RSL 101: What makes MLS so weird? Understanding the intricacies of the league

With Major League Soccer's 20th season just around the corner, we here at RSL Soapbox attempt to answer the age old question: What makes Major League Soccer so unique in the world of professional soccer? Breaking it down into three components, we explore how the business side of the league has created a unique entity.

For years, Major League Soccer has been an enigma throughout most of the world.  A lack of understanding about the league has led many to question it ability to create a competitive atmosphere. It does not look like any other league in the world, and it certainly does not act like every league in the world.

However, going into its 20th season, Major League Soccer has risen to 8th in worldwide attendance for all soccer leagues with 19,148 fans per match.  On the domestic side of things, MLS recently surpassed both the NBA (17,407) and NHL (17,587). Still, it's an oft-asked question: Just what makes Major League Soccer so different from other leagues?

Primarily, unlike leagues in nearly every other country, Major League Soccer operates under a single-entity business structure as a limited liability company. By operating as a single entity, the league maintains safeguards from antitrust lawsuits under the legal theory that a corporation cannot conspire against itself through restricting tradable assets through its subsidiaries.

This means that all player contracts are centrally owned by the league and not the individual clubs. Furthermore, each franchised in the MLS is also owned by the league through investor-operator positions that are essentially shareholders in the league.

This is vastly different foreign leagues — and domestic leagues, for that matter. In the English Premier League, for instance, Arsenal and Chelsea are considered different legal entities - they operate independently from one another. Each club owns the individual rights to their players. In MLS, by contrast, Real Salt Lake and their rivals the Colorado Rapids are, in many respects, treated as subsidiaries of the same legal entity in which their players are all employed by the league and not the individual clubs.

Despite seeming oxymoronic, having multiple clubs owned by a single owner was a necessity during the league's first decade of operation. The purpose of the single-entity business model is to prevent clubs' ownership from unsustainable spending — a practice that ultimately doomed the first incarnation of the North American Soccer League in the 1980s — and to prevent a competitive imbalance among franchises — a practice that dominates many foreign leagues with several large clubs dominating their respective league year after year. As a result, Major League Soccer used the single-entity business model to create a sustainable league in its early years implementing things that were learned from both foreign and domestic leagues.

Major League Soccer initiatives

The MLS has since introduced various initiatives and rules in order to attract additional investors that have changed the business structure of the league. Since 2002, the league has substantially weakened the single-entity structure by permitting greater investor-operator discretion. As a result, the league has effectively become a "hybrid" between a single company with a sole interest and a collection of independent competitors.

Among the initiatives that have challenge the unity of control of the league - and made the league unique - are Designated Players (DP), Generation Adidas (GA), homegrown contracts, and "Core Player" contracts. The DP rule allows clubs to sign a limited number of players whose salary exceeds the maximum salary cap - some top DPs earning as much as 180 times more than the league minimums - while still having an impact on club finances.

The GA and homegrown programs are another way to maintain a roster that has a limited - if any - impact on the salary cap. Under the umbrella of these programs, youth player salaries are considered "off budget" in order for their clubs to cultivate the next generation of professional players.

Similarly, the "Core Players" initiative allows franchises to re-sign players using retention funds - i.e., allocation money - that does not count against the salary cap. As a mechanism to retain key players, the MLS has been able to retain the services of high profile players like U.S. national team regulars Graham Zusi and Matt Besler who would have otherwise moved to a foreign league for a larger pay check.

While still maintaining the appearance of a single-entity system, the league has made significant movement towards more "hybrid" business model. Making the league unique in the world of soccer, the rules and initiatives of MLS have also been attributed to increasing on-field competition.

Major League Soccer's collective bargaining agreement

Major League Soccer has used the single-entity structure to shield itself from antitrust violation lawsuits, but, since hybridization, a collective bargaining agreement (CBA) has also taken center stage. The CBA is a special type of commercial agreement which regulates the terms and conditions of employees - in this case, the players - in their workplace, their duties and the duties of the employer - the league.

Despite its complexity, the CBA encompasses two predominant characteristics that are unique of MLS. The first is a salary cap, similar to the NBA, NFL, and NHL. The salary cap, in essence, limits the amount of money that teams can spend on player salaries, making the league both sustainable and competitive. Some have argued that the salary cap replaces the need for a single-entity structure going so far to bring legal action against the league (see Fraser v. Major League Soccer), but the hybrid structure remains - creating a dual layer of legal protection for the league.

The other feature is the club-options whereby at the end of a season the club can unilaterally choose whether to extend a player's contract for an additional year. Over the past year this has been one of the biggest sources of uncertainty in the MLS which became a focal point of trepidation when Vancouver's Camilo Sanvezzo and Real Salt Lake's own Carlos Salcedo made noise about challenging the validity of whether or not they were still under contract.

The supposed FIFA appeals by both the player and the Mexican clubs they ultimately transferred, however, never came to fruition to resolve the issue. The league seeming left the fray with a leg up after the MLS clubs that previous employed the players were ultimately paid transfer fees.

Major League Soccer's league operations

Major League Soccer also operates in a professional sports system that does not use merit-based promotion and relegation. While this characteristic does not make the league intrinsically unique in North America, it does make it distinctive in the soccer world: The only other franchising league in the soccer world is the Australian A-League. In other words, whereas the country's governing body for the sport, the United States Soccer Federation (U.S. Soccer or USSF), oversees the league system, i.e., sanctioning professional leagues, the leagues themselves are responsible for their own operations, i.e., admitting and administering individual clubs.

The league structure itself is therefore formed out of necessity as part of the single-entity business venture. Whereas investor-operators own the rights to a subsidiary of the MLS, the franchise could therefore not be relegated (transferred) to a lower division because it is in essence a different company.

That is not to say that limited forms of promotion and relegation have not existed in the past; for example the United Soccer Leagues run both the third and fourth division leagues, between which teams can voluntarily move. Several franchises have voluntarily moved between the leagues in order to re-structure or maneuver their operating costs. Within Major League Soccer itself, clubs from lower divisions can be "promoted" through their ownership becoming a stakeholder in the league. Such examples include the Cascadia triplets of the Portland Timbers, Seattle Sounders, and the Vancouver Whitecaps, previously of the NASL.

We'd like to know what you think?  Do you think that there is a characteristic of the MLS that we missed? Are there other models like MLS that we overlooked? What do you think makes Major League Soccer unique/weird? Share your opinions in the comments section below.