MLS’s Force Majeure Move Draws Eyes to CBA and Antitrust Exemption
In a move that could pave the way to federal antitrust litigation, Major League Soccer has notified the MLS Players’ Association that it will invoke a force majeure clause. Such a clause generally permits a contracting party to suspend or end its obligations on account of an uncontrollable and extreme circumstance—including an infectious disease pandemic.
MLS is taking this historic measure to address pandemic-related revenue problems, including concerns about how the coronavirus pandemic could linger well into 2021. As described by ESPN, invocation of the clause obligates MLS and MLSPA to engage in good faith bargaining over a 30-day period. If such bargaining fails to yield a mutually agreed-upon resolution, MLS will gain the right to terminate the collective bargaining agreement.
In a statement Tuesday evening, MLSPA lambasted MLS’s intended invocation of the clause as “tone-deaf”—particularly in the wake of players accepting “immeasurable risk to [their] personal health” to play a 2020 season.
MLS claims it lost nearly $1 billion in revenue in 2020. This loss largely reflected an abridged 2020 season and reduced match-day attendance. The pandemic struck while the two sides had agreed in principle on, but not yet ratified, a CBA. They would finalize a new CBA in June, but players had to forfeit some income for the 2020 season to be played. Players endured a 5% pay reduction as well as salary deferrals and caps on bonuses. The league’s normal 34-match season was shortened to between 18 and 23 matches depending on the team. The season was also reconfigured to feature a summer tournament held at the ESPN complex in Walt Disney World.
MLS clubs are viewed as more dependent on gate receipts than are teams in other leagues. One estimate of D.C. United found that approximately 48% of its revenue was generated by gate receipts. In contrast, Statista reports smaller proportions of league revenue derived from gate receipts in the NFL (15%), NBA (22%) MLB (30%) and the NHL (37%). MLS also has far less lucrative TV contracts—MLS’s deals with ESPN, Fox Sports and Univision are reportedly worth $90 million a season compared to the NFL reportedly receiving nearly $8 billion a year in broadcasting revenue. Given that the pandemic could last well into 2021, and given that the typical MLS season and postseason run from March to November, MLS might continue to operate without many fans in attendance.
The 30-day window supplies the two sides a good amount of time to find common ground. Yet if they fail, the fallout could be substantial.
As a starting point MLS would not “have to” terminate the CBA after 30 days. If the two sides have made progress by that point, they’ll probably continue to negotiate.
Termination of the CBA would also not automatically preclude the playing of a 2021 MLS season. A CBA is not a prerequisite for a league to hold games. Several major sports leagues, including the UFC and NASCAR, play without CBAs. Their players aren’t unionized.
Moreover, under federal labor law, the terms of an expired CBA generally remain in effect so long as management and labor engage in good faith bargaining. Therefore, if MLS terminates the CBA but continues to bargain with MLSPA, the league could continue to use the terms of the expired CBA.
However, that scenario—MLS continuing to use the expired CBA—is unlikely. MLS would only terminate the CBA because it demands concessions that MLS players reject.
What would happen if MLS terminates the CBA?
MLS could “lock out” MLS players, much like the NFL and NBA did to its players in 2011 after they failed to negotiate new CBAs. A lockout refers to management denying its unionized employees salaries, wages and other benefits. It also forbids employee access to workplace facilities, such as stadiums and training centers. Lockouts are intended to pressure employees into capitulating.
MLS players wouldn’t be without legal recourse. They could challenge the legality of the lockout, though NFL players lost their lockout challenge in 2011.
Alternatively, MLS players could decertify their union, a move that would entail MLS players voting to revoke the capacity of the MLSPA to collectively bargain on players’ behalf. As individuals, MLS players could then sue MLS under Section 1 of the Sherman Antitrust Act. The players would insist that MLS salary caps, free agency limits and other economic restrictions are unreasonably anticompetitive. A successful lawsuit would lead to trebled damages (damages automatically multiplied by three) and possibly also injunctive relief in the form of a court order barring MLS from restricting player salaries.
Decertification would be a necessary step for MLS players to effectively wage antitrust litigation. This is because of the “non-statutory labor exemption” under federal labor law. In the sports context, the exemption effectively immunizes leagues from antitrust scrutiny of players’ wages and working conditions so long as those leagues bargain with players’ unions. In essence, the exemption rewards leagues for negotiating policies instead of unilaterally imposing them.
Yet there’s a very unique twist with MLS. The league was designed to avoid antitrust litigation altogether. To understand that, first consider other major leagues. The reason why salary policies of the NFL, NBA, NHL and MLB and their respective teams would be (but for collective bargaining) subject to scrutiny under Section 1 of the Sherman Act is because teams in those leagues are individually owned entities that compete. Section 1 forbids competing businesses—including professional sports teams—from conspiring in ways that price fix or unreasonably restrain competition.
In contrast, MLS was formed as a “single entity.” Just like the XFL, MLS owned all of its teams and employed all of its players. A single entity is exempt from Section 1 of the Sherman Act because it is fundamentally one company, in the same way Frito-Lay is a subsidiary of Pepsi Co. and Xbox Game Studios is a division of Microsoft. A single entity can’t compete with itself. It can thus coordinate prices and restrict wages without worry of Section 1 litigation. (For a more detailed explanation of single entities in sports and other industries, please read my article in the Yale Law Journal).
Whether MLS remains a single entity is a matter of debate in legal circles. MLS clubs, which are run by investor-operators that are shareholders in the league, are now granted more autonomy. They build their own stadiums and rely on the Designated Player Rule, sometimes dubbed the David Beckham Rule. The rule allows investor-operators to pay above the league salary cap in order to convince well-known players to sign. If MLS players decertified and sued, MLS’s ability to invoke single entity status would be crucial to the litigation.
If MLS thought 2020 was a difficult year, wait till 2021.
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