We have requested a plethora of information, including financials, that PRO and MLS have refused to provide, instead demanding we take their pleas of poverty at face value.

– Lukas Middlebrook, Attorney for Professional Soccer Referees Association (PSRA)

It’s a fascinating state of affairs when a snarky Deadpsin article is treated as a threat to American Soccer, while the actual machinations and striking implications of MLS power go on without significant comment from most media observers and analysts.

The referee lockout is interesting in part because we could be seeing a sneak preview of the re-negotiation of the MLS players’ collective bargaining agreement, which is set to expire at the end of the 2014 season.

That agreement (or lack thereof) could have major implications on things like MLS’s vastly bimodal salary structure, player freedom of employment rights (free agency), and contract guarantees. If things go really sideways, the players could decertify their union and sue MLS for anti-trust law violations, taking up where Fraser v. MLS left off.

If the players decide to sue, things could start to get really interesting.

Back to the refs and their current ordeal: the MLS refs, like the MLS players, formed a union to bargain collectively with MLS (which is the parent entity of PRO).

The refs are asking for more money and presumably non-economic benefits relating to job security, work conditions etc. The negotiations appear to have been less than cordial, leading the PSRA to vote to strike and file a complaint for bad faith negotiating with the National Labor Relations Board. MLS/PRO responded by locking the refs out and selecting replacement refs for the opening round of games.

It’s unclear what significance or relation the referee’s collective bargaining plight will have on the player’s negotiations later this year. However, the “pleas of poverty” and lack of transparency referenced in the above quote should be familiar to anyone familiar with MLS’s public persona. It’s safe to assume that the MLS owners will take a similar tact negotiating with the players, attempting to further obfuscate both its operating realities and the true nature of its business model and structure.

Single and not quite ready to mingle

First, let’s be clear: Single entity and the opaque, tightly controlled MLS roster rules weren’t created to provide a quirky gauntlet for agile minded GM’s to overcome on the path to MLS glory.

The MLS single entity structure is primarily a negotiating implement designed to deny players an actual competitive labor market AND, perhaps more importantly, provide a defense against anti-trust litigation.

The whole thing is built to direct a larger piece of the pie to the owners and keep the employees from being able to realize their actual market value.

Every time someone argues that single entity/MLS roster rules are necessary for “slow and steady growth,” they are either glossing over or willfully ignorant of the fact that the MLS structure is built to deny players (primarily young American players) basic bargaining/freedom of employment rights that exist in the non-sports labor marketplace.

In the beginning…

When MLS was formed, the original owners and then MLS chief (and U.S. Soccer President) Alan Rothenberg designed the single entity structure in response to historical labor strife and anti-trust litigation in the other American sports.

It’s no secret that pretty much all of the American sports industry operates in a collusive and anti-competitive manner.

Collective bargaining exists as a preferred stop-gap, but when things go really bad between athlete employees and American sports team owners (and increasingly the NCAA), disruptive and costly anti-trust litigation comes to the fore as a negotiating lever and potential silver bullet to unwinding the American sport industry status quo.

So, how did MLS think single-entity would act as the ultimate shield against the player’s best (and sometimes only) bargaining leverage in the form of anti-trust litigation?

The logic goes that a single entity (in the case of MLS, a limited liability company that each ownership group buys into) can’t collude with itself. Therefore, the anti-trust laws, which are applicable to multiple parties that agree to collude and restrict trade/market competition wouldn’t apply because a single entity acts alone, without the cooperation of another market participant or competitor.

Down goes Fraser?

MLS launched with the single entity structure in 1996. In 1997, a group of players filed suit against MLS in Fraser v. MLS, claiming that the MLS structure violated Federal anti-trust statutes.

While MLS narrowly prevailed, the Fraser Court remarked that MLS appeared to operate with diverse, competing ownership interests, effectively placing the structure outside the safe harbor of a true single entity for anti-trust purposes.

Why is this important? Because MLS, like the NFL, NBA, NHL and NCAA, is built on the assumption that its business model won’t be blown up by a court judgment.

But the fact is that no one really knows how any given court (and especially the Supreme Court) will rule on a well-argued and orchestrated attack on American sports labor practices (including the NCAA).

That uncertainty acts as a negotiating lever for the players to get concessions from the owners, who generally aren’t interested in rolling the dice at an existential level and spending millions in legal fees defending an anti-trust lawsuit.

The Fraser decision ultimately went in MLS’s favor but the real question—whether MLS was actually a single entity for anti-trust purposes—was teased but not definitely answered by the 2nd Circuit Court of Appeals, which issued the Fraser decision.

Statements to the effect that Fraser was a definitive judicial sign-off on the MLS single entity structure are false and misleading. MLS, like it’s professional sports counterparts, could see its future radically altered by judicial intervention in response to an anti-trust lawsuit.

The times they are a changing…

In 2010, the MLS Player’s Union and league owners (represented by Don Garber) couldn’t agree to a new collective bargaining agreement until 5 days before the start of the season.

The players wanted free agency.

Instead they got the re-entry draft, which ensures that MLS players lack basic freedom of negotiating rights throughout their tenure as employees of MLS.

At the close of the 2010 negotiations, Don Garber, who generally acts as the chief orchestrator of MLS’s opaque and clandestine operating strategy, was confidently transparent with his remarks on the core issue of the agreement:

MLS was founded on the principle that our owners would not be competing against each other for player services. When we think of free agency, it is that concept of internal bidding, and there will not be internal bidding for player services.

The legal landscape has changed since Garber and MLS tried to shut the door on MLS free agency back in 2010.

Just two months after the 2010 CBA was signed, the U.S. Supreme Court issued its opinion in American Needle v. NFL, in which the NFL had presented a broad single entity defense under the theory that all 32 teams were engaged in the “football business” in competition with other forms of entertainment (the 7th Circuit Court of Appeals agreed with this argument).

The Supreme Court heard the case and ruled 9-0 against the NFL, overturning the 7th Circuit and rejecting the NFL’s argument that it constituted a single entity (American Needle was related to merchandising agreements, but the Supreme Court’s decision applied to all aspects of NFL business).

The American Needle decision seems to blow a significant hole in any future single entity defense by a sports league, especially MLS.

Regardless of MLS’s formal corporate structure, MLS is a patchwork of ultimately competing interests that fall under the American Needle line of reasoning.

The American Needle decision provides the MLS players a promising line of attack, should they wish to pursue it, against the MLS single entity defense.

Without a single entity defense, MLS is exposed to anti-trust scrutiny and shifts the negotiating balance of power more towards the players and their demands for free agency (a path the NFLPA took in the 1980s to ultimately secure free agency rights for NFL players).

Free agency would be a huge victory for the MLS Players prior to the 2015 season and would represent a seismic shift in the American soccer landscape.

Adding free agency to factors like

the recent emergence and successful growth of the 2nd Division NASL (which operates in a far less controlled fashion than MLS), and

MLS teams’ desire to succeed competitively and financially in CONCACAF and FIFA club competitions

provides fundamental counters to the arguments that the current MLS structure is necessary for the existence of a successful professional soccer industry and culture in the United States.

Once free agency is implemented, how will MLS and U.S. Soccer respond?

Unlike the other American sports leagues, American soccer teams and players regularly compete against international competition that don’t have the strict controls imposed within MLS. How does that difference affect the future of U.S. Soccer as compared to other professional sports industries?

These are questions that are worth asking and discussing in the coming years. On the other hand, passionate and snarky opinions, well informed or otherwise, aren’t going to threaten soccer’s popularity or shift the floor beneath the soccer industry’s feet. A widespread understanding for the tenuous legal position facing MLS and the rest of the American sports industry might have a more measurable impact.

For a more detailed and technical discussion of many of these issues, check out this excellent law review article by Attorney Matt Jakobsze.