“Parity translates to mediocrity. It doesn’t translate to excellence.”
—Bruce Arena, to Steven Goff (August 25, 2014) “A Few Good Minutes With Bruce Arena”, The Washington Post

In his seminal book The Tipping Point, Malcolm Gladwell identified a phenomena that exists in nations, companies, marketing campaigns and social networks alike, when a trend or idea crosses a threshold and spreads like wildfire. Last week, the LA Galaxy announced the signing of Giovani Dos Santos, a 26 year old Mexican international who has played for Barcelona, Tottenham Hotspur, and Villareal. The signing of Dos Santos has led me to wonder: is MLS at the tipping point?

Last week, former Liverpool player and ESPNFC analyst Steve Nicol criticized the LA Galaxy’s acquisition of Giovani Dos Santos as a move which threatens the parity on which MLS was founded. When former Chelsea player Craig Burley pointed out that every MLS team was free to use targeted allocation money to make big ticket signings, Nicol demurred that star players would only want to play in markets like New York or Los Angeles and since some MLS ownership groups could not pay exorbitant salaries to superstars, the ultra-wealthy ownership groups of NYCFC and the LA Galaxy were imperiling the competitive nature of MLS.

Nicol is both right and wrong. He is correct that the signing of Dos Santos signals a departure from parity but wrong about the reasons why it is happening and what this shift in the landscape means for MLS.

First, Nicol’s Cassandra-esque predictions should be taken with a grain of salt. The LA Galaxy, the ostensible MLS super club, has a record of 9-6-7 this year. Compare that record to the past season in Europe, where Barcelona went 30-4-4, Real Madrid went 30-2-6, Bayern Munich went 25-4-5, Juventus went 26-9-3, and Chelsea went 26-9-3. The lesson: MLS has, and likely always will have, more parity than any of the major European leagues. Indeed, a quick glance at the 2015 MLS salary numbers released last week by the player’s union shows precisely how roughly the size of a team’s payroll correlates to success:

Team 2015 Payroll
Toronto FC $22.77 million
LA Galaxy $19.47 million
NYCFC $17.86 million
Orlando City $11.47 million
Seattle Sounders $11.36 million
New England Revolution $6.56 million
Vancouver Whitecaps $6.15 million
Sporting Kansas City $5.61 million
Philadelphia Union $5.56 million
Portland Timbers $5.31 million
Chicago Fire $5.14 million
Houston Dynamo $4.98 million
Colorado Rapids $4.93 million
Columbus Crew $4.92 million
San Jose Earthquakes $4.78 million
DC United $4.34 million
Montreal Impact $4.33 million
Real Salt Lake $4.32 million
FC Dallas $4.09 million
New York Red Bulls $3.88 million

FC Dallas, the team with the second lowest payroll in MLS, jumped to the top of the Western Conference standings on Saturday night and now leads the race for the Supporter’s Shield. Oh, and the team with the lowest payroll, the New York Red Bulls? They’re second in the Eastern Conference, after D.C. United, which has the 17th highest payroll in MLS.

Further, we can dispose of the notion that highly compensated footballers will be reluctant to ply their trade in America’s mid-sized markets. Players live in Sunderland. Players live in Birmingham. Players live in Qatar. The reason they do so is because of money. There is no empirical reason to support the conclusion that world-class players would be unwilling to play in any of the cities in which MLS clubs are situated. (“Portland? Who wants to live with all these lush forests, craft breweries, and bicycle paths?”; “Washington D.C.? Hey, there are too many four star restaurants in this town for my liking”; “Salt Lake City? Feh – I hate National Parks and ski resorts.”) Former FIFA World Player of the Year and Ballon d’Or winner Kaka currently lives in Orlando, the third largest city in Florida, because he is being paid $7 million dollars a year to do so.

No, the day that MLS clubs start paying wages commensurate with the Premier League, Bundesliga, and La Liga is the day that players will happily swim across the Atlantic and profess their fervent devotion to MLS. (“I’ve dreamed of winning an MLS Cup since I was a child” “I’ve always preferred the playoff system” “I had a poster of Landon Donovan in my bedroom growing up.”) Further, as the finances of Europe’s and South America’s top leagues get progressively worse (the economists in the crowd know what I’m talking about), the number of footballers who will be tickled pink to sign up for a seven figure salary in MLS will balloon.

Let’s also dispense with the farcical premise that MLS ownership cannot afford to fund a world-class football league. As the below list demonstrates, almost every MLS team is financed by a billionaire, and most are multi-billionaires:

Franchise Ownership Net Worth
Atlanta United FC Arthur Blank $2.5 billion
Chicago Fire Andrew Hauptman (Andell Holdings) Hauptman’s only got millions but wife’s family has over $2 billion
Colorado Rapids Stan Kroenke (Kroenke Sports Enterprises) $6.3 billion
Columbus Crew Anthony Precourt (Precourt Sports Ventures) Unknown but father, Jay Precourt, has hundreds of millions
DC United Erick Thohir, Jason Levien, William Chang Very opaque numbers but at least $2 billion
FC Dallas Clark Hunt $2 billion
Houston Dynamo Philip Anschutz (AEG) (75%); Oscar DeLayHoya (25%) AEG ($12 billion) DeLaHoya ($200 million)
LAFC Henry Nguyen, Tom Penn, Vincent Tan, Magic Johnson, Mia Hamm, Peter Guber, Ruben Gnanalingman, many others $5 billion (Conservative est.)
LA Galaxy Philip Anschutz (AEG) $12 billion
Miami David Beckham, Marcelo Claure, Simon Fuller $2 billion
Montreal Impact Joey Saputo $5.2 billion
New England Revolution Robert Kraft $3 billion
NYCFC Sheikh Mansour, Hal and Hank Steinbrenner $7.2 billion (Mansour – $6 billion; Steinbrenners – $1.2 billion)
New York Red Bulls Dietrich Mateschitz (Red Bull GmbH) $5.3 billion
Orlando City SC Flavio Augusto da Silva, Phil Rawlins $600 million
Philadelphia Union Jay Sugarman, Nick Sakiewicz, Robert and Christopher Buccini, David Pollin, Weston Solutions, Richard Graham (Keystone Sports & Entertainment, LLC) Hard to estimate but billions (Richard Graham is a billionaire)
Portland Timbers Merritt Paulson $700 million
Real Salt Lake Dell Loy Hansen $1 billion (Conservative est.)
San Jose Earthquakes Lewis Wolff and John Fisher $3.5 billion
Seattle Sounders FC Joe Roth, Paul Allen, Adrian Hanauer,B14 Drew Carey $18 billion ($17 Billion is from Paul Allen)
Sporting Kansas City Neal Patterson, Clifford Illig, Pat Curran, Greg Maday, Robb Heineman (Sporting Club) $3.5 billion (Conservative est)
Toronto FC Maple Leaf Sports & Ent. $2 billion
Vancouver Whitecaps Greg Kerfoot, Steve Luczo, Jeff Mallett, Steve Nash $2 billion

 

To put these numbers in perspective, LA Galaxy owner Philip Anschutz’s $12 billion net worth is three times that of the Glazer family, which owns Manchester United. Paul Allen, who is a minority owner of the Seattle Sounders, has amassed a fortune of $17 billion, which gives him a net worth three times that of Sheikh Mansour bin Zayed Al Nahyan, who owns Manchester City (and NYCFC). In fact, Paul Allen’s minority ownership of the Seattle Sounders makes him the wealthiest football club owner on Earth. Collectively, the MLS owners have a net worth of at least $80 billion dollars (by way of comparison, the gross domestic product of Costa Rica is $52 billion, Croatia is $48 billion, and Bulgaria is $51 billion). Indeed, the fact that Orlando City has the highest paid player in MLS on its roster despite the fact that it has one of the least wealthy ownership groups demonstrates that whether a club makes a high-priced Designated Player acquisition is entirely a matter of choice; and contrary to the claims of the many conspiracy theorists that frequent MLS message boards, the same rules apply to the LA Galaxy as apply to every other team in the league.

But Nicol is correct that the LA Galaxy’s signing of Dos Santos constitutes an amelioration of the parity principle on which MLS was founded, a process that started with the arrival of David Beckham in 2007, accelerated when Clint Dempsey returned to MLS in the fall of 2013, and exploded in the year that has elapsed since the United States Men’s National Team took the U.S. to a knock-down drag-out extra time clash against Belgium at last year’s World Cup in Brazil.

However, the Dos Santos signing (and the signings of Beckham, Henry, Cahill, Keane, Dempsey, Bradley, Kaka, Villa, Lampard, Giovinco, Gerrard and Pirlo which preceded Dos Santos) does not divide MLS into superclubs and minnows so much as it signifies the growing divide among MLS owners about the aspirations of MLS.

Right around the time that the NASL was gasping its last breath, the United States Supreme Court decided the case that facilitated the genesis of MLS, Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). Prior to 1984, an antitrust lawsuit against a single entity structure like MLS would have been successful because until that time, agreements among separate corporations, even when they were commonly owned or when one was a wholly owned subsidiary of the other, were subject to liability under The Sherman Act.

The Sherman Act, our primary piece of antitrust legislation, is divided into several sections: Section 1 addresses anti-competitive conduct in the marketplace whereas Section 2 focuses on anti-competitive outcomes, i.e. monopolies. In 1984, the Supreme Court ruled in Copperweld that “[t]he conduct of a single firm is governed by § 2 alone and is unlawful only when it threatens actual monopolization.” Copperweld, supra, 467 U.S. at 767 (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 452 U.S. 752, 761 (1984).) Thus, the Copperweld Court ruled that the law should only concern itself with single-entity companies that threaten to monopolize the marketplace, not those who simply engage in anti-competitive behavior. Further, Copperweld went on to state that a “single entity” cannot constitute the “plurality of actors” implicitly required for imposing liability under Section 1 of the Sherman Antitrust Act. Copperweld, supra, 467 US at 768.

By ruling that a parent and its subsidiaries would not be subjected to Section 1 Sherman Act liability for entering into agreements among themselves not to compete (provided that those agreements do not threaten the overall competitiveness of the marketplace), Copperweld opened the door for the emergence of MLS. After all, MLS engages in a lot of anti-competitive conduct – it essentially prohibits MLS franchises from competing with one another over labor (MLS has a very limited form of free agency) and caps player salaries in order to control costs. These were necessary imperatives when MLS was founded in the 90’s in light of how the NASL’s implosion was driven by excessively rapid expansion and spiraling salary costs.

And so it was that almost two decades after Copperweld, the First Circuit Court of Appeals ruled in Fraser v. Major League Soccer, LLC (2002) 284 F.3d 47 that MLS does not run afoul of The Sherman Act. The First Circuit’s opinion in Fraser relied on Copperweld’s holding that Section 1 Sherman Act liability does not extend to anti-competitive conduct within single-entities and differentiated MLS from monopolistic leagues like the NFL by pointing out that, unlike other American sports leagues, MLS does not endanger the soccer marketplace because soccer is a global sport and any player who does not want to subject himself to the rules of MLS can ply his trade abroad.

However, in what would turn out to be a prophetic turn of phrase, the First Circuit appears to have anticipated how MLS’ structure would eventually give way to intra-entity tension given the divergent entrepreneurial interests of the distinct ownership groups. Judge Michael Boudin opined as follows:

To sum up, the present case is not Copperweld but presents a more doubtful situation; MLS and its operator/investors comprise a hybrid arrangement, somewhere between a single company (with or without wholly owned subsidiaries) and a cooperative arrangement be-tween existing competitors. And, of course, there is not one kind of hybrid but a range of possibilities (imagine the operator/investors with their separate entrepreneurial interests but without their control of MLS). The question is what legal approach to take.

Fraser, supra, 284 F.3d at 58 (emphasis added). In referring to MLS as a “hybrid” entity, Justice Boudin identified the conflict inherent to a system wherein competitors agree to a set of rules designed to limit competition and control costs but do not agree about why they are members of the system in the first place.

The LA Galaxy’s acquisition of Dos Santos signifies a deepening discord among MLS owners regarding MLS’ raison d’etre. Twenty years ago, a number of MLS owners bought their franchise for reasons totally unrelated to soccer, e.g., Bob Kraft bought the New England Revolution because he wanted another tenant for Gillette Stadium where his other, more lucrative team, the New England Patriots, plays. However, the first phase of MLS is over. There is a new group of MLS owners that represent its next life cycle (MLS 2.0 if you will) who are more interested in football clubs as totems of prestige, e.g., Sheikh Mansour is amassing football teams worldwide that play an elegant style of football which Mansour sees as an edifice to himself.

Consequently, MLS ownership groups are now segregated into three factions: the New Guard (who want to raise the salary cap, splash the cash on acquiring big name players, and win championships), the Moderates (who target mid-price DP acquisitions and hope to punch above their weight in competing for championships) and the Old Guard (those owners who oppose raising the salary cap and prefer relying on cheap young talent in lieu of expensive imports). The New Guard include Toronto FC, NYCFC, LA Galaxy, Seattle Sounders, and Orlando City, the Moderates include clubs like Kansas City, the Portland Timbers, and the Houston Dynamo, and the Old Guard include clubs like FC Dallas and DC United.

This disconnect among MLS owners between being wildly ambitious and deeply pragmatic will only become more pronounced in the future. Both Arthur Blank of Atlanta United FC and the LAFC ownership group have announced their intentions to be big players in MLS. Indeed, LAFC’s owners (a motley crew which includes former NBA star Magic Johnson, venture capitalist Henry Nguyen, entertainment executive Peter Guber and lifestyle guru Tony Robbins) have all but publicly declared that they plan to make a play for Cristiano Ronaldo in 2018. Further, if David Beckham’s Miami project ever gets off the ground, rest assured that Beckham United plans to splash the cash to preserve Beckham’s luxe brand.

MLS is at a crossroads. It is having an existential crisis about what it wants to be.  Commissioner Don Garber has pronounced that MLS wants to be one of the top football leagues in the world by 2022, which at first blush seems a laughable premise. However, according to the salary numbers released by the MLS Player’s Union last week, the average guaranteed compensation of MLS players increased from $207,832 in 2014 to $282,088 in 2015, which constitutes a 35% increase in the past year (yes, I know the wage increases are skewed towards the top earners). Last year, Sportsmail released a comparison of salaries in different soccer leagues worldwide that listed MLS as the 22nd highest paying league in the world. Using this year’s numbers, MLS would now be ranked 18th on that list. Extrapolating on these numbers for the purposes of a thought experiment, if MLS’ average salaries increased at the rate of 35% per year for the next seven years, by 2022 MLS would be the second highest paying football league in the world, behind only the Premier League. If MLS’ salary increased at a more realistic rate of 20% per year for the next seven years, by 2022 it would be the seventh highest paying football league in the world, behind the Premier League, the Bundesliga, Serie A, La Liga, Ligue 1, and the Russian Super League (though in actuality since the Russian economy is in freefall and numerous clubs have stopped paying their players, it would actually be sixth in front of Russia).  In fact, it would probably take longer since certain of these leagues (the EPL and Bundesliga) will increase their wage bill between now and 2022. However, some of their payrolls will actually drop — indeed, a number of the leagues which self-report their payrolls do not actually pay their players the salaries they publicly report (this problem occurs in leagues in Turkey, Russia, Brazil, Argentina, the Ukraine, Italy, Spain and a number of other countries.)

Now the amount of money MLS pays its players is not a perfect proxy for the quality of the league. The average salary in the Premier League is almost twice that of Serie A – this does not mean that the Premier League has twice the quality of Serie A. However, the MLS owners are clearly in a position to radically improve the quality of the league… if that is what they want to do.

As MLS expands, a greater proportion of its owners will agitate to be more ambitious and the question for its leadership is whether the principles of the Old Guard or the New Guard will guide MLS in the future. One cannot have perfect parity in a league where some owners are reaching for greatness while others are content to tread water.  How long can the Old Guard keep the New Guard at bay? At what point does the New Guard reach critical mass? At what point does the anxiety that plagued MLS’ first two decades give way to an era of achievement? Is it now? Has it passed us? Did it arrive with Dempsey, Giovinco or Dos Santos?

If Dos Santos is the harbinger that MLS has reached the tipping point, then I applaud the LA Galaxy for ushering in his arrival. A wildfire of excellence is worth spreading.

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