MLS’s CBA negotiations: federal mediation, salary cap and steps toward free agency

Published 27 March 2015 | Authored by: Jake Cohen

Following the expiration of the Collective Bargaining Agreement (CBA) between Major League Soccer (MLS) and the Major League Soccer Players Union (MLSPU) on 31 January 2015, both parties entered into negotiations in an attempt to agree to a new CBA prior to the start of the 2015 season on 6 March.

After weeks of negotiations, the parties appeared to be at an impasse and decided to enlist the help of the Federal Mediation and Conciliation Service (FMCS),1 the same organisation that helped the parties negotiate an agreement during the last round of collective bargaining in 2010.

With the help of federal mediators, the parties were able to reach an agreement in principle on 4 March, just two days before the season was scheduled to begin, thereby avoiding the first work stoppage in MLS history.2

This article explores the legal basis of collective bargaining in the US (i.e. why an agreement needs to be reached and on what points); the role of the FMCS in helping the MLS and the MLSPU negotiate the terms of their CBA (and avoid a work stoppage); and the CBA’s two key issues: free agency and the salary cap.  Finally, the author examines if there was ever any real risk of a strike.

 

Collective bargaining

Collective bargaining is the process by which employers and employees, the latter of which are usually represented by a trade union, negotiate working conditions. Under §8(d) of the National Labor Relations Act (NLRA), both the management of a business (here, MLS) and workers union (here, MLSPU) are legally required to bargain in good faith “with respect to wages, hours, and other terms and conditions of employment.3

The National Labor Relations Board (NLRB) and the courts have determined which “terms and conditions of employment”are mandatory subjects of bargaining and which are permissive, or voluntary, subjects of bargaining. As noted by Glenn Wong, a sports lawyer, arbitrator, professor, and the current president of the Sports Lawyers Association, “in the professional sports industry, mandatory subjects of bargaining would include the college draft, the salary cap, a limitation on roster size, and health and safety issues.4

Conversely, examples of permissive subjects of bargaining would be the ticket allotment each player receives for friends and family or how the players will travel on flights (economy, business, or first class).5

The FMCS’s role in assisting CBA negotiations

Background

The FMCS, created by Congress in 1947 through the Labor Management Relations Act of 1947 (better known as the Taft-Hartley Act),6 is an independent United States government agency that offers dispute resolution services in an effort to “promote collective bargaining, strengthen labor-management relations, and enhance organizational effectiveness.7

In the context of collective bargaining, federal mediation is a “voluntary process occurring when a third-party neutral assists the two sides in reaching a collective bargaining agreement.8

It is worth noting that:

  • FMCS mediators are in touch with both parties even before negotiations actually begin. The contact is triggered by the legally-required notice of intent to open a collective bargaining agreement.9
  • Mediators may make suggestions and offer procedural or substantive recommendations with the agreement of both parties. However, they have no authority to impose settlements. Their only tool is the power of persuasion.10

Since 2010, the FMCS has mediated collective bargaining negotiations in the United States in Major League Soccer, the National Football League (NFL), National Hockey League (NHL), and National Basketball Association (NBA). Unlike arbitration, which may be mandatory and where a neutral third-party is brought in to render a decision on a dispute, which then becomes binding on the parties, mediation is voluntary and non-binding but can facilitate the parties reaching a contractual resolution to their dispute.

Key points from the 2014/15 negotiations

As in the 2010 CBA negotiations, the MLS and MLSPU failed to agree terms and the FCMS were brought in to mediate in late February. It is helpful to revisit some of the key points form 2010 CBA negotiations to see the path that has been followed into the 2015 CBA.

Back in February 2010, the then-director of the FMCS, George Cohen, heard about the difficulties between the parties and, after speaking with lawyers on both sides (Bob Batterman at Proskauer Rose for MLS and Jonathan Newman at Sherman Dunn for the MLSPU), offered to mediate the negotiations.

Cohen began the mediation process by asking each party to go into separate rooms and make a list of all of the issues they wanted to address. There were about 125 issues in total. Thirty to forty of the easiest issues were settled within the first few days, and it took around two weeks to agree upon the more difficult issues, namely free movement and more guaranteed contracts.

In large part thanks to the successful mediation, a new CBA was agreed to on 20 March 2010, just days before the season was scheduled to start.11 While the MLSPU did secure guaranteed contracts for all players aged 24 and older and with three years of MLS service time and an increase to the salary cap (10.15% during the first year, and 5% in each following year), there was very limited progress with regards to free movement. Instead, a “re-entry draft was created for players whose clubs choose not to re-sign them, and who met a certain age and service time requirements.12 These players are put into a pool, and MLS clubs take turns selecting players from that pool (clubs also have the option of declining to select anyone). Should a club select a player, his rights are then transferred to that club.13 While the re-entry draft provided for limited internal player movement, the power to determine which club a player moved to remained firmly with the League and the clubs themselves.

Afterwards, both parties acknowledged the crucial role that the mediation – and, in particular, Cohen’s job as mediator - played in the process. MLSPU executive board member, Landon Donovan, said that the deal candidly would not have gotten done without Cohen and his deputy Scot Beckenbaugh.14 Equally, Bob Batterman, who has served as outside counsel for MLS, the NFL and the NHL, said at the time that Cohen “has unique qualifications for sports mediation….He has total credibility on both sides,” Batterman said. “He knows how to move the process, and he understands the politics on each side of the table.15

In late February 2015, Scot Beckenbaugh joined the most recent MLS CBA mediation, after previously being detained while successfully mediating another labour dispute that ended nine months of deadlocked negotiations that were costing the US economy up to $2 billion per day.16

Despite negotiating unsuccessfully for months, within days of Beckenbaugh joining the mediation, and with the start of the new season a few days away, the parties came to an agreement on a new five-year CBA on 4 March 2015, just two days before the season was scheduled to start.

The two most important issues in the latest round of negotiations between MLS and the players union were 1) free agency, and 2) the salary cap which are examined in more detail below.

Free agency

An unrestricted free agent is a player out of contract with his former club and who is free to sign with a club of his choosing and negotiate a contract based on what the market will pay him. A restricted free agent is a player whose former club retains some rights to the player’s services (i.e. in the NBA, a restricted free agent’s former team has the ability to match any offer the player receives on the open market).17

The issues of free agency are not new, and a law journal article published in 1992 discusses this point with regards to NFL players at the time, but the principles remain the same for MLS players:

In terms of free agency and the ability for a player to offer his services on the open market and let the market decide what his salary should be, “competition is obviously the best way to determine salaries, and it is clearly the wave of the future. Although the course of litigation has been long and difficult - and seemingly without end - the results are dramatic and could not have been obtained without it. Free agency not only establishes salaries by the free market, but it also allows the players to negotiate individual benefit packages such as insurance and severance. It opens up the opportunity to receive guaranteed money through signing bonuses and guaranteed contracts. It gives players freedom to choose where and for whom they will play and where they will live. This freedom - taken for granted by almost everyone - is long overdue for professional football players in this country.”18

MLS had steadfastly refused to grant the players free agency predominately because granting free agency would all but destroy MLS’s chances of defending its single-entity status in court.

MLS was specifically formed as a single-entity league to avoid antitrust claims, and that status was challenged by a group of players in 1996. When the case, Fraser v. Major League Soccer, was decided in 2000, the court, relying on precedent set in Copperweld Corp. v. Independence Tube Corp., (holding that a parent company and “its wholly owned subsidiary… are incapable of conspiring with each other for purposes of 1 of the Sherman Act”)19 confirmed that MLS is, in fact, a single-entity that could not conspire against itself.20

On appeal, however, the First Circuit intentionally distinguished Fraser from Copperweld, bluntly stating “the present case is not Copperweld,” and held that MLS is “a hybrid arrangement, somewhere between a single company… and a cooperative arrangement between existing competitors.21

As a result of this “hybrid status,” sports law attorney, Matthew Jakobsze, asserts that MLS is merely “masquerading as a single-entity” and posits that antitrust law will always dictate MLS’s position in labor negotiations as long as it continues to enjoy its single-entity status. According to Jakobsze:

The effects of free agency on a single-entity league are devastating—ranging from the loss of control to increased labor costs and exposure to antitrust liability. Free agency completely destroys any unity of entrepreneurial interest teams may have had in the labor market, and leaves room for argument that the League as a whole should not be a single-entity. Should the MLS teams bid independently on players, acting on their own behalf to arrange contracts, there is considerable room for argument that their objectives off the field would be disparate, guided by separate consciousnesses, and no longer on the parent’s—MLS’s— behalf. As a result, the League would likely be required to entirely renounce whatever ‘hybrid’ status they retained post-Fraser, and accept their structure as a joint venture.22

Secondarily, competition among clubs for players will naturally drive up player wages, which MLS contends it can’t absorb at the moment. However, as will be discussed below, it is this author’s opinion that the league’s argument that it can’t pay higher wages cannot reasonably be supported.

The terms of the new CBA provide a very limited opportunity for free movement; but more importantly, free movement now exists in Major League Soccer, even if it is severely limited.

The new CBA allows for players who meet two clauses — aged twenty-eight or older with eight years of MLS service — to freely sign with any MLS club upon the expiration of their existing contract. Around fifteen percent of MLS players currently meet the “28 and 8” requirements.23

However, there is a cap on the amount a player can earn once he meets the eligibility requirements and is free to choose his own team. Players who were earning over $200,000 per year can only receive a 15% wage increase. Players who were earning between $100,000 and $200,000 per year can only receive a 20% increase, and players earning less than $100,000 can only receive a 25% increase.24 There will be a system in place that will allow players clearly outperforming their contract to receive increases beyond the 15-, 20- or 25 percent raises created for eligible free agents in the new CBA. [However], the specifics as to how those players will be identified is not yet finalised.25

While the “28 and 8” rule with wage restrictions provides very little immediate benefit to the players, the long-term benefits could be significant when this new CBA expires in 2020; one can expect that the MLSPU will look again to extend free movement within the MLS.


A Pandora’s Box has been opened, and progress will undoubtedly continue to be made in the players’ pursuit of the right to free movement that their European counterparts have enjoyed over the past twenty years, post-Bosman (a landmark ruling in the European Court of Justice).26

How that goal is achieved is far from certain. As Brian Strauss notes, “no league, including those in Europe, yielded free agency at the bargaining table. Athletes opened the door through litigation.27 While free agency does actually need to be negotiated, Strauss’s point remains well-taken, as the road to successfully negotiating free agency has historically been paved with litigation.

Salary cap

Like the NFL, NBA, NHL, and Premiership Rugby, MLS operates under a salary cap. A salary cap intentionally limits the total compensation clubs can pay its players. With MLS revenues increasing significantly since the last CBA was agreed to in 2010, one of the major issues during the negotiations was how much the salary cap, and therefore player wages, would increase.

MLS recently negotiated television rights deals with FOX, ESPN and Univision which will see the league earn, on average, $90 million (around £59 million) per year from 2015 through 2022.28 While it pales in comparison to the £1.71 billion annually the Premier League will receive in domestic revenue alone from 2016 through 2019, the new MLS deal represents a massive upgrade on its previous deal, which netted the league around $30 million annually from various broadcasting partners.29

Given the significant increase in television revenue combined with the average value of clubs growing by over 175 percent between 2008 and 2013,30 three clubs being valued over $200 million in 2014,31 and new clubs such as LAFC and NYCFC committing over $250 million in franchise fees and stadium development costs alone,32 the union appeared to have strong case for a significant increase in player compensation.

The league likely would have pointed to the fact that the league’s total wage bill have increased nearly 40% in the past two seasons, but much of the wage increase is going to the handful of “designated players,” who are traditionally marketable American and international players who can be paid millions of dollars per year but only count for, at most, $387,500 on the salary cap.33

Each club is allowed three designated players, and while the number of designated players was not collectively bargained, both the league and the union appear in agreement that the designated player system is beneficial, as it allows the league to sign talented and marketable players which elevates the league, brings in sponsorships, and drives ticket sales, without taking up too much space on the salary cap.34

While the average player salary in MLS is nearly $227,000 per year, 83% of players earn less than the average salary and the median player salary is just $92,000.35

According to Steve Fenn of Stat Hunting,36 who analysed salary data made publicly available by the MLSPU, six players (all “designated players”) — Clint Dempsey, Landon Donovan, Michael Bradley, Jermain Defoe, Robbie Keane, and Thierry Henry — combined to earn 28.5% of the total wages paid by MLS clubs in 2014.37

Whilst an MLS player wages cannot reasonably be compared to player wages in other football leagues or American sports due to the disparity in revenues. However, comparing wage to turnover ratios is quite relevant, as it shows how revenues are being shared between the players and owners.

In European football, 65% of total revenues go to player wages.38 In the NFL, player wages account for 37% of total revenues. In MLB, it’s 47%, in the NBA, it’s 55%, and in the NHL it’s 71%. In Major League Soccer, just 17% of total revenues went to player wages during the 2013 season.39

MLS players are getting a much smaller percentage of league revenues than both their fellow footballers and fellow American athletes, and as such, a more equitable share of league revenues and a significant increase to the salary cap was to be expected.

As reported by respected ESPN journalist, Jeffrey Carlisle, under the terms of the new CBA, the minimum salary has been set at $60,000, which represents a large sixty-four percent increase over the previous minimum of $36,500. In addition, the salary cap has seen an immediate 21 percent increase from 2014 to 2015, to $3,740,000 and is set to increase a further seven percent per year over the course of the CBA.40

 

Comment on the negotiations and their outcome

Was there ever danger of a strike?

In 2010, the union voted to strike if an agreement wasn’t reached by 23 March by a 383-2 margin.41 The parties agreed to a new CBA on 20 March, thereby avoiding the union’s self-imposed deadline. During the recent round of negotiations, players had been similarly vocal about their willingness to strike if necessary.42 The player representatives voted to strike if the league didn’t offer what the union considered its bare minimum, by an 18-1 vote (one player representative was absent, as he was playing in a CONCACAF Champions League match).43

However, a strike seemed unlikely for practical purposes. Where FIFA is concerned, MLS holds the player registrations and could prevent players from playing elsewhere in the event of a strike or lockout.44 Article 14 of the Regulations on the Status and Transfer of Players (RTSP) states that a contract may be terminated without consequences where there is “just cause.45 Article 14 has most often been applied when clubs have failed to pay player wages, and while players would be unpaid during a strike, the author believes that a strike would not qualify as “just cause” and it would take an extended lockout for FIFA to find “just cause.” A strike is a decision by the players not to work, where a lockout is a decision made by the league and clubs not to pay the players. According to the FIFA commentary on Article 14, “under normal circumstances, only a few weeks’ delay in paying a salary would not justify the termination of an employment contract,” which supports the notion that a lockout would have to be a month or longer before FIFA would allow the players to terminate their contracts and seek employment with other clubs.46

Further, even if FIFA would allow the players to play elsewhere, very few would receive offers, let alone lucrative offers from clubs in Europe. The majority of players would compete for spots on NASL, USL (United States second and third divisions), and perhaps Liga MX.

The harsh reality is that MLS players, the majority of whom have limited options to ply their trade elsewhere for similar wages and all of whom have a small window of time in which they can earn money as professional athletes, had much more to lose than the league. The majority of league’s stakeholders count MLS as just a small portion of their investment portfolios and can weather the financial losses of a work stoppage much easier than the players.

As noted sports lawyer Michael McCann explains, the MLSPU had the option of decertifying, which would then allow individual players to file an antitrust lawsuit against MLS, alleging that MLS rules violate Section 1 of the Sherman Act. This would then force MLS to defend its single-entity status. While quite interesting as a legal question, in reality, McCann describes this option as “labor armageddon and mutually assured destruction” for both the league and its players. As such, this option was extremely unlikely, as litigating an antitrust suit could take years and there is no guarantee that the players would even win.47

With antitrust law, labour law, and FIFA regulations to navigate, plus several complex issues to negotiate, the collective bargaining agreement between the MLS and MLSPU is fairly unique in football and certainly unique in American sport with single-entity and FIFA issues. Given the complexities involved and its previous successes helping resolve labour disputes in American soccer, enlisting the help of the FMCS appeared to be a smart move.

Balance of the deal struck

In the short-term, the players negotiated a middling deal for themselves. Raising the minimum salary by over sixty percent is significant, as is the increased salary cap. However, in the long-term, a very meaningful step towards true free agency was made, which will be an enormous benefit for future generations of MLS players. Orlando City’s player representative, Tally Hall, speaking to Paul Tenorio, explained “The consensus of the guys is not that we were just doing this only for ourselves. What we were fighting for are also the kids that are watching us on TV, that are just starting to play soccer now or playing soccer in high school. Some of these guys don't even know they are going to be professional soccer players yet and we fought very hard also for the framework of the league to change. When I'm done playing soccer I will be watching MLS games and we fought for the generation after we're all gone, and the framework is in place that will continue to benefit them.48

This is a rather selfless approach for a group that has a limited window in which they can earn money as professional athletes, and might be why some players were quite vocal about their dissatisfaction with the deal.49

While true free agency in MLS is, at the earliest, five years away, and likely longer, the new collective bargaining agreement ensures, in the views of this author, that it is only a matter of time before the players enjoy the freedom that their European counterparts have enjoyed for twenty years and what their colleagues in American sport have enjoyed for even longer.

 

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About the Author

Jake Cohen

Jake Cohen

Jake is a Consultant Mills & Reeve and an attorney working on both sides of the pond.

He has worked in the sports team at Mills & Reeve, and also writes about legal, economic, and financial issues in European sport for the Wall Street Journal, ESPN, and other publications. He has been cited as an authority by media outlets all over the world.

At one time, he was a serviceable fly-half.

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