Victory for Opponents of the Pro/Rel Model: the Court of Arbitration for Sport Determines There is No Obligation to Implement Pro/Rel in the United States   

Last month, the Court of Arbitration for Sport (“CAS”) handed down a decision in a case of significant import for professional soccer in the United States.[1]  At issue was whether FIFA’s rules and regulations require the implementation of promotion and relegation in the United States’ soccer hierarchy.

After a protracted dispute that involved numerous briefs, hearings, and documents, the CAS panel issued its decision and determined that neither the rules and regulations of FIFA, nor those of the Confederation of North, Central America and Caribbean Association Football (“CONCACAF”) and the United States Soccer Federation (“USSF”), require the implementation of promotion and relegation in the United States, and that the United States’ “closed league” system does not violate said rules or any governing law.

I.     The Current Soccer Structure in the United States

To fully appreciate the importance of the CAS panel’s ruling, it is essential to understand the organizational structure of men’s professional soccer in the United States.

At present, Major League Soccer (“MLS”) is the top-flight soccer league in the United States; the top of the soccer pyramid, so to speak.  Below MLS is the United Soccer League Championship, as the Division 2 league, followed by USL League One and the National Independent Soccer Association as the Division 3 leagues.  While there are additional leagues, the foregoing represent the primary associations in United States soccer.  The USSF, as the official governing body for soccer in the United States, oversees and sanctions these professional leagues.

Unlike the majority of leagues across the globe, the United States and, in particular, MLS, does not operate an open league, promotion and relegation model (colloquially referred to as “pro/rel”).  In soccer, the principle of pro/rel is a process whereby teams can advance between multiple leagues based on their on-field performance.  The teams with the worst record at the end of a season are relegated down a league, and the teams with the best record are promoted to the next league up the pyramid.  Promotion is desirable, as access to, and playing time in, top-flight leagues affords clubs greater economic opportunities, such as advertisements and viewership.

In contrast, a “closed league” system like MLS does not offer pro/rel, and clubs cannot earn the right to advance and play in MLS based on their win/loss record.  Rather, membership can only be obtained by satisfying MLS’ internal criteria.  Such criteria includes expansion fees and detailed documentation evidencing stadium information, financial projects, ownership, and corporate support.

II.    An Effort to Force the Implementation of Pro/Rel in the United States

Whether to incorporate the pro/rel model into the United States’ soccer infrastructure is a topic of intense debate among fans, and the CAS panel’s recent decision serves as an outright victory to those who oppose implementing pro/rel.

The case was brought by two United States professional soccer clubs: Miami FC and Kingston Stockade FC (together, the “Claimants”), both of which played in lower-tier US soccer leagues.  Claimants filed their case against the USSF, as the governing body of US soccer, as well as against CONCACAF and FIFA (together, the “Respondents”), of which the USSF is a member.  Claimants filed with the CAS, an international and independent tribunal established to resolve disputes related to sports through binding arbitration.

Claimants argued that Respondents, by operating MLS as a closed league, effectively prohibit Claimants and other clubs within lower divisions from gaining access to MLS or participating in international events, and that such deprivation causes severe financial damage.

Indeed, Claimants’ position was not just that Respondents should incorporate pro/rel, but that they are in fact required to do so under FIFA’s governing laws and regulations.  Specifically, Claimants pointed to Article 9 of the FIFA Regulations Governing the Application of the Statutes, entitled “Principle of promotion and relegation,”[2] to argue that FIFA intended to introduce the pro/rel system to all member organizations, which includes the USSF and CONCACAF.

The genesis of Article 9 is a controversy known as the “Granada Case.”  In 2007, a company acquired a Spanish second-division club, moved it to another city, changed the name from Ciudad de Murcia to Granada 74, and yet tried to retain the club’s second-division status.  The Spanish football association attempted to curtail the company’s efforts on the grounds that such status had to be earned on the field, and not by acquisition.  The Spanish association was unsuccessful in its efforts, as the dispute was heard before the CAS, which ruled in favor of the club.  In response, FIFA instituted Article 9 to codify the principles of pro/rel and to prohibit participation in a higher league by altering the legal form or company structure of a club.  Instead, “[a] club’s entitlement to take part in a domestic league championship shall depend principally on sporting merit.”[3]

Claimants argued that MLS’ closed league system runs contrary to Article 9 because clubs do not earn the right to play in MLS by sporting merit, but rather by meeting MLS’ business criteria and “purchas[ing] access” through costly franchise fees and associated expenses.  To the Claimants, by failing to enforce Article 9 and implement pro/rel in the United States, FIFA, CONCACAF, and the USSF (the latter two Respondents being subject to FIFA’s statutes) created a soccer system with anti-competitive and unequal treatment, and that has the practical effect of barring clubs in lower-tier leagues from ever advancing up the ranks and gaining access to premium club markets.

Accordingly, Claimants requested that the CAS, among other things, declare that Respondents were in violation of Article 9 and certain governing competition law, and further order Respondents to immediately adopt and implement the pro/rel principle in the United States.

In response, Respondents issued a unified and straightforward theory: that Claimants’ reliance on Article 9 is misplaced, because Article 9 was designed to address certain abuses of the pro/rel system in FIFA member associations where a pro/rel system was already in place at the time the regulation was implemented.  Article 9 was never intended to apply to soccer in the United States, where pro/rel was never adopted, nor was it designed to force the implementation of pro/rel.  To the Respondents, Claimants would have the panel “force seismic (and potentially fatal) change”[4] to the United States’ soccer infrastructure, which the drafters of Article 9 intended to avoid.

III.    The CAS Panel Carefully Analyzes FIFA’s Rules and Regulations

The panel was undoubtedly cognizant of the importance that its decision would have on the soccer landscape, and accordingly issued a detailed opinion that delved into Article 9’s language and history.

A.    Claimants’ Lofty Burden

As a threshold matter, the panel accorded considerable deference to FIFA’s interpretation of its own rules; while not absolute, FIFA’s autonomy as a private association is respected under both the CAS’ jurisprudence and the governing Swiss law (FIFA is a Swiss association).  Accordingly, Claimants faced a lofty burden to prevail on their argument that FIFA’s interpretation of Article 9 was unreasonable and exceeded its authority.  With this burden in mind, the panel took a two-pronged approach in analyzing Article 9.

B.    The Language of Article 9

First, and in accordance with long-established precedent, the panel began with a literal interpretation of the text.  The language in Article 9 plainly states that a system of pro/rel “shall principally depend on sporting merit,”[5]  but Article 9 contains no text obligating FIFA members to utilize a pro/rel system.  Nor, however, does it contain any text indicating that certain countries, such as the United States, are exempted.  Given this lack of clarity, the panel determined that other methods of interpretation were necessary.

To that end, the panel noted that sporting merit is not the sole qualifier for pro/rel under Article 9, but rather only the principal criteria; a club could still be prohibited from playing in a particular league if it failed to comply with other criteria “such as sporting, infrastructural, administrative, legal and financial considerations.”[6]  However, in the case of MLS, the panel noted that sporting merit may not take precedence, as an expansion club with no playing history can still gain access to MLS if it complies with MLS’ financial prerequisites.  Consequently, the panel determined that the wording of Article 9 could arguably lead one to believe that Article 9 is applicable to all FIFA members and that the closed league system in the United States is not compliant.  Nonetheless, the panel concluded that the text was not decisive, and turned to a historical interpretation of Article 9 to determine its true meaning and intent.

C.    A Historical Interpretation of Article 9

To ascertain the purpose of Article 9 and the intent of those who drafted it, the panel relied on certain internal FIFA “working documents” that were created in the period leading up to the adoption of Article 9.  These documents were submitted by Respondents to buttress their arguments, and the panel found that they painted a clear picture of the intent behind Article 9.  Namely, that FIFA wanted to codify the principles of pro/rel and prevent a re-occurrence of the type of controversy like the Granada Case, but solely within leagues that had already implemented a pro/rel system at that time.

For instance, minutes of FIFA Executive Committee meetings note that certain executives were assured that the wording of Article 9 “would be reviewed to ensure that it did not have any effect on the movement of clubs within leagues that did not have promotion and relegation,”[7] leading the panel to conclude that FIFA did not have any intention to obligate all of its members to impose pro/rel.  This intent was made all the more clear in a subsequent meeting, whereby the “Executive Committee unanimously agreed that the existing set-up of the leagues in the USA and Australia would not be affected by the new [Article 9] provisions.”[8]  Other documents indicate that there were requests to add the words “where the [pro/rel] principle existed”[9] to Article 9, but that such proposed language was dismissed as superfluous.

These are but a few examples of an expansive document record that, when viewed in its entirety, led the panel to conclude that Article 9 was only intended to apply to FIFA member organizations that had already implemented pro/rel, and further contains no requirement for closed leagues to transition to pro/rel.

D.    The Panel Notes a Public Policy Concern

Interestingly, the panel also issued a public policy argument.  The panel noted that the closed league system is understood and well-known to FIFA and the United States, and cautioned that the sudden implementation of pro/rel would have immediate and negative consequences.  Not only is the United States unaccustomed to pro/rel in sports, generally, but the entities that invest in MLS to operate clubs do so with the understanding that their clubs will participate exclusively in MLS, and the sudden threat of potential relegation could trigger legal action.

E.    The Panel Rejects Claimants’ Arguments Regarding Subsequent Conduct

The panel concluded by rejecting Claimants’ arguments that conduct following implementation of Article 9, which included the creation of secondary leagues in the United States and internal FIFA correspondence encouraging the implementation of pro/rel, belied or otherwise contradicted the underlying intent of the regulation.  Even if FIFA were to prefer a universal application of pro/rel, having a preference is different than actually requiring implementation, and FIFA’s constant practice since implementing Article 9 shows that no such requirement exists.  Moreover, no documentation was provided indicating that FIFA’s exemption of the United States from Article 9 would be retracted upon the addition or removal of lower-tier leagues.

Simply put, clubs in lower-tier leagues in the United States do not have a right under the law[10] or FIFA’s governing regulations to participate in MLS, even if “sporting merit” would otherwise justify inclusion.  While the debate on the merits and benefits of pro/rel will certainly continue among soccer fans in the United States, the CAS panel’s decision was a firm rejection of the notion that there is any requirement to implement pro/rel, and a likely indication that no such changes are forthcoming.

 

_____________________

[1] See Arbitral Award delivered by the Court of Arbitration for Sport, CAS 2017/O/5264 Miami FC & Kingston Stockade FC v. FIFA, CAS 2017/O/5265 Miami FC & Kingston Stockade FC v. CONCACAF, CAS 2017/O/5266 Miami FC & Kingston Stockade FC v. USSF, available at https://www.tas-cas.org/fileadmin/user_upload/Award_CAS_5264-5265-5266_internet.pdf.

[2] See FIFA Regulations Governing the Application of the Statutes, Article 9, available at https://resources.fifa.com/image/upload/the-fifa-statutes-2018.pdf?cloudid=whhncbdzio03cuhmwfxa&_sm_au_=iVVBH227634KPtqJJ8MfKK7vWLCsW.

[3] Id. at Article 9(1.) (emphasis added).

[4] Arbitral Award, p. 22, ¶ 111.

[5] FIFA Regulations Governing the Application of the Statutes, Article 9(1.).

[6] Id. at Article 9(2.).

[7] Arbitral Award, p. 52, ¶ 213; p. 59, ¶ 239.

[8] Id. at p. 52, ¶ 214; p. 59, ¶240; p. 62, ¶ 261.

[9] Id. at p. 60, ¶ 241; p. 62, ¶ 262.

[10] As a corollary argument, Claimants also contended that Respondents violated Swiss competition law, as both FIFA and the CAS’ internal rules provide that Swiss law can apply to disputes before the CAS.  The panel concluded, however, that Claimants failed to establish any unfavorable treatment or that, were they able to meet MLS’ criteria, they would be prevented from entering the league.

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