The Equalizer: Is MLS anticompetitive?

Major League Soccer (MLS) commissioner Don Garber in 2014 announced that he wanted the league “to become one of the top leagues in the world by 2022.” It was an ambitious goal in 2014, and in 2017, the MLS still appears far off the mark. Ironically, the very structure of the MLS conflicts with this short term goal.

Back in the 1970s, the North American Soccer League (NASL) attempted to grow into a global soccer superpower. It had an open market that allowed owners to pump big money into their teams, spending lucratively on players like Pelé and Franz Beckenbauer. However, the teams quickly ran out of money when enough revenue did not materialize. MLS, seeking to avoid this catastrophe, adopted a single-entity model whereby the league – and not individual teams – centrally owns all of its franchises, players, stadium deals and TV rights.

In some ways, the single-entity model is working: MLS is marginally getting better year to year. Average game attendance, the salary cap and the median player salary have all gradually increased, but all at a slow pace. In terms of becoming a top league in five years, the MLS business model instead seems to favor slow, consistent progress.

Yet there are various areas where the single-entity model is failing. Every time a commentator calls an MLS team a club, they are misspeaking. Soccer clubs like Manchester United or Juventus are owned privately and have full autonomy over their teams, while MLS teams are franchises owned by the MLS itself.

Because of this single-entity system, the success and growth of the MLS surely helps every team, but the success of another franchise also helps every other franchise. This creates an anti-competitive market that inherently stunts growth.

Take for example MLS’ introduction of Targeted Allocation Money, which grants teams extra money to attract and retain players from foreign leagues. Instituted in 2015, many believe that this additional funding mechanism was invented so that the LA Galaxy could sign Mexican midfielder Jonathan dos Santos, an internationally recognized player who could help drive revenue. Since that revenue actually goes to the MLS — and thus all the other MLS teams — could any other franchise owner truly be upset? The Galaxy just improved its chances for success, but at the same time, all MLS teams benefitted.

Therein lies the crux of the problem: The MLS structure conflicts with franchise owners’ desire to act in their own best interest. When other teams benefit from one’s success, where does the incentive to succeed go? Why try and get ahead when you can piggyback on other teams’ success?

It’s clear that the current MLS setup was created to ensure the survival of the league. It provides a safety net for teams and consolidates power so MLS teams can compete to sign players in a competitive global soccer market. This system may work for mediocrity, but if the MLS wants to be a top league, it won’t in its current form. Many believe it will take the institution of promotion and relegation — the topic of my next column — to truly grow the sport, which would shake-up the MLS to its very core.

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