Court Permits NASL To Proceed To Trial Against U.S. Soccer And MLS

The North American Soccer League (NASL) folded in 2018 because of what it argues were the anticompetitive acts of the United States Soccer Federation (U.S. Soccer) and Major League Soccer (MLS). After a court’s recent ruling, the NASL will now proceed to a September trial in which it is seeking hundreds of millions of dollars in damages.

U.S. Soccer, MLS and the Professional League Standards

U.S. Soccer has the authority to regulate professional soccer in the United States by virtue of its membership in FIFA, the sport’s global governing body, and by having been recognized as the national governing body for the sport of soccer in the United States by the United States Olympic and Paralympic Committee. U.S. Soccer was responsible for America’s first-ever hosting of the men’s World Cup in 1994.

Leading up to and after that World Cup, there was renewed interest in an American men’s professional soccer league. No such league had existed since the original version of the NASL had folded in 1985.

To provide structure to such an effort, in 1995, U.S. Soccer established Professional League Standards through which prospective professional leagues are categorized as Division I, II, or III. The Divisions are demarcated by stadium seating capacities, number of teams, time zone coverage, and other benchmarks. A league’s compliance with the Standards is reviewed annually.

In 1993, the U.S. Soccer Board voted preliminarily to make MLS the sole Division I league. The result was not surprising given that MLS’ application was developed and submitted by Alan Rothenberg, the U.S. Soccer President from 1990-98.

When MLS began play in 1996, it met all the Division I standards. However, as the league expanded, for every year between 1997 and 2014, it required a waiver as one or more of its clubs was not presently in compliance with the Division I requirements. U.S. Soccer always granted the waiver.

The NASL’s Attempted On-Field Challenge

At the time of MLS’ launch, there were some professional and semi-professional soccer leagues operating in the United States. In the late 1990s, those leagues morphed into the United Soccer League (USL) and were sanctioned as a Division II league.

In 2009, a new NASL was formed by former USL clubs which wanted to challenge MLS as a Division I league. After playing a combined season with the USL in 2010, the NASL played as a stand-alone Division II league between 2011 and 2017.

In 2015, the NASL applied for Division I status but was denied by U.S. Soccer, which refused to grant the NASL any waivers.

Then, in 2017, U.S. Soccer denied the NASL’s Division II application, which required two waivers. By comparison, U.S. Soccer granted the USL’s Division II status even though it required 21 waivers. Of potential relevance, three years earlier, MLS and the USL reached an agreement to coordinate on player development.

Without U.S. Soccer sanctioning, the NASL folded. It also did not help that the league’s principal backers pled guilty to fraud charges in connection with other businesses.

The NASL’s Legal Challenge

The NASL responded by hiring renowned sports litigator Jeffrey Kessler and his team from Winston & Strawn LLP. Kessler is responsible for the recent settlement of various antitrust cases between student-athletes and the NCAA and also represents promoter Relevent Sports in another antitrust case against FIFA and U.S. Soccer.

With Kessler on board, the NASL sued U.S. Soccer and MLS in a New York federal court, alleging that they had violated antitrust law by illegally conspiring to protect MLS from competition. In November 2017, the court denied the NASL’s motion for a preliminary injunction, tolling the league’s death knell. At that stage, the court found that U.S. Soccer and MLS had plausibly alleged that the agreements between them are procompetitive because they promote quality in the matches being played and the stadiums in which they are played, enhancing the fan experience and increasing interest in soccer.

The case then proceeded through the discovery process and culminated with U.S. Soccer and MLS filing a motion for summary judgment seeking to dismiss the case on the merits in April 2021. In late 2023, with that motion still undecided, the court ordered a trial to begin September 9, 2024.

Finally, in a June 11, 2024 decision, the court largely denied the defendants’ motion for summary judgment, paving the way for the trial. The court’s ruling provides some insight into what to expect at trial and the potential risks to U.S. Soccer and MLS.

The Court’s Ruling

U.S. Soccer and MLS sought to have the case dismissed by arguing that there was no evidence of an agreement by them to apply the Standards in such a way as to harm the NASL. The court disagreed and found sufficient “circumstantial evidence of parallel conduct by defendants” which must be assessed by a jury.

First, the court noted that MLS had long been sanctioned as a Division I league even though it did not uniformly meet the Standards. Indeed, MLS Commissioner Don Garber, a U.S. Soccer Board member, and U.S. Soccer President Sunil Gulati routinely – and successfully – encouraged the U.S. Soccer Board to grant MLS every waiver it requested.

Second, the court recognized that U.S. Soccer’s application of the Standards changed at interesting times. Specifically, U.S. Soccer first instituted a formal waiver review process in 2009, the same year that the NASL was formed with the intention of challenging MLS. Next, U.S. Soccer made the Division I standards more difficult in 2014, the same year the NASL made known to U.S. Soccer that it planned to apply for a Division I sanction. The revised Standards increase the number of required teams from 10 to 12 and required a team in the Pacific time zone, among other changes.

Third, the court acknowledged the significance of Soccer United Marketing (SUM). SUM was formed in 2004 by MLS as its licensing and marketing arm. As described by the court, “SUM then entered into a series of commercial agreements with U.S. Soccer, under which SUM marketed the bundled rights of MLS and U.S. Soccer. U.S. Soccer has received at hundreds of millions of dollars in revenue from these agreements with SUM to date.” The NASL argues that the effect of the SUM agreements, “was to tie a significant source of U.S. Soccer’s revenue to the economic value of MLS’s rights as the sole D1 league.”

Fourth, there is evidence that MLS has meaningful control over the U.S. Soccer Board and its decision-making. Gulati worked part-time for the New England Revolution of MLS for some of the time he was also running U.S. Soccer. McKinsey, a consultancy, quoted Board members in a report prepared for U.S. Soccer that “MLS has a stranglehold of U.S. Soccer”; “It’s not clear Sunil [Gulati] needs the Board. Some decisions are made outside the Board entirely”; and “We go to meetings to rubber stamp things.” MLS and U.S. Soccer argue that neither Garber nor Gulati voted on the sanctioning applications.

The court thus ultimately concluded that the “NASL has presented evidence that defendants’ application of the Standards has resulted in a reduction in the output of D1 and D2 leagues because MLS is the only member of the former, and USL the latter. This, in effect, reduces consumer (i.e., soccer team) choices of which league to join. Further, NASL has presented evidence that MLS and USL have been able to charge higher expansion team prices because their league memberships are the only products available for purchasers of D1 and D2 league memberships (again, soccer teams).” Finally, the court will entertain NASL’s arguments that “as a result of defendants’ application of the Standards, it failed to obtain higher entry fees, suffered a diminished reputation and goodwill, ultimately had to stop league play.”

U.S. Soccer and MLS argue in response that the NASL’s demise was the result of its own mismanagement and its connection to criminal indictments. Moreover, they contend that there was no anticompetitive conduct, as “there is no record of evidence of a decrease in the quality of soccer leagues or play, nor of harm to fans.”

Over the objections of U.S. Soccer and MLS, the court also generally permitted the NASL’s planned expert analysis. While the court requested some adjustments to be made, those analyses estimate combined damages in the area of $400 million, which would be trebled under antitrust law.

Reached for comment, Kessler said “the NASL is pleased with the court’s decision and is looking forward to finally getting to trial.” U.S. Soccer declined to comment and MLS did not respond to a request for comment.