” among them. There are now up to three

Designated Player spots for each MLS team. The first two spots are free, but with a third slot, the investor-operator must also pay a $150,000 tax to the league. In 2015, fifteen of the MLS’s 17 twenty teams used the two free Designated Player slots. Ten of those teams have paid the fee to use the third slot. New York City FC’s owners alone pay $12,451,250 to their three designated players (Smith, 2015). In addition to diminishing the “unity of interests,” the Designated Player

Rule could also be used as a relevant market consideration in an antitrust suit by the players. It could be considered concerted anti-competitive conduct among the owners of the league. If it was considered a relevant market, that would prove extremely important for the players in a future antitrust suit, considering one of the reasons they lost Fraser was their inability to prove a relevant market. The Designated Player Rule has become a significant part of the league and has been one of the main reasons for its boost in popularity. However, it has weakened whatever single-entity defense the league had.

Along with the Designated Player Rule, the league also implemented another new rule concerning player transfers with clubs in other leagues around the world. The MLS now allows investor-operators to retain a larger portion of transfer revenue when another club buys a player.

Instead of the larger share of these revenues going straight to the investor-operators’ pockets, they must reinvest these funds in new player acquisition. On its face, it is a good idea for the league. Give the investor-operators more money to attract big-name international players to fill their Designated Player slots. For antitrust purposes, however, this rule further reduces the “unity of interests” among investor-operators in the league. As Bernhard states, “Although transfer revenues to not go directly into the investor-operators’ pockets, the scheme creates possible divergent interests that could give some clubs more player acquisition funds (which may be applied to a designated player) than others if they were to sell a player to a foreign club”

(Bernhard, 2007, p.428). Today, the Designated Player Rule and this new distribution of transfer 18 fees would make a single-entity defense for the league significantly more challenging than it was in Fraser.

One of the goals of the MLS, when it was started, was to find ways to generate and sustain long-term revenue strains. One of the main goals for the league’s founders was to build soccer-specific stadiums because ticket sales represented a significant portion of the league’s revenue stream. In addition, increasing the percentage of revenue kept by investors was essential to attracting and maintaining investor-operators (Stuck, 2003). Currently, thirteen of the twenty clubs in the league have soccer specific stadiums, with proposals for more forthcoming. Usually, the investor-operator of the MLS franchise privately owns these stadiums. The investors who own these stadiums negotiate with the league over things like the stadium’s use, the contract with the league controlling the scheduling of the stadium, or even the sale of the stadium to the league. These sorts of entrepreneurial contracts jeopardize the league’s protection under

Copperweld, as the First Circuit noted in Fraser (Stuck, 2003). As the court stated, “the existence of distinct entrepreneurial interests possessed by separate legal entities distinguishes

Copperweld; it further indicates that certain functions have already been disaggregated and assigned to different entities; and it makes the potential for actual competition closer to feasible realization” (Stuck, 2003, p.563). The court in Fraser did not consider investor-operators’ interests and roles in stadium development. Giving the investor-operators these autonomous roles in stadium development and the league’s inability to coordinate these facility issues leads to yet another decline in a “unity of interests” and the leagues single-entity defense.

19 The Future of the MLS as a Single-Entity Sports League

When collective bargaining negotiations between management and a union reach an impasse, management has the right to unilaterally impose the terms and conditions of their final offer. Union members can oppose this action by renouncing and disclaiming the union as their sole bargaining representative with the National Labor Relations Board, and then suing management under antitrust laws. When the union is in place, management is protected under the non-statutory labor exemption, which exempts them from antitrust litigation. When the union members renounce and disclaim the union, management loses this exemption and becomes subject to antitrust litigation. In a sports league, however, when teams are characterized as a single-entity, this unilateral imposition of terms and conditions will not be subject to antitrust litigation after a union decertifies. The MLS Players’ Union (MLSPU) still has not yet attempted to disclaim and once again test the MLS’s single-entity defense, but that could change in the future if players need to gain a significant advantage at the bargaining table.

Throughout the history of the NFL, NFL players have renounced and disclaimed the

NFLPA as their sole bargaining representative and successfully won battles against the NFL. In

McNeil, they were able to gain free agency for their players using this strategy. They were successful after the NFL failed to prove its single-entity defense in court once again. At the time of Fraser, MLS players did not have a union, and there was no collective bargaining agreement in place between the players and the league (Jakobsze, 2010). The MLSPU was formed in 2003 and since its origin, players have continuously gained more favorable terms and conditions of employment (Jakobsze, 2010). The question still lingers, however, whether the players would have more power at the bargaining table if the district court in Fraser had not effectively ruled 20 that the MLS was a single-entity. For example, MLS players still have not yet gained what the other four traditional sports leagues have in place: free agency.

In March 2016, the MLSPU and the MLS agreed to terms on a new collective bargaining agreement. The players’ main focus throughout negotiations was to finally gain free agency. Free agency, however, would almost singlehandedly destroy any claim the MLS has left to its single- entity defense. Full free agency would cause teams to become independent economic competitors bidding for the services of players. The league would look like a joint venture under

Copperweld with teams directly competing against one another for players’ services. With the union threatening to strike, the league did not offer full free agency, but rather a limited form.

The union and investor-operators agreed to allow player movement accompanied by a pre-set capped salary increase (Bank, 2015). There are three tiers for this pre-set capped salary increase

– players making under $100,000 per year can be offered up to a twenty-five percent raise by new team; players with a salary between $100,000 and $200,000 per year can be offered up to a twenty percent raise; and players making over $200,000 per year can be offered up to a fifteen percent raise (Bank, 1). There are also eligibility requirements, a player must be at least twenty- eight years old and have at least eight years of experience in the league to enter free agency

(Bank, 1). The investor-operators agreed to this form of free agency because they can still claim that the MLS is a single-entity under this structure.

This system of free agency allows the MLS to uphold its single-entity defense. This system does allow bidding among teams for players’ services, but not open bidding. More than one team can make a bid for a player, and it is the same bid all other teams can make. They cannot outbid one another for players’ services. The player simply chooses which team he would like to play for, the salary will be the same anywhere he goes. Through this system, teams are 21 technically not direct economic competitors. Multiple teams make the same offer on a certain player, and that player chooses what team, or “subsidiary,” that he would like to play for. This system could potentially maintain the parent-subsidiary relationship under Copperweld.

It is clear the MLS is going to do whatever it can to try and retain its single-entity status and attempt to avoid future antitrust scrutiny. The growth of the league, however, could inevitably lead to its downfall in this respect. The birth of the Designated Player Rule and more soccer-specific stadiums throughout the league has led many scholars to wonder whether the

MLS’s single-entity setup is a “sham.” With the Designated Player Rule and more international stars coming to the league, it is conceivable that the league could become a major player in the international player market. Investor-operators are now using their own funds to pay these stars, leading to a breakdown of their “unity of interests.” Allowing investor-operators to fund their own soccer-specific stadiums has provided each investor-operator with their own entrepreneurial interests. These facility issues could lead to competition among investor-operators and even further reduce their “unity of interests.” In addition, the players could use the Designated Player

Rule and the new limits on player raises as relevant markets in an antitrust suit. They could both potentially be considered concerted anti-competitive conduct among the owners of the league.

The players now have a union representing them and a collective bargaining agreement in place.

Today, it is clear that the league is much more susceptible to antitrust litigation than it was at the time of Fraser.

The fact remains, however, that the MLS is the only professional sports league in the US to be deemed a single-entity by the courts. The league must be wary in future collective bargaining negotiations with the MLSPU if they want to retain this status. With the advent of new rules and the growth of the league, it is clear that upholding its single-entity defense would 22 be much harder for the league today than it was in Fraser. The players now have potential relevant markets where harm has been caused with the advent of the Designated Player Rule as well as the new free agency system with limits on player raises. The players and the union have decided, however, up to this point, not to challenge the league’s single-entity status. The union threatened to strike in the most recent collective bargaining negotiations, but ultimately did not after they were awarded a limited form of free agency. Eventually, the union will push for free agency. Just by looking at the history of the other professional sports leagues in the US, it is highly likely that the union will either strike or renounce and disclaim in order to gain leverage against the league. At that point in time, a final decision should finally be rendered on the league’s single-entity status.

23 Chapter 4

Free Agency in Professional Sports

Across professional sports, one thing that players covet in every collective bargaining negotiation is unrestricted free agency – the power to move to whichever team they choose once their current contract expires. The NFL, NBA, NHL, and MLB have some form of unrestricted free agency. Each of these sports, excluding the MLB, has had a long, extensive battle with owners over gaining free agency. The NFL and NBA have both used antitrust litigation, as well as strikes, in order to gain leverage in negotiations for free agency. The MLS has finally gained a limited form of free agency after threatening to strike in the last two collective bargaining sessions in 2010 and 2015. Free agency causes teams to become direct economic competitors in the labor market, bidding against one another for players’ services. In turn, players’ salaries are driven up over time. Unions also have more power in collective bargaining negotiations, as players are no longer tied to one owner for the perpetuity of their contract, creating leverage against the owners. The MLS does not have the option of antitrust litigation under the single- entity structure, and the question remains: to what extent has not having this option hindered the players’ quest for free agency? Also, has not having free agency hindered their gains in collective bargaining when compared to leagues with a less restrictive form of free agency?

To clarify this discussion on free agency, it would be helpful to explain that full, unrestricted free agency is not necessary for this discussion. What matters is effective free agency, which the NFL, NBA, NHL, and MLB have all achieved. The NHL has stronger restrictions than the other three, but their gains in collective bargaining could be compared to the other three leagues. In the NHL, if a player has accrued seven seasons, they are eligible to become an unrestricted free agent. If a player does not have seven accrued seasons but is at least 24 twenty-seven years old, he is also eligible to become an unrestricted free agent. Any player that does not meet these qualifications is only eligible to become a restricted free agent, which means his team has a right to match any offer a player signs with a new team. This thesis is going to argue that MLS players have not yet gained effective free agency, which has hindered their returns at bargaining sessions.

Major League Baseball

When it comes to free agency, Major League Baseball can be considered an anomaly. In fact, the league can be considered an anomaly as it relates to professional sports leagues and antitrust law. In 1922, in the Federal Baseball Club Supreme Court decision, the court exempted baseball from antitrust law coverage (MLBPA, 2016). This exemption was upheld for a long period of time, until 1998, when Congress passed the Curt Flood Act. This Act removed the antitrust exemption that baseball had enjoyed as it related to the labor market. In all other aspects of its business, the antitrust exemption remained in place. Due to owners’ mishaps, however, baseball players were able to attain free agency rather peacefully. Before free agency, the owners had in place what they called a “reserve system.” Under this system, owners had the right to perpetually renew a player’s contract at a salary determined by the owner. Basically, the player had two options: agree to this contract or retire from baseball permanently. A player remained reserved forever unless his contract was sold, traded, or terminated. This system allowed owners to keep player salaries low as well as restrict their power at the bargaining table (Abrams, 2009).

Obviously, the players did not like this system, and decided to challenge it through arbitration in

1975.

During collective bargaining negotiations in 1972, the MLB players decided to strike in order to gain leverage against the owners. Through this strike, they were able to get the owners 25 to agree to allow binding arbitration for player contract disputes. The players desired this arbitration after the famous Supreme Court decision in Flood v. Kuhn. Curt Flood filed an anti- trust suit against the league in 1975, after being traded to the Philadelphia Phillies. He did not want to play for the Phillies, and asked Commissioner Bowie Kuhn to make him a free agent.

Following Kuhn’s denial, Flood challenged the reserve clause in the courts through an antitrust suit. The Supreme Court ruled with the MLB, stating that baseball was still exempt from antitrust law. After the conclusion of the Flood case, the players knew they could not use antitrust leverage to defeat the reserve clause. That’s why gaining binding arbitration was so important to the players in the 1972 negotiations. In 1975, major league pitchers John Massersmith and Dave

McNally decided to utilize this arbitration and challenge the reserve clause. They argued that the language of the “reserve clause” only allowed a team to renew a player’s contract once and not perpetually. Peter Seitz, the arbitrator in the case, sided with the players. He reasoned that the owners had written the clause, and it was their responsibility to spell out its terms clearly. The clause stated that teams were allowed to renew a player’s contract “on the same terms” for a period of “one year” (Abrams, 2009).

After the Seitz ruling, free agency was extended to players with six or more accrued seasons in the league. Teams reserved the right to retain players until that time. Veteran players pushed for this system because they did not want every player whose contract expired to become a free agent each year. They wanted a smaller pool so they could retain higher salaries and did not have to compete against younger players for contracts. This free agency system is still in place today, and has resulted in huge contracts for players across the league. The MLB also does not have a salary cap for teams, which all four other leagues discussed in this thesis have some form of. No salary cap means no limit on player’s contracts, resulting in a completely free 26 market for player’s services. MLB contracts have grown exponentially since the advent of free agency, due to the open market bidding among teams for players’ services, as well as new TV money being pushed into the league every year (Brown, 2015).

The MLB has not had a labor stoppage in twenty-one years. This level of cooperation between owners and players is unprecedented in American sports leagues. They did not reach this level of peace, however, without many battles along the way. For example, after the ruling in the Seitz arbitration, owners did not simply go down without a fight. Following the 1985, 1986, and 1987 seasons, owners collectively decided not to pursue free agents during the offseason.

Players like Kirk Gibson and Tommy John, two of the biggest stars in the sport, were not offered contracts. In fact, only four of the thirty-five available free agents signed a contract with a new team following the 1985 season (MLBPA, 2016). Free agency, however, had already been put in place by the Seitz decision. The implementation of free agency made it very hard for the MLB to defend itself when the MLBPA filed grievances citing owner collusion in 1986, 1987, and 1988.

In 1987, arbitrator Tom Roberts awarded the players $10.5 million in damages. In 1988, arbitrator George Nicolau awarded the players $38 million in damages. Finally, in 1988, after the owners created an “information bank” in which they attempted to restrain salaries, the players were awarded $280 million in damages to settle all three collusion cases (MLBPA, 2016).

Having free agency in place gave the players much needed leverage against the owners in these disputes.

Besides the MLB, the MLS is the only sports league to effectively gain an antitrust exemption from the courts. Comparing their respective players’ battles for free agency is a little tough, however, given the way it was achieved in baseball. While the NFL and NBA have had to use either antitrust litigation or strikes in order to achieve free agency, baseball achieved it 27 through a simple arbitration decision. It is much more likely that the MLSPU is going to have to eventually utilize either antitrust litigation (assuming they believe they can defeat the league’s single-entity defense while doing so), or strikes, in order to gain a better form of free agency.

The MLSPU has already threatened to strike twice, in the 2010 and 2015 collective bargaining negotiations, in order to gain the system they have now. The arbitration route to free agency is unique to the MLB, and it will likely stay that way.

It is difficult to quantify the effect free agency has on player salaries. Players’ salaries rise over time in response to a combination of factors. For example, the huge influx of local and national TV money in new deals leads to more money for the whole league, resulting in more money to players. Players can negotiate at the bargaining table for a higher percentage of league revenues. The open bidding among teams for the services of a specific player has an impact as well, however. It is important to keep in mind that free agency is not the only factor being considered here. These salary figures will be discussed with free agency being a factor behind these rises, but not the sole factor.

With that in mind, MLB players’ salaries have risen astronomically since the advent of free agency. When free agency began in 1976, the average player salary was around $50,000.

Adjusting for the consumer price index, that figure is about $206,000 in today’s dollars (Brown,

2015). This year, the average player salary projects to be about $4.25 million, according to an

Associated Press study. In 2013 and 2014, the average player salary was $3.65 million and $3.95 million, resulting in the largest two-year salary growth in more than a decade (Brown, 2015).

The largest player contract belongs to Giancarlo Stanton, who just signed a twelve-year contract worth a whopping $325 million. That figure is what the Miami Marlins believed his open market price was. Clayton Kershaw will be the highest paid player in 2016; he is scheduled to make 28 $34,571,428. Free agency, which leads to teams trying to outbid one another for a player, has clearly had an impact on the salaries of top players, as the next highest contract under Stanton is valued at $275 million. Besides Zack Greinke (scheduled to make $34 million in 2016), the next highest falls more than $4 million below Kershaw’s (Sportrac, 2016).

One thing free agency has accomplished, across almost all leagues, is to establish more parity among teams. Logic would say the opposite. If free agency is implemented in a league, especially one with no salary cap like the MLB, wouldn’t all the large market teams just buy all the best players? Logic says that the top talent in the league would be concentrated on a few teams with the most money, with other teams simply lagging behind. Across sports leagues, the opposite has happened, which parity increasing after the implementation of free agency.

Jayson Stark of ESPN.com conducted a study of free agency’s effects on competitive balance within the league, at least for championships. From 1950 to 1975 (the year free agency was implemented), ten teams won at least one World Series. During this time period, three teams won nearly seventy percent of the World Series championships: the New York Yankees (seven), the Los Angeles Dodgers (four), and the Oakland Athletics (three). Fourteen different teams played in a World Series. In the next twenty-five years, even with one World Series wiped out by a labor stoppage and three consecutive Yankees’ championships, fifteen different teams won a

World Series. Also in this time period, only one team won more than two World Series. Nineteen different teams played in a World Series. It is clear free agency increased the competitive balance among the league.

One constant throughout baseball’s history is the Yankees winning championships. The advent of free agency, however, even changed this constant. From 1950 to 1975, they played in twelve World Series and won seven. In the twenty-five years after, they played in eight and won 29 six. The reserve system, which allowed teams to keep the same players for the perpetuity of their careers, decreased parity among teams in the league, while free agency helped to give smaller market teams a shot at a World Series.

The implementation of free agency in the 1976 season after the Seitz arbitration decision had an impact on labor relations in the MLB. It is difficult to compare how MLB players gained free agency to what MLS players are doing now. Baseball is an anomaly when it comes to how free agency came about, the only sport gaining it through arbitration and owners’ carelessness; rather than a long, drawn out battle in the courts. It is likely the MLS will have to use the latter if they want to gain free agency.

What is easier to compare to the MLS, however, is the effect free agency has had on labor relations in the MLB. With free agency behind them, the players were awarded $280 million after grievances were filed. Having free agency in place provided them with leverage against the owners when they attempted to collude and restrict that free agency. Although a combination of factors cause players salaries to rise and it is hard to quantify the exact impact free agency has had on player salaries, it is easy to see open bidding for players’ services has contributed to the meteoric rise in baseball players’ salaries. MLS players do not enjoy this open bidding, and it has impacted them negatively at the bargaining table and in salary negotiations.

National Football League

The battle for free agency in the NFL has an extensive history, probably more so than any other league. They have gone through lockouts, strikes, and long antitrust battles in the courts.

What is clear from this history is that their most successful route was through the courts.

Multiple times, the players have renounced and disclaimed the union, and sued the owners under antitrust law in order to gain leverage against them. Most times, they have been successful. 30 Compare that success with the success of their strikes, and it is clear antitrust litigation has been the more effective route. The MLS has not attempted antitrust litigation since Fraser, and at that time, the league was still small and the players did not have a union in place. The players and the MLSPU might be wise to take a page out of the NFLPA’s book and give antitrust litigation a try once again.

Unlike their MLB counterparts, the legal system determined the NFL was subject to federal antitrust laws in 1957 after William Rodavich brought a lawsuit against the league. This ruling paved the way for the multiple antitrust lawsuits that ultimately led to free agency. Shortly after the Radovich ruling, the owners instituted the Rozelle Rule, which allowed the commissioner to compensate any team that had lost a free agent, usually with draft picks. Teams were too afraid to sign veteran free agents, for fear they might lose two first round draft picks in the process of doing so. In 1975, John Mackey and thirty-five other players brought an antitrust lawsuit against the league, challenging owner restraints on player movement, specifically the

Rozelle Rule. U.S. District Court Judge Larson ruled that the Rozelle Rule was a per se (on its face) violation of the Sherman Act (Quirk, 1996). This ruling should have left the players in a very strong position to push for free agency in the 1977 and 1982 collective bargaining negotiations. Surprisingly, they settled on a system that still significantly restricted player movement, introducing the Right of First Refusal/Compensation system (Backman, 2002).

After the expiration of the 1982 collective bargaining agreement, the players decided to challenge the new system. In 1987, they filed Powell v. NFL. Powell is a major turning point in the history of the NFLPA and the player’s battle for free agency. In Powell, the District Court of

Minnesota basically sided with the owners. They sided with labor law, stating that management has the right to impose the terms of their final offer once negotiations reached an impasse. The 31 court stated the owners did just that when they implemented a new system of player movement restrictions. After this ruling, the NFLPA only saw one option moving forward: dissolve the bargaining relationship by renouncing and disclaiming the union and allowing players to bring a class-action antitrust lawsuit against the league. The union followed this strategy when they filed

McNeil v. NFL in 1989 to challenge the owner’s new system of restrictions, which was called

Plan B. After renouncing and disclaiming the union, the players finally emerged victorious and ended the overly restrictive restraints owners had placed on them for decades. The court did rule, however, that certain restrictions could be acceptable to maintain competitive balance among teams. It would not be until 1993 that the NFL players would gain effective free agency.

Following the conclusion of the 1992 season, Reggie White, a defensive end for the

Philadelphia Eagles and one of the biggest stars in the league, filed a class-action lawsuit on behalf of all NFL players at the time, and on behalf of any player who would someday play in the league. White asked the court to permanently enjoin the enforcement of the Plan B system or any other similar system that restricted player movement (Backman, 2002). After losing McNeil, the NFL knew they did not stand much of a chance in this case. The case was never decided. Just the filing of the lawsuit pressured the NFL to settle in an agreement that was ultimately included in the 1993 CBA. Free agency was split into three groups: unrestricted free agents, franchise and transition players, and exclusive rights free agents.

An unrestricted free agent in the NFL is any player whose contract expires with his current team after four seasons in the league. The unrestricted free agent is then free to sign with any team of his choosing, as long as that team has the cap space. The franchise and transition tag system was implemented to help prevent teams from losing their most valuable free agents after their fourth season. The franchise tag allows the team to sign the player to a one year deal, but 32 the team must pay the player a salary equal to or greater the average of the five highest paid players at the player’s position. The transition tag allows the same one-year deal, but at a salary equal to or greater than the average of the top ten highest paid players at the position. The player is free to sign with any team of his choosing, but his current team has the first right of refusal to any offer, allowing them to match it and retain the player. Any player with at least three years but less than four years of service whose contract expires becomes a restricted free agent. These players have received a qualifying offer from their current team, but are also free to negotiate with any other team. If the player accepts an offer sheet from a new team, his old team has the right to match the offer and retain the player. The team can also allow the player to leave, and possibly receive draft-pick compensation depending on the amount of its qualifying offer (Alder,

2015).

What is not mentioned in the discussion above is the two strikes the players voted to participate in at the beginning of the 1982 and 1987 season. So, the ultimate failure of both of these strikes was also motivation for the players to dissolve the union and challenge the owners in court. When deciding to strike, the players must evaluate the resources they have as a union, and weigh their resistance to a lockout versus their ability to strike. In both of these cases, the

NFLPA and its members deemed getting out in front of management with a strike as the best option. They thought that a strike left them in the most advantageous bargaining position. The players sensed that the owners could hold out longer in a lockout than they could. They ultimately decided a strike was the best way to apply pressure to the owners.

In 1982, the players went on strike with multiple goals. Free agency was not their ultimate goal going into this strike. What Ed Garvey, president of the NFLPA at the time, really wanted was to increase the player’s share to 55% of league revenues (Shmoop, 2008). They also 33 sought higher minimum salaries for players, as well as free agency. One thing a union really needs to survive a strike and ultimately apply pressure to the other side is solidarity. All members must be on the same page and willing to “stick it out for the long haul.” Usually, unions are prepared for strikes well in advance. There is typically a strike fund, used to provide players and their families with a salary during a labor stoppage. Unfortunately, this strike-fund benefit pales in comparison to an NFL salary. At this time, salaries were not nearly as high as they are now, and some players even worked jobs in the offseason to supplement their playing salary. So, when they strike during the season, they are losing a significant portion of their yearly income. After a lot of complaining by the players about coming back to work, the union decided to settle. This strike, however, did last fifty-seven days and cancelled five weeks of the NFL season, a strong showing of solidarity by the union. The union did not achieve their ultimate goal in this strike, or really even their secondary goal. The union accepted a one-time, sixty million dollar payout from the owners, along with increased minimum salaries and benefits to the players (Shmoop, 2008). The players did show the owners, however, that the union was strong and willing to forfeit short-term salary for long-term gains. The 1982 strike signaled a change in momentum at the bargaining table.

The 1987 strike had two main goals in mind: free agency and finally receiving a larger portion of revenues. Similar to the 1982 strike, without a new collective bargaining agreement in place, players walked to the picket line following the conclusion of the second week of the season. This time around, however, owners were not interested in being bullied by the players and did not cancel games. They already had guaranteed money from TV contracts, and the players would be living off a strike fund once again. By not cancelling games, they figured they could hold out longer than the players. They still needed to field teams to play these games, so 34 owners decided to find “scabs,” or replacement players. They cancelled one week’s worth of games, but played the following week as scheduled. As expected, the product was not nearly as good, stadium attendance fell to about one-fourth the normal rate, and TV ratings also fell drastically (Shmoop, 2008). The owners didn’t care. As long as games were being played and televised, the money from their lucrative TV deals would continue to pour in. Plus, replacement players’ salaries were much lower, actually resulting in an increase in short-term profits for owners (Shmoop, 2008).

The union’s small strike fund was not enough to keep players from salaries that, for some, were north of millions. Solidarity within the union began to fall apart, as about fifteen percent of player’s crossed the picket line by the third week of the strike. Tensions began to soar between teammates, and by the fourth week, the union had no choice to return to work, with none of their goals reached. The players would not strike again. Instead, they turned to antitrust litigation. The returns from this strategy dwarfed those from two strikes combined. The NFLPA was revolutionary with their success in renouncing and disclaiming, and other unions would follow suit for years to come (Backman, 2002).

It is evident that the smarter strategy for the NFL was to temporarily dissolve the union and the bargaining relationship between the players and the league. The league’s antitrust exemption was lifted, and in the court’s eyes, it was clear that free agency restrictions represented collusion among owners. In this instance, the case wasn’t decided. The simple filing of the lawsuit pressured owners to come to an agreement. Two strikes had not come close to achieving what antitrust litigation did.

The NFL’s labor history is something the MLSPU should take a lesson from. They have threatened to strike in the last two negotiating sessions, but ultimately refrained. There are so 35 many factors that are involved when deciding to strike. A union must be extremely prepared to attempt to hold out longer than the owners. A strike is going to damage a player’s earnings much more than an owner’s, in most cases. Think about the MLS, especially, where player’s salaries are much lower and every paycheck counts. The possibility of striking in the MLS will be discussed in greater length later in this paper. The important lesson to remember here is how much more effective antitrust litigation was for the NFLPA than striking.

The open bidding for player services has driven up NFL players’ salaries over time, and led to greater returns at the bargaining table. As discussed in the MLB section, salary growth, as well as gains at the bargaining table, are a result of a combination of several factors. This holds especially true for the NFL, where the TV deals are the highest among all professional sports.

Take a look at 1993; the first year free agency was implemented. After one-third of unrestricted free agents that year had signed with new teams or resigned with their current ones, the average salary for those players rose from $517,000 to $1,044,000, which is an average rise of 109 percent. For restricted free agents, their average salary climbed from $293,000 to $780,000, an increase of 166 percent (Litsky, 1993).

A great example of the immediate effect free agency had is Neil O’Donnell, a quarterback who had emerged as the starter for the Pittsburgh Steelers a year before and had earned a salary of $250,000. He was a restricted free agent, and the Tampa Bay Buccaneers offered him $8.2 million over three years, which the Steelers matched. O’Donnell jumped from a salary of $250,000 to $2.73 million as a result of free agency. After free agency, players gained much more power against the owners in contract negotiations. The NFL is a great example of how owners can slow salary growth through restrictions on player movement. 36 Today, free agency has had the most impact on the salary of the league’s highest earners, similar to the MLB. With each CBA, minimum salaries have increased and so have average earnings, but the top players are making a lot more money. There are fifty-three players on an NFL roster. Many special teams players and backups make the minimum at their respective positions. The reason the NFL had an average salary of $2.1 million in 2015 is because of the earnings of top players at each position.

The median salary may be a better measure, and that number is much lower, at $860,000

(Gerencer, 2016). Tom Brady, Joe Flacco, and Olivier Vernon are scheduled to make $29 million next season (Sportrac, 2016). That is almost thirty-four times the league’s median salary. Olivier

Vernon is a good example of the effect free agency has had on top earners’ salaries. NFL teams have windows where they can capture a championship, and the New York Giants are a team with an aging franchise quarterback. Eli Manning, now thirty-five, probably only has a few good years left in him. The Giants are spending a ton of cash to upgrade a defense that was ranked as one of the worst in the NFL this past year.

Vernon is a very skilled defensive end, with ability to rush the passer as well as stop the run, which is coveted in the NFL. The Giants signed Vernon to a five-year, $85,000,000 contract, with $52,500,000 in guaranteed money. That figure in guaranteed money is larger than

JJ Watt’s, who plays the same position as Vernon and has won Defensive Player of the Year each of the last two seasons. In fact, it is the largest guaranteed contract for any defensive end.

Vernon had seven and a half sacks last year and sixty-one tackles in 2015 (ESPN, 2015). That sack number is tied for twenty-seventh best in the league, while Watt again led the league in sacks. Vernon was considered a top free agent this season, the top at his position, but the Giants 37 paid him like one of the top players in the league because that’s what the market commanded.

That’s the effect free agency can have on player salaries.

Competitive balance in the NFL has increased over time. This parity is caused by a combination of free agency and the salary cap system the league has in place. The league has a

“hard” cap, meaning that teams cannot overspend what the salary cap is set at. By contrast, the

MLB has no cap, and the NBA has a “soft” cap, with teams paying a luxury tax with increasing penalties, depending on how much teams spend over the cap. Under a hard cap, the teams with the most money simply cannot sign all the best free agents. They must work under the cap, which makes it really hard for the top teams to keep all their best talent.

The championship “window” in the NFL is short for teams, because after winning a championship, players on the winning team are going to leave to sign more lucrative deals elsewhere. The top team simply cannot afford to keep the same roster. Look at the Broncos, who just lost what would have been their starting quarterback going forward in Brock Osweiler.

Osweiler signed a higher offer sheet with the Houston Texans. Or Malik Jackson, their dominant interior defensive lineman who signed a huge deal with the Jacksonville Jaguars. The Carolina

Panthers, the team the Broncos defeated, lost arguably the best cornerback in football last year in

Josh Norman. Norman became a “casualty of the cap” as he signed a big deal with the

Washington Redskins.

When teams have a chance at a Super Bowl run, the window is usually only one to two years before they begin to lose significant players who outplay their current contracts. The hard cap system, along with free agency driving up the price of players, leads to a lot of parity among teams in the NFL. As the adage goes, any team can beat another on “any given Sunday” (Banks,

2011). 38 The MLS is a mixture of a soft and hard cap, with the Designated Player system outlined earlier in this paper. Those most expensive players do not count against the cap, but the rest of the roster is signed under a hard cap like the NFL. Therefore, it is difficult to make a direct comparison to the NFL. What can be compared is the effect free agency would have on the part of the roster that must be signed under the hard cap. If free agency were implemented under the hard cap, the amount of money a team has becomes insignificant. What matters is having a smart front office that can work the cap effectively, draft smartly, and sign the right free agents at the right price. This comparison could hold true in the MLS. The advent of the Designated

Player has not led to the highest spending teams becoming the best teams. The LA Galaxy did win two straight MLS cups with a hefty payroll; but last year’s winner, the Portland Timbers, has a payroll that ranks in the lower half of the league. Sporting Kansas City won in 2013, also with a payroll in the lower half of the league. (Schaeffer, 2014).

The Designated Player slot only applies up to three players on a roster. Soccer is a very team-oriented game, with eleven players on each side of the field. The roster must be strong throughout, although it obviously helps to have star players, just as in any other sport. Free agency, under the hard cap system that applies to most of the roster in the MLS, would lead to more parity among teams in the league. Rosters would be shuffled more, and top players that do fall under the salary cap would command higher salaries, leading to an increase in leverage and resources for players.

National Basketball Association

The history of free agency in the NBA contains far fewer labor stoppages than the NFL, but it too involves the use of antitrust litigation. The most important event in the NBA players’ 39 battle for free agency happened in 1970 when Oscar Robertson filed an anti-trust lawsuit against the league.

At the time, Robertson was one of the biggest stars in the league and president of the

National Basketball Players Association (NBA, 2002). In 1970, there were two professional basketball leagues: the National Basketball Association and the American Basketball

Association. The rival leagues proposed a merger in 1970. In response, Robertson filed the antitrust lawsuit, stalled the merger, attempted to deem the college draft illegal, as well as shut down the NBA’s reserve clause that effectively prohibited free agency. Similar to the other leagues discussed, the reserve clause allowed an owner to keep a player for the perpetuity of his career at whatever salary the owner wanted. Robertson looked to block the merger, as ABA bids for NBA players helped drive up player’s salaries at the time. He also looked for an end to the reserve clause (NBA, 2002).

The ABA was formed in 1967, looking to rival the NBA. As some key current NBA players as well as some marquee college players looked to join the ABA for a higher salary, the

NBA proposed a merger in 1970 (Bradley). The NBA looked to settle with the players in 1971, but talks died rather quickly. The league looked for Congressional approval of the merger in

1972, but that failed as well. In 1976, the NBPA and the league finally reached a settlement. The

NBA and ABA ultimately merged, but the NBA’s reserve clause was shut down. The players did not gain unrestricted free agency, however. Teams would be awarded compensation for their free agents with cash, players, or draft picks (decided by Commissioner), through the 1980 season.

After 1980, a player’s original team would have the right of first refusal on any free agent signing. So, although the suit was a small victory for the players, they would have to continue to battle for unrestricted free agency (Bradley). 40 In the 1987 collective bargaining negotiations, the players failed in an attempt to bring an antitrust suit against the league, attempting to shut down the right of first refusal system and gain unrestricted free agency. The union then threatened to renounce and disclaim, and even this threat gave the players more leverage in negotiations. The league agreed to eliminate the right of first refusal after a player completed his second contract and gave certain veteran players unrestricted free agency (Bradley).

After the conclusion of the 1995 finals, the owners locked out the players in an effort to apply pressure in the upcoming negotiations. The players considered temporarily dissolving the union and suing the league under antitrust laws, but that option was ultimately voted down by the majority of players, who felt what the owners were offering were acceptable. It was in these negotiations that the players gained unrestricted free agency for all players following the conclusion of their contracts (Bradley).

So, NBA players used antitrust litigation (or the threat of antitrust litigation) sparingly throughout their labor history. They used it in order to initially shut down the reserve clause, and ultimately did not have to deploy it in their final battle for free agency. The MLS has gained limited free agency by threatening to strike, and the NBA, unlike the NFL, gives a glimmer of hope as to how MLS players could gain unrestricted free agency rather peacefully.

The point where the comparison ends, however, is that the NBA was not considered a single-entity by the courts in the labor market. The players knew their threat of antitrust litigation held power against the owners. In the 1996 negotiations, the players conceded on a number of issues in order to gain unrestricted free agency. Also, the NFL and the MLB already had unrestricted free agency in place, and NBA owners knew it was a matter of time before they had to concede on this position. Still, it is likely the MLS will need a strike or antitrust litigation in 41 order to gain unrestricted free agency. Unrestricted free agency could be the last nail in the coffin for the league’s coveted single-entity defense. Owners are not simply going to hand it to

MLS players in exchange for concessions.

The NBA has the highest average salary of any of the sports leagues discussed here. The average salary in the NBA for the 2015 season is $5.1 million (Dorish, 2015). The main reason for this figure is the number of players on an NBA roster. NBA teams can have a maximum of fifteen players on their roster at any time. There are thirty teams, so the league has a maximum of

450 players at any point in time (Dorish, 2015).

The NBA has a “soft” salary cap. Teams are allowed to go over the cap, but must pay a penalty called a luxury tax. The NBA, like the NFL, contains maximum contract values. One way the league allows teams to retain their top free agents is through a mechanism called the

“Larry Bird Exception.” A player qualifies for this exception if they have played on the same team for three seasons without being waived or switching to another team via free agency. If the team resigns this player, they are not penalized if they go over the cap. The team can sign this player under the maximum contract for up to five years, while other teams can only offer up to four (Castillo, 2010).

Since there are maximum salaries set out in the collective bargaining agreement, the open bidding among teams for a player’s services can only drive the salary of a player up so far. The salary cap is set to jump to over $100 million in the next two seasons after the league signed a new, monster TV deal that kicks in after the 2015-16 season, projected to be worth $24 billion

(Stein, 2015). So, player’s salaries are set to skyrocket after the next two seasons, as the cap this season was only at $67.1 million. 42 To put that jump in perspective, the largest salary cap leap in history is $7 million in one season (Stein, 2015). The salary cap does more to drive up the price of the league’s best talent, rather than free agency. The soft cap and the mixture of maximum contracts in the NBA have caused less parity, not more, over time. The NBA is in direct contrast to the MLB and NFL in this regard. Take the example of LeBron James and his free agency following the conclusion of the 2010 season. At the time, he played for the Cleveland Cavaliers, who could’ve offered him the highest contract in free agency overall, but only slightly more than other teams annually.

LeBron had a lot of success in Cleveland, but one of his main complaints was that their owner,

Dan Gilbert, refused to spend over the salary cap to surround LeBron with better talent. He bolted to the Miami Heat, who already had Dwayne Wade (a superstar), and the Heat also signed

Chris Bosh that offseason (another star). They went on to make the NBA championship in all three years he played for them, winning two, and dominating the East each year. He has now returned to Cleveland, still dominating the East, with a “super team” of himself, Kyrie Irving, and Kevin Love.

To exemplify the decreasing parity in the league, take a look at the number of teams who have won a championship recently. There have only been ten different NBA champions since

1980, and only one team that can be classified as “small market” has won a championship (San

Antonio Spurs) (Spencer, 2013).

Marquee superstars leave small markets to play in bigger ones quite frequently. Good examples of this trend are Carmelo Anthony (Denver to New York), Dwight Howard (Orlando to

Los Angeles), and Kevin Garnett (Minnesota to Boston). There are exceptions, obviously. Teams like the San Antonio Spurs and the Oklahoma City Thunder have built powerhouses through smart drafting and making the right moves. Where free agency really drives up player’s salaries 43 is small market teams vying for mid-tier stars, or players on the brink of becoming stars. This rule even goes for teams who may be in large markets but are simply too far away from a championship-caliber team to attract a marquee free agent. There are countless examples of this trend throughout the league.

Reggie Jackson, formerly a bench player for the Oklahoma City Thunder, re-signed with the Detroit Pistons after the Thunder traded him there mid-season for five years, $80 million.

That is the same deal that Russell Westbrook, the player who started over him in Oklahoma City, signed with the Thunder in 2012 (Sportrac, 2016). Westbrook is widely considered a top ten player in the league. Meanwhile, Jackson had some costly turnovers and lost his temper a few times this postseason. This team did get swept by the Cleveland Cavaliers, and they did not have much of a fighting chance. This season, Jackson averaged 18.8 points per game, 6.2 assists, and

3.2 rebounds. Westbrook, meanwhile, averaged 24.2 points, 6.8 rebounds, and 10.9 assists, while leading the league in triple-doubles. Westbrook did sign his deal three years prior, when the cap was $58 million. It was widely considered, however, that the Pistons overpaid for Jackson at the time. There were no other bidders for Jackson’s services, but the Pistons wanted to make it clear he was their point-guard of the future (Lawrence, 2015).

The soft salary cap does allow some large-market teams to overspend and attract some of the best free agents each year. The argument could be made, however, that the Los Angeles

Lakers and the New York Knicks, two of the biggest markets in the league, have missed out on free agents each of the last couple seasons. Those teams, however, both have had an aging star

(Kobe Bryant and Carmelo Anthony, respectively) that other stars have not wanted to play with

(Sharp, 2015). The MLS has the hard cap with the exception of the Designated Player slots. Free agency under the hard cap could lead to more parity, as exemplified by the NFL. Therefore, it is 44 difficult to compare the effects free agency has had in the NBA to what may happen in the

MLS. Free agency has led to mid-tier stars arguably making more of what they are worth in the

NBA. Most of the stars in the MLS fall into the Designated Player slots, so the best players that do fall under the cap could be qualified as these mid-tier stars, similar to the NBA.

What free agency in the NBA shows is that teams desperate for free agent talent who cannot attract the biggest stars will overpay for mid-tier ones. Something similar could happen in the MLS, if free agency were to be implemented. Teams who cannot attract some of the best

Designated Players, or those in a small market who cannot afford them, will be willing to overpay for players who do fall under the cap. Small market teams could stay more competitive in this fashion.

National Hockey League

The NHL, like the previous three leagues discussed, had a reserve clause in place that allowed owners to keep players for the perpetuity of their contracts while suppressing salary growth. This system remained in place until 1972, after a rival league (the WHL) was formed, and one of their teams sued the NHL for its player restrictions. The reserve clause effectively prohibited NHL players from joining the rival league.

In response to the lawsuit, NHL owners implemented a one-year option clause in player contracts (Wise & Meyer, 1997). Then, in the 1975 collective bargaining agreement, the owners created what they called a “dual-option procedure.” During the last season of a players contract, a team could ask its player to sign a “termination contract.” If a player decided to sign this contract, he would be bound to the team for one more year, at the conclusion of which he would become a free agent. If a player did not sign this contract, he would become a free agent at the end of the current season. Second, a player could ask his respective team to sign him to an option 45 contract, which was a one-year extension of his current contract. Players that became free agents under this system, however, were subject to restraints reminiscent of the NFL’s Rozelle

Rule (Goldberg, 2008).

Under the NHL’s compensation system, a team that signed a player had to provide the player’s former team with cash, draft picks, or a combination of both. The league first gave the two teams the opportunity to come to a mutual agreement over compensation. Unlike the NFL, if they could not the resolve dispute, it came before an arbitrator, not the commissioner (Goldberg,

2008). The system of arbitration was final-offer arbitration, in which both sides submit an offer and the arbitrator chooses one. This compensation system, just like the Rozelle Rule in the NFL, discouraged teams from signing free agents. From 1974 to 1982, only three cases went to final- offer arbitration.

The players sought unrestricted free agency in the 1981 collective bargaining negotiations. Obviously, the owners opposed unrestricted free agency, believing it would bankrupt the league. The players threatened to strike in these negotiations, but ultimately the two sides came to an agreement in 1982. The league implemented a complex system of free agency.

Any player over thirty-three at the conclusion of his current contract was entitled to unrestricted free agency. The previous compensation system was maintained for players under twenty-four years old with less than five years of professional experience. For players in between those two requirements, the league created a specific compensation system based on the salary offer of the signing team. Also, teams held a first right of refusal for all offers under $85,000. Under this system, the compensation levels were reduced, but still fairly high. These restrictions continued to discourage teams from signing free agents (Goldberg, 2008). 46 For a long time, free agency was placed on reserve in favor of other topics players aggressively fought for. The history of the league is rife with labor stoppages, but free agency wasn’t exactly at the heart of any of those disputes. Perhaps this absence is due to the league’s revenues lagging behind the NBA, NFL, and MLB, as it fought to stay relevant for a period of time. Players prioritized items like getting a larger share of revenues or playoff bonuses before they returned to the issue of free agency.

There was also bad leadership for a number of years, as Alan Eagleson was infamously the head of the National Hockey League Players Association (NHLPA) from its inception in

1967 to 1991. Eagleson was a former player agent, and he was forced to resign in 1991 after concerns about his close relationship with owners and possible collusion with them. In 1998, he was convicted of fraud and sentenced to eighteen months in prison. For a long period of time, as he worked with owners, he convinced players that other issues were more important than free agency (Reznik, 2014).

The free agency system in the NHL was once again revised in the 2005 collective bargaining agreement. There was a lockout imposed by the owners that year that shortened the season from eighty-four to forty-eight regular season games (Staudohar, 2005). The players did not gain much in terms of free agency. Players were who were thirty-one years of age or older would be eligible for unrestricted free agency after the 2005-06 season. Following the 2007-08 season, players who were at least twenty-eight years of age, or had seven accrued seasons in the league were eligible to become unrestricted free agents. From the 2008 season on, players who were at least twenty-seven years of age, or had seven accrued seasons, were eligible for unrestricted free agency. Also, players who are at least twenty-five years old, or have at least three accrued seasons, are eligible to become restricted free agents. Restricted free agency still 47 has the first right of refusal system as well as specific draft pick compensation laid out in the bargaining agreement. Besides the MLS, this system of free agency is the most restrictive form in the five major American sports leagues today (Staudohar, 2005).

With the absence of labor stoppages initiated by the players in the history of the NHL, it is difficult to compare potential stoppages initiated by MLS players. NHL players first gained a system that included unrestricted free agency by threatening to strike, but besides that, the owners really have taken the initiative throughout their labor history. Gary Bettman, the commissioner of the NHL, has a reputation of a hardline negotiator. He and the owners are not afraid to lock out the players and lose a significant amount of games, as evident in the 2015 and

2011 NHL lockouts. In both negotiations, popular media declared the owners had clearly “won” the battle (Campbell, 2013).

Historically, the NHLPA has not been a strong union. For a large chunk of its history, they had a leader who was working with owners to suppress player gains at the bargaining table.

The MLS is a much younger league that has already made strides toward free agency in its short history. Although they have a more restrictive system than the NHL, they have achieved that system in a single-entity league and with the absence of a union for a number of years. What the

MLSPU can learn from the NHLPA is to always have strong leadership and how to react to hardline negotiations, which they are likely to face in the future if they try to defeat the league’s single-entity defense.

Free agency’s effect on NHL player salary growth is difficult to determine, given the age/service restrictions that unrestricted free agency falls under. As was discussed with free agency in the NFL and NBA, however, it has led to players getting paid more than what their 48 value is. Teams are willing to overpay for players, based on a specific market or what is available to them at the time.

Consider a player like Joe Johnson, a small forward for the Miami Heat, who is past his prime, yet makes $24.9 million a year. Or Ryan Howard, the first basement for the Phillies who doesn’t even start every game, is making $25 million a year. Jay Cutler, the Chicago Bears’s quarterback, who is considered average at the position, has the highest total value contract in the

NFL, at $126.7 million (Baudenhausen, 2015). With a more restrictive form of free agency, this phenomenon has simply not occurred in the NHL. Top earners across the league are top players at their respective positions.

The phenomenon could be attributed to the fact that a player must be twenty-seven years of age or have seven accrued seasons before he can become an unrestricted free agent. Most hockey players, especially top prospects, are drafted at a very young age. The average NHL rookie, throughout history, is twenty years old (Quanthockey, 2016). That age gives owners and general managers seven years of potential evaluation before that player can hit the open market.

By that time, most young stars will be locked up by the team they were drafted by, stripping players of the open bidding among teams. Sydney Crosby, Patrick Kane, Johnathan Toews, Shea

Weber, and Alex Ovechkin top the list of the NHL’s highest earners. They are considered top players at each of their respective positions (Baudenausen, 2015). The league’s most popular players are also their highest earners. The top six jersey-selling players ranked among the top seven salaries in the league. So, the result of the NHL’s more restrictive free agency system is players being paid closer to their value.

The NHL has a maximum contract system in place as well. Players are restricted to a max contract worth twenty percent of a team’s salary cap. The current NHL salary cap is $71.4 49 million, meaning a player can make a max of $14,280,000 this season (Rosen, 2015). Each year, Forbes magazine compiles a list of the world’s highest paid athletes. In each of the last four years, an NHL player has not made the list. The cutoff was $18.8 million dollars a year

(Baudenhausen, 2015).

No MLS players made the list this year either, and it’s clear that in the leagues with restrictive forms of free agency, players’ salaries just aren’t as high. The MLB, NFL, and NBA make higher revenues than these leagues, which contribute to this phenomenon. In the 2012-13 collective bargaining negotiations, the players’ share of hockey related revenue fell from fifty- seven percent to fifty percent, which also contributed to salaries being suppressed.

In 2005, the NHL instituted a salary cap system to accompany the free agency system previously discussed. A salary cap was a major goal of the owners’, who wanted to create more competitive balance throughout the league, as well as continue to keep players’ salaries under control. The cap, coupled with the new free agency system, brought more parity to the league than ever before.

The Los Angeles Kings, 2013-14 Stanley Cup champions, failed to make the playoffs the following season. The team with the best regular season record that season, the Boston Bruins, barely made it into the playoffs the following year. The San Jose Sharks, a team that had been to the playoffs for ten straight years, also did not make the playoffs that year. The New York

Islanders, once the laughingstock of the NHL, made the playoffs the last two seasons. The

Washington Capitals had a historically good season this year and just lost to the Pittsburgh

Penguins in the second round of the playoffs (LeBrun, 2015). The NHL playoffs are extremely entertaining because every single series is competitive. In the NBA playoffs this year, teams like the Cleveland Cavaliers and Golden State Warriors are stream-rolling their way through the first 50 two rounds. The NHL is arguably the most competitive league today in sports, and it is due to the new salary cap as well as the slightly expanded free agency system.

The NHL’s parity shows that free agency is not the only factor that leads to competitive balance. There is no doubt that most important factor for the NHL was the implementation of a salary cap. Free agency, however, still contributes to this parity. For example, good teams are forced to make decisions with certain veteran players when their value goes up as a result of contributing to a winning team. When these players aren’t traded, they are acquired through unrestricted or restricted free agency, contributing to competitive balance.

Take Anton Stralman, who was considered the top free agent defenseman two years ago when he signed with the Tampa Bay Lightning. Since that signing, the Lightning made the

Stanley Cup last year and are back in the Eastern Conference Finals this year. The year before the Stralman signing, they were swept in the first round. Stralman came from the New York

Rangers, with whom he reached the Stanley Cup Finals in the 2013-14 season. The salary cap caused him to become a “casualty of the cap,” and through free agency, he came to an up-and- coming team in Tampa Bay and helped them reach the Stanley Cup Finals.

Although the NHL’s free agency system is the most similar to the MLS’s, the advent of the Designated Player Rule once again makes comparison challenging. The NHL does have a hard cap, as does the MLS for all players who are not Designated Players. It is possible that the next step in the free agency process for the MLS will be a system without the tiered raises; with restrictions similar to the ones the NHL has in place. The MLS players have not been locked out by owners, and given their recent labor history, it will be the players who take initiative in a labor stoppage, not the owners. 51 The NHL players have not gotten the chance to use strikes or antitrust litigation against the owners, because Bettman locks them out at any sign of an impasse. The battle for free agency in the MLS will likely take the path of the NFL or NBA, given the league’s current single-entity status. The NHL players may push for greater free agency in the future, but their current agreement runs until 2019. Labor negotiations have been extremely one-sided in the NHL, whereas MLS players have made some strides in recent years.

52 Chapter 5

MLS Analysis

Given how hard the MLS and its owners have worked to gain their single-entity status, it is hard to believe they would concede unrestricted free agency to the players through negotiations. It is going to take initiative on the part of the players in order to gain unrestricted free agency. By doing so, they are going to eliminate any claim the league has left to their single- entity defense. Teams competing directly against one another for players’ services does not represent a parent-subsidiary relationship, but rather a joint venture. The players are going to have to either strike, or turn to the “nuclear option” (as David Stern calls it) of antitrust litigation in order to gain unrestricted free agency. Their path to free agency is going to look similar to the

NFLPA or NBPA. The MLB is the only league that gained it through arbitration and owners’ carelessness. The NHL already has similar restrictions to the MLS and their players too are still searching for a more expanded form of free agency.

Given the history of the other leagues, and considering that the MLSPU threat to strike did not result in a form of effective free agency, the players’ better option is the “nuclear” one.

The owners in each league are extremely wealthy. They can absorb the financial blows of a lockout or strike with relative ease. Players, especially ones in the MLS, have a much harder time. Antitrust litigation provides players with significantly more leverage in negotiations

(Abbott, 2001). Renouncing and disclaiming requires temporarily dissolving the union. Players also lose the non-statutory labor exemption that they enjoy as members of a union. Management could potentially eliminate things like pensions, league minimum contracts, and guaranteed salaries (Scupp, 1). Players worked together as a union and negotiated these items with management in order to eliminate competition among themselves. The union must also stop all 53 the activities that make it a union. As shown by the NFLPA, simply renouncing and disclaiming with the NLRB is not enough, the union must act the part as well in order to dissolve the bargaining relationship and lift the non-statutory labor exemption. Lastly, the courts can be notoriously slow and it could take courts a couple years to render a decision. Usually, however, the filing of an antitrust lawsuit is eventually enough to pressure the owners to come to an agreement. Given the state of the MLS, a player strike may not result in much success.

The MLS’s minimum salary is $36,500. The NFL is $420,000; the MLB is $500,000; the

NBA is $507,336; and the NHL is $550,000. The pay disparity in the league is eye opening. One player for the Columbus Crew, Ross Friedman, came out of Harvard making the league minimum. The highest paid player on the Crew made fifteen times as much as him, with a base salary alone of $500,000. There are countless stories throughout the league similar to this one.

John Boerner, another player who is twenty-three, qualifies for the affordable housing program in his apartment complex. Joe Nasco, thirty, has multiple part-time job so his wife can stay at home with their newborn. Both these players are goalkeepers for the Colorado Rapids.

Nearly a third of the league’s entire payroll, $130 million, goes to the seven best-paid players in the league (out of 572 total) (Keh, 2014). Something that is extremely important in a strike is union solidarity. In 1982 and 1987, the NFLPA could not stop players from crossing the picket lines after a few weeks. With pay disparities like the ones discussed above, it would be extremely difficult to convince players in the league not to cross picket lines and cash their checks.

Also, with the advent of the Designated Player, many veteran stars past their prime come to the MLS to continue to make a lot of money, as well as continue to be very productive players. Didier Drogba, a Chelsea legend (one of the biggest soccer clubs in England), recently 54 came to play for the Montreal Impact after switching teams a couple times across continents with little success. Kaka, a Brazilian legend who played for Real Madrid at one point in his career, came to play for Orlando City FC. Thierry Henry, who recently retired, is considered one of the greatest strikers of all time. He came to finish his career in New York City.

Why would these players, among the highest paid in the league, stand on a picket line with the rest of the players? It would provide the union with a huge amount of leverage if they did; as names like these fill the stands at home and away games. The teams they play on don’t even have to be competitive to sell out stadiums. The Designated Player is helping with the growth of the league, but it’s not helping the average MLS player.

Finally, the MLS is not a top-flight premier league. It’s definitely an up-and-coming league, but it is nowhere close to the competition of the top leagues in European countries. The median salary in the league is about $92,000, and the MLSPU believes that number must be much higher to attract and retain better talent. Like the owners in the NFL did in 1987, MLS owners could find “scab” players to replace striking players and apply pressure to the union. It was very difficult for the NFL to replace the level of talent, and the on-field product suffered.

The TV money kept pouring in for owners, however, and that’s all they cared about.

The MLS has a new TV deal, and it is conceivable that it would be much easier for MLS owners to find replacements. Underneath each top-flight league in a European country are lower leagues that pay less (some are similar or even higher) but are comparable (talent-wise) to the

MLS. MLS owners could offer these players an opportunity for more money (for some) as well as a chance to be the main attraction. Union solidarity would break down if the owners were able to attract “scabs” to replace them. 55 Labor experts believe the MLSPU is going through what the other sports’ leagues

(excluding the NHL) went through in the 1970s. At that time, professional salaries were not very high. It was common for players to work off-season jobs to supplement their playing salaries.

These players earned free agency and other victories through strikes, and predominantly, antitrust litigation (Keh, 2014). The MLS has never faced a labor stoppage and has not attempted antitrust litigation since Fraser. The MLSPU is still a young union, but it is on a path that many others have already gone down. The owners state that the league is still losing money and that is why they cannot provide the players with much more than they already have. The players will have to look to their predecessors for guidance on how to approach the next negotiations in 2020.

If the players do pursue antitrust litigation, it would be very difficult for the league to claim it is a single-entity once again, given all the recent changes after the league’s growth. The players would first have to defeat the league’s single-entity status before trying to defeat something like free agency restrictions; otherwise antitrust litigation would be futile. Under a singe-entity setup, the antitrust exemption is never lifted, as discussed previously.

The players, however, with more resources and a union behind them, could make a much stronger argument in court and proceed to challenge free agency restrictions after defeating the league’s single-entity status. Owners would probably allow the case to go to court, given how hard they fought for the single-entity defense previously, but it is conceivable the threat of antitrust litigation or the filing of a lawsuit could bring them back to the bargaining table.

The absence of free agency and the single-entity structure has combined to significantly slow the growth of MLS player salaries. The average salary may be $226,454 a year, but the highest earners (all of whom are Designated Players) drive that figure up significantly.

Comparably, the average annual salary for a player in Liga MX, the Mexican Premier League (a 56 comparable league), was $389,000 (Acero, 2016). Owners do not have to compete against one another and drive up the salary of players in the MLS. As seen in leagues with a hard cap like the

NFL and NHL, player’s salaries have increased as a result of free agency. The hard cap portion of an MLS team is the part where the earnings begin to dip off. Smaller market teams, who miss out on Designated Players, can put in a higher bid of these types of players, in turn driving players’ salaries up. Right now, as many players report, they are simply playing “for the love of the game” (Acero, 2016).

In the MLS’s first free agent pool with its new system, twenty-seven players were eligible. Out of that group, ten signed with a new team, six re-signed with their old team, two retired, one signed with the NASL, and eight have yet to be signed. So there has been some movement with the new system. Only one player received the maximum raise available for his tier (Acero, 2016). Oddly, there has been some competitive balance in the league in recent years.

Some Designated Players have been at the end of their careers, suffered through injuries, and may not have had as big as an impact on the field as originally thought.

The LA Galaxy, however, are close to building a dynasty in the league, with three championships in the last five years, and they are continuing to improve. Los Angeles is perhaps the biggest market, especially for international stars with the lure of Hollywood. They just signed

Giovani Dos Santos, a great Mexican player still in the prime of his career. There are rumors that

Zlatan Ibrahimovic, by far the leading goal scorer in the top French Premier League, Ligue 1, is the next to join the Galaxy. As the league grows and becomes ever more competitive, more players like these will be willing to play in the MLS before their prime is past. The Designated

Player will continue to become a lot more important on the field. Teams need free agency to shuffle around mid-tier MLS stars to help the league remain competitive when that happens. 57 After analysis, it is clear the single-entity setup of the MLS has hindered the players in their battle for free agency. After examining the history of free agency in the other four major sports, the players are going to have to initiate a work stoppage. History has shown that antitrust litigation for the MLS players, after defeating the league’s now weak single-entity defense in court, will be a much more effective option than a strike. The absence of free agency has caused the pay disparity in the league to skyrocket, with some players making $50,000 and others making $5 million.

Competitive balance in the league will suffer if something is not changed. As the league grows, more international stars will be willing to become Designated Players in the MLS. The next round of collective bargaining negotiations takes place in 2020, and by that time it is likely the players will take the next step in their battle for free agency.

58

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Academic Vita Andrew G. Saba 267-664-7669 [email protected] Permanent Address: Campus Address: 211 Fernwood Court 322 Fraternity Row Harleysville, PA 19438 State College, PA 16801

Education Bachelor of Arts in Labor Studies and Employment Relations, Minor in Business, May 2016 The Pennsylvania State University, University Park Schreyer Honors College Thesis Title: The Impact of Antitrust Labor Legislation on Collective Bargaining in Professional Sports Thesis Supervisor: Dr. Alan Derickson Leadership Experience Alpha Gamma Rho Fraternity, Gamma Chapter, Penn State University Fall 2012-Fall 2014  Vice Noble Ruler of Planning and Philanthropy Chair  Manage a calendar of events for the semester  Organize philanthropies with other Greek organizations  Manage a set budget  Lead a philanthropy committee and delegate assignments to them Penn State University Mock Trial Fall 2012-Present  Participate as an attorney  Practice 3-4 times a week  Competed in tournaments at The University of Pennsylvania and Carnegie Mellon  Deliver closing arguments  Serve as lead counsel frequently Professional Experience Intern at Swartz Campbell LLC Summer 2014  Assisted in trial preparation for complex litigation, including cases such as Villani v. Camelback ski resorts  Analyzed various discovery material, including deposition transcripts, business statements, and insurance policies  Performed legal research for various cases  Organized and managed case files on firm’s Google Drive  Sent correspondence to attorneys Intern at Montgomery County District Attorney’s Office  One of two interns working under 1st Assistant District Attorney Kevin Steele  Contacted victims, particularly domestic violence victims, to update status of their cases and answer questions  Researched various case law and prepared a teaching outline on preparing to charge in death by vehicle cases  Organized and updated case files  Assist in trial proceedings, specifically filling out bench warrants Other Experience Penn State Intramural Official September 2015-Present  Officiate three games a night, three nights a week  Expert in IM Flag Football rules  Control situations on the field as they develop Manager at Pro Image, Inc. 2010-Summer 2013  Assisted in recruitment and hiring of new employees  Trained new employees on how to open and close the store  Delegated responsibilities to part-time employees  Completed inventories and researched new products Activities Penn State Student Red Cross Club Spring 2013-Present  Organized and coordinated two blood drives with over 100 donors at each  Participate in various fundraising events  Volunteer at blood drives on campus throughout the semester