Sports And The Law: MISL Demise May Mark Death Blow To Single-Entity Concept
Last week, the Major Indoor Soccer League (“MISL”) (disclosure: my employer for one summer) announced it was ceasing operations after seven seasons as a single entity. This comes as bad news for Game Plan LLC, the investment banking and consulting services group that helped MISL to restructure into a single-entity league during the summer of 2001, as well as for any startup league that is considering adopting the single-entity structure.
With last week’s at least temporary collapse of the MISL, just about every single-entity sports league in America is now gone. Although the “single entity” concept was intended to turn niche-based professional sports leagues into profitable businesses, that result clearly has not happened.
The single-entity structure was first envisioned to allow sports leagues to act unilaterally without risking liability under Section 1 of the Sherman Act. Because the single-entity structure consists of a single limited liability company and investors that purchase shares in this company, the structure’s purported advantage is that investors could not be found guilty of illegally colluding with one another by unilaterally setting league ticket prices, player salaries, or league entry rules. This is because the clubs are wholly-owned subsidiaries of the league. As a matter of law, a wholly-owned subsidiary cannot collude with itself.
Beyond this purported legal advantage, the single-entity league is also believed by some to have certain business advantages.
Read more, after the jump.
One of the perceived advantages may be that the league’s intellectual property rights reside entirely at the league level. This seems to prevent asymmetric incentives amongst club owners. For example, investors would not fight over whether to allocate sponsorships at the team or league level. Irrespective of the arrangement, all investors would share equally in the ultimate profits.
Nevertheless, the single-entity league structure has also proven to have many drawbacks. Major League Soccer (“MLS”), for example, which was the first modern league to adopt a single-entity structure, was also the first to abandon it. In its brief attempt at single entity, MLS struggled to lure investors. As a result, the league tweaked its business model. Although MLS continued to refer to itself as a single entity, the First Circuit explained in the case Fraser v. MLS that from an antitrust perspective, based on the MLS’s changed structure, MLS’s proposed single-entity defense was “doubtful.”
Shortly thereafter, the other fledgling single-entity leagues either converted to a more traditional structure or went out of business. The WNBA, founded as a single entity in 1997, had by 2003 converted to a more traditional structure for purposes of luring new investors and improving local sponsorship opportunities. The XFL, which launched as a single-entity league in 2000, ceased business operation in 2001 after sub-par television ratings. Meanwhile, the Women’s United Soccer Association, which launched as a single-entity league in 2001, actually announced plans to convert to a traditionally structured league in 2003, but shortly thereafter decided to simply go out of business.
Yet, despite all of these single-entity failures, the MISL at first seemed like the perfect example of single-entity success story. Indeed, the MISL emerged from the old National Professional Soccer League — an indoor league that had failed financially under a traditional business structure — and seemed to turn financially viable under its new structure.
It appears, however, that some of the optimism surrounding the MISL was just wishful thinking. As of last week, the MISL is gone, just like America’s other single-entity leagues. The MISL is distinct only in that it lasted somewhat longer, and showed more promise in the early going.
After last week’s collapse of the MISL, it remains to be seen whether the single-entity league concept will rise again in American sports. If the single-entity concept could not save the MISL — which benefited from the leadership of longtime NHL executive Steve Ryan, as well as other seasoned front-office professionals — it is doubtful that the structure would fare much better elsewhere, under other leadership. Indeed, if the single-entity structure emerges again, the business model will need some heavy tweaking, not to mention investors with a lot more patience in the early going.
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Marc Edelman is an attorney, business consultant, published author and professor, whose focus is on the fields of sports business and law. You can read his full bio by clicking here, and you can reach him by email by clicking here.
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Uh, whatever dude. How about some real news?
http://news.yahoo.com/s/ap/20080612/ap_on_go_su_co/scotus_guantanamo
FIRST to say that's really long. But interesting.
As a true red-blooded American I continue to not give a good god damn about soccer.
The MISL failed because no one wants to pay to watch Indoor Soccer, not because of its organizational structure.
Regardless, the Seventh Circuit has ruled that the NBA operates as a single entity in some capacities, a holding that comports with most of the academic literature to date on the proper status of the major professional sports leagues under Section One. Therefore, Edelman's obituary of the single entity sports league is quite premature.
Do people play this soccer game indoors? You know what, when I used to play ball indoors momma would whack me a good one. Also, once I tried playing soccer, but you know what, momma said only pansies played soccer. You know what, she was right. When I was at Alabama playing football, the football boys used to beat up the soccer players all the time. They were pansies after all.
Down here in Alabama, we don't let boys play soccer. Only the girls or weak boys who can't play football, baseball or basketball play soccer. This story was funny.
Mr. Edelman apparently knows neither sports (as Monday's fiasco proved) nor the law. He misstates the Copperweld doctrine, which is that a wholly-owned subsidiary cannot "conspire" with its parent company for purposes of Section 1 of the Sherman Act, because a parent and its wholly-owned subsidiary cannot be considered to be sufficiently distinct and independent entities for conspiracy purposes.
stop with the sports and law posts, they're boring and they're not as hot as Kash
for some reason i find soccer posts reallyZZZzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
Love to play and watch soccer, but can't help enjoying the immortal words of Hank "Propane" Hill:
"Bobby, soccer is what European women played while their husbands prepared dinner."
How about a more interesting posting on the $250 M suit filed against NASCAR on Tues?
Legal concepts aside; it is economic incentives that drive the success or failure of these leagues. One question comes to mind: How should a single entity league allocate talent to its teams? Individually owned teams have an incentive to acquire the best talent they can hire even if this means some teams end up worse off than others. A single entity league has an incentive to create "balanced" teams, which may be boring to watch.
Edelman wrongly equates "single entity" to "sole ownership." While the demise of the MISL may signal the demise of solely owned sports leagues, such an ownership structure is not necessary for a sports league to be deemed a single entity.
plus edelman forgets that major league soccer (MLS) is itself a single-entity and single ownership league
this column is largely useless and, worse, poorly written and researched
How about some Euro 2008 news instead of poor semi-pro MISL crap?
Baseball, now that what real men play...yeah right.
Love when some idiot becomes a critic of soccer. try and play it...correctly. just try.
Baseball, now that what real men play...yeah right.
Love when some idiot becomes a critic of soccer. try and play it...correctly. just try.
Baseball, a real man's sport....now that complete BS.
Try to play soccer...correctly. Just try.
Not so sure about this-- starting up a league is a tough business. No one seriously thought that single entity would fix all of those problems. Fact is, you'd be a fool to start up any league without single entity. The demise of the MISL has more to do with indoor soccer and far less to do with single entity.
Interesting post, did not realize that the single entity concept was put in place to ease antitrust concerns.
11:12, I think you misread the post if you believe it misstates Copperweld. "cannot collude with itself" is not the clearest way of putting it, but it's not wrong either - the whole point is that the wholly-owned subsidiary IS the parent, so any collusion would necessarily be "with itself"
Lat, to echo 11:12 and a few other, can you can this Edelman guy already? It's bad enough I have to endure the clip art. Then, Edelman's "predictions" from Monday were complete garbage from a sports perspective. Now, it sounds like his legal analysis is dubious as well. Is it too much to ask that a sports law blogger know either (a) sports or (b) law?
Hey Lat,
As a former female DI athlete, how come all of the clip art used features men? There are female pro athletes (albeit fewer)!
I for one, shared a plane with some of the Stockton, CA MISLers...and it's a shame they're out of work, because they were SMOKIN HOT!