By Christopher Hapka
Two high-profile lawsuits in a year may not seem like much in most global industries. But in soccer, where arbitration is enforced by rule on all recognized leagues, the two suits that broke out in Chile and the United States in 2009 are an aberration. Both cases sought to test the relationships between professional soccer teams and their leagues, but because of the focus on arbitration on the part of FIFA, soccer’s global governing body, both were extremely short-lived.
The Rangers Case: Bankruptcy, Relegation, and a World Cup Crisis
The trouble in Chile began with a league match on November 8, where Club Social de Deportes Rangers, a team that played in Chilean soccer’s top division, lost 1-0 to Club de Deportes Cobreola in their final game of the season.
Given that Rangers were already near the bottom of the league table, in most American sports leagues this game wouldn’t have mattered. But in Chile, as in most of the world, soccer leagues are run on a promotion/relegation system, where the teams that finish last in the standings each year are “relegated” to a lower league to play against weaker opposition, while the team that finished in the top of the next lower division is “promoted” into the next higher league. As you might expect, trading the country’s most prestigious competition for the soccer equivalent of AAA ball has serious economic ramifications, and cellar-dwelling soccer teams around the world struggle to avoid “the drop.”
Lucky for Rangers, even their loss to Cobreola still left them with 38 points for the season from 10 wins and 8 draws, in 15th place in the league. At 15th, they would still need to win a playoff game to stay in the top flight, but they had avoided the automatic relegation that the 17th and 18th ranked teams faced.
Or so Rangers thought. Unfortunately, Rangers’ coach made a serious mistake in the second half of the Cobreola game, making a substitution that left Rangers with six non-Chilean players on the field at once, where league rules only allow five. As a punishment, the league penalized Rangers by three points, dropping them into the automatic relegation zone and the prospect of playing in the second division the following year.
In a bid to avoid the financial consequences of relegation, Rangers, a club already in bankruptcy at the time, sued the league in the Chilean courts seeking to reverse the decision. The basis for the lawsuit was Rangers’ claim that the three-point penalty was not effective, because while the league had immediately notified the club’s sporting personnel of their decision, they did not notify the bankruptcy administrators who had taken over the team after the season deadline. Therefore, according to Rangers, the three point penalty should have been applied in the 2010 season rather than 2009, leaving the team above the automatic relegation zone at the end of 2009.
The lawsuit caused immediate problems for the Chilean soccer league, which was forced to delay its post-season playoffs. It caused greater alarm, and international attention, when FIFA stepped in. The Federation Internationale de Football Association, soccer’s world governing body, has regulations that require teams, leagues, and other affiliates to settle their disputes by private arbitration in the International Court of Arbitration for Sport or another arbitration body. Article 64 of the FIFA statutes requires all national-level soccer associations to enact regulations “stipulating that it is prohibited to take disputes in the Association or disputes affecting Leagues, members of Leagues, clubs, members of clubs, Players, Officials and other Association Officials to ordinary courts of law,” and also requires each national association to “impose sanctions on any party that fails to respect this obligation and ensure that any appeal against such sanctions shall likewise be strictly submitted to arbitration, and not to ordinary courts of law.” FIFA Statutes, Article 64.
FIFA’s reaction to the Chilean lawsuit came quickly; on November 26, they notified CONMEBOL, the continental confederation in charge of South American soccer, that unless the lawsuit was dropped within 72 hours, Chile’s national team would be expelled from the 2010 World Cup in South Africa. Just one day later, the club’s creditors contacted the bankruptcy administrator and instructed him to withdraw the lawsuit, which he did. Rangers will play the 2010 season in Chile’s second division.
USL versus MLS: The Battle for America’s Second Division
Despite its dramatic threat against Rangers, FIFA avoided getting directly involved in the year’s other high-profile lawsuit, this one filed in a state courthouse in southern Florida. However, thanks to the intervention of FIFA’s American affiliate, the ultimate result was the same.
The trouble in the U.S. soccer marketplace didn’t concern Major League Soccer, the top division of the American game. Instead, it involved the top minor league in the U.S. up until 2009, the much lower-profile USL-1.
Unlike most other professional sports leagues, the United Soccer Leagues, which operates a number of different minor league professional and amateur soccer leagues in the United States, is an entirely top-down operation. The teams that play in the USL and in USL-1, the USL’s highest division, are independently owned, but those owners do not own a stake in the league and have little or no authority to make decisions on league-wide matters such as scheduling, expansion and contraction, or league-wide sponsorship or television contracts. Instead, a number of larger companies, including Umbro and Nike, have operated the USL over the years; the current owner is NuRock Soccer Holdings.
In 2009, several teams announced their decision to leave USL-1 and form their own league, which would be controlled by the team owners rather than by a third party. This league, later named the “North American Soccer League,” after the top-flight professional league that played in the United States in the 1960s through 1980s, would be made up of several former USL-1 teams, including some which had already signed franchise agreements with the USL for the 2010 season, as well as a few proposed expansion teams.
The USL’s response was to file suit in Florida state court. The USL’s complaint asked for no damages, but sought only injunctive relief against three of the NASL teams, based on the franchise agreements allegedly signed or orally agreed to by those three teams for the 2010 season.
USL sought to enjoin those teams from competing in any other league for the 2010 season, claiming that by attending NASL meetings and sharing information regarding the upcoming USL season, these teams were attempting to unfairly compete with the USL. The USL also sought to enforce two clauses of the teams’ franchise agreements.
In one clause, the teams agreed not to use any of the team’s trademarks, names, or logos for a period of one year after the franchise agreement was terminated; the USL sought to prohibit the teams from using those marks, which in some cases had been well-established in their communities, for the 2010 season. Complaint para 33.
The second clause permitted the league, if necessary, to take over a team completely in the event that the team’s owner “cease[d] to operate” it after initially agreeing to do so. Complaint para. 43. This clause was presumably inserted to allow the league to take over a team that folded during the course of a season, a not infrequent occurrence in most independent minor league sports. USL sought to invoke this clause to allow it to take over all aspects of the teams that had chosen to leave the USL-1 for the NASL, including player and stadium contracts, and to have the league’s central office operate those teams during the 2010 season.
One of the injuries the USL alleged in its Complaint was the fact that their acts would “prevent USL from fielding eight teams as required by the [United States Soccer Federation’s] Professional League Standards.” Complaint para. 19. The USSF is the FIFA-recognized governing body for soccer in the United States, and as Chile saw, failure to comply with FIFA standards can have serious consequences. Both the USL and NASL applied with the USSF for status as a recognized Division 2 league; playing without USSF (and therefore FIFA) approval could have serious consequences for players, coaches, referees and others involved in such a “renegade” league.
It was ultimately this leverage, rather than an explicit threat from FIFA as in Chile, that resolved the USL-NASL dispute and saw the USL’s lawsuit abandoned. On Tuesday, December 29, 2009, the USSF refused to sanction either league for the 2010 season, stating that neither, individually, could meet the requirements for a second division league. A little over a week later, on Thursday, January 7, 2010, the USSF announced that the two sides had reached a compromise under which teams from both leagues would play the 2010 season in a new USSF-run league rather than in either a USL-run or NASL-run league.
This combined league is only a one-year solution, but it likely removes the threat of litigation in the long term, even if the two sides continue to fight for the American minor league soccer market. The USL lawsuit was based on the renegade teams’ access to their 2010 season materials, on their 1-year agreement not to use their trademarks in a rival league, and on their abandoning their intention to play in the USL in 2010 after already having agreed to do so during 2009. Unless the parties agreed to an explicit tolling agreement as part of their settlement, each of these causes of action apply only to the 2010 season and are unlikely to be renewed.
While the USL may seem to have suffered the same fate as Rangers, in the end their short-lived litigation might be considered at least a minor victory. The USSF’s stated reason for not sanctioning either league was that neither had met the USSF requirements for a recognized professional league, which include the requirement that each league field a minimum of eight stable professional teams. There will be eight teams from the NASL camp playing in the USSF-run league in 2010. If the lawsuit raised enough of a question about the three defendant NASL teams to leave the NASL as a whole below the alleged eight-team threshold, or convinced the USSF to compromise rather than cutting the USL loose and sanctioning the NASL, it may have helped the USL without ever moving past the complaint stage.
USL versus MLS: The Battle for America’s Second Division
Both of these high-profile suits were quickly and effectively shut down by the intervention of FIFA or the USSF. Teams or leagues considering such a suit in the future are left with little in the way of a litigation record, but a lot to think about when it comes to the strategic dangers and opportunities of defying FIFA and pursuing their case in the courts.
References
Reuters UK, “Chile’s Rangers relegated after being docked three points.” November 12, 2009.
Associated Press, “Chile’s World Cup Team Faces Expulsion.” November 26, 2009.
ESPN Soccernet, “World Cup-bound Chile face FIFA suspension.” November 27, 2009.
BBC Sport, “Chile set to avoid expulsion from 2010 World Cup.” November 27, 2009.
Reuters, “Soccer clubs threaten breakaway league.” September 2, 2009.
Reuters, “Several Clubs Plan Breakaway North American League.” November 10, 2009.
Reuters UK, “US Soccer Reaches Deal for Second Division League in 2010.” January 7, 2010.
Complaint, United Soccer Leagues, LLC v. CPFC USA, LLC et al, No. 09-30343 (Hillsborough County, Fla. Dec. 8, 2009)
Christopher Hapka is an associate with Buchanan, Ingersoll & Rooney in Philadelphia, where his practice includes the defense of national antitrust class actions, intellectual property litigation and other complex commercial cases. He can be reached at chris.hapka@bipc.com or through the firm’s web site, http://www.bipc.com.
