Promotion and Relegation Would Be Bad for American Soccer Right Now

Angelo Angelino

Perhaps too often in sports we focus on best of the best. Viewership skyrockets during playoffs and finals as consumers want to see someone win something tangible. But what about the worst teams? What about the 0-16 Cleveland Browns (2017), the 119-loss Detroit Tigers (2003), or the 2014-2015 Philadelphia 76ers squad that was being compared to the college basketball Kentucky Wildcats? At best, after a certain point in the season where their historically dreadful fate was sealed, these terrible teams simply provided something for fans to laugh at, and public attention shifts towards the teams competing for a championship. To quote Reese Bobby, father of the great Ricky Bobby, “if you ain’t first, you’re last”, and that is certainly the sentiment that best encapsulates American sports culture.

Outside of the United States, however, the difference between 17th and 18th place is arguably more important than the difference between 1st and 2nd place, as placing in such a position could lead to the team’s relegation to a lower division (or even a separate league), costing the franchise from both a sporting and financial perspective. Most member nations of the Federation Internationale de Football Associations (FIFA) operate their domestic professional leagues in a tiered system. Using a system a promotion and relegation, the worst teams from each league are demoted to the league immediately below it, with the best teams from that inferior league replacing the teams in the higher leagues. Especially considering the multi-million and, sometimes, multi-billion television contracts that is shared amongst teams participating in the best domestic league, the loss of such funds through a relegation is only be compounded by the loss of sponsorship contribution, ticketing revenue, and other forms of revenue the team might see over the course of the season only available when participating in the top division.

The United States soccer structure, with Major League Soccer (MLS) occupying the first division and the United Soccer Leagues (USL) occupying the second and third divisions, does not operate using the promotion and relegation model. In September of 2017, the North American Soccer League (NASL), the former second division soccer league in the United States, filed 2 lawsuits against the United States Soccer Federation (USSF), the regulatory body of the MLS. The first was filed in US Federal Court, with the NASL bringing an antitrust claim in its argument that the USSF conspired with the MLS to harm the NASL in an attempt to prevent the NASL from competing with the MLS as a first division professional league. Discovery is scheduled to end April 30, 2019, with the trial likely to take place in the fall of 2019. However, there is not much optimism as to success of the claim. The NASL also filed a claim with the Court of Arbitration for Sport (CAS) in Switzerland as FIFA requires all of its member nations and organizations (including the USSF and MLS) to agree to have all disputes of FIFA’s rules and regulations be submitted to CAS’s jurisdiction. The NASL’s claim simply cites Article 9, entitled ‘Principles of Promotion and Relegation’, of FIFA’s Regulations Governing the Application of Statutes that provides that “a club’s entitlement to take part in a domestic league championship shall depend principally on sporting merit. A club shall qualify for a domestic league championship by remaining in a certain division or by being promoted or relegated to another at the end of a season.” CAS has yet to make a decision or even comment on the timeline for any sort of determination.

While the promotion/relegation debate has been talked about for years, I think the development of the USL, particularly over the past 12 months, provides a crucial point of analysis.

Developing a professional sports league in the United States in 2019 isn’t like founding the MLB in 1903 or even the NBA G League in 2001. Take the MLS, for example: while in Toronto FC paid just $10 million to join the league in 2017, the current expansion fee is estimated to be around $200 million. Simply, it is expensive to buy a team, and it is even more expensive to build a league—even a minor league! (Relatedly, the new Alliance of American Football had to be bailed out one week into its operations and remains on the brink of financial failure.)

Looking at the USL owners, a significant number of them have had experience investing in minor league baseball (Jeff Logan, for example, current owner of the Birmingham Legion FC in the USL is also an owner of the Birmingham Barons). While many minor league baseball teams were valued below $500,000 thirty years ago, today, most AA teams are valued between $15 and $25 million, with most AA teams being valued above $30 million. The AAA Sacramento River Cats occupy the most valuable minor-league baseball franchise position at $49 million. These new owners in the developing market, from their experience with minor league baseball, see the investment value in developing USL, and are willing to spend a considerable amount to be a part of it.

So of course, from a sporting context it would be nice to have promotion and relegation to do away with the ‘first or last’ mentality that makes the second half of the season for so many franchises essentially meaningless. But from the perspective of the growth of soccer in the United States, a promotion and relegation model would create a significant amount of risk for investors. For the continued development of our leagues, we need investors to feel comfortable that their investment into the USL Championship, the current second division professional soccer league, won’t be significantly diluted by their franchises’ relegation to the USL League 1, the current third division professional soccer league. The Court of Arbitration for Sport is likely going to make their decision using a business determination, as the success of MLS and the rest of the US soccer system is crucial for the international sporting market (as evidenced by a significant loss in revenue following the US’s failure to qualify for the 2018 World Cup Finals).

To ensure the short term success of the MLS, I think CAS will, and should, deny the mandate for a promotion/relegation system as it is the best practical business move. Unlike the Courts of the United States, the CAS is heavily influenced by FIFA and its business needs, and hasn’t backed away from making questionable decisions (such as failing to effectively sanction Manchester City and PSG for breaching FIFA’s financial fair play regulations as the success of these two franchises is undoubtedly good for business), and as such CAS is unlikely to do so here.