The arrival of the greatest ever footballer, Lionel Messi, in Major League Soccer (MLS) during the 2023 European closed season has been a global event, transcending sport into mainstream world news. It has raised the global profile of MLS in a manner not seen before, eclipsing even the move of David Beckham to the league in 2007. MLS competed successfully for Messi against the Saudi Pro-League, which had recently secured the services of Christiano Ronaldo for a reported €200m per season, which has only added to the interest in MLS. With the expanded International Federation of Association Football (FIFA) World Cup due to be held in North America in 2026, MLS owners are reported to be considering what is next for the league as it approaches its thirtieth anniversary that year.
When viewed from Europe, MLS seems to be an odd beast, a chimera that is unique in the world of football. Haunted by the failure of its predecessor, the North American Soccer League, MLS launched in the glowing aftermath of the 1994 FIFA World Cup, the last to be held in the USA. Initially, it was a very American format adopting the proven model of a closed league of franchises collectively owned by the League. Rather than promotion and relegation, a play-off format was adopted with the winner securing the MLS Cup. Parity was manufactured via a salary cap mechanism. Most players were "drafted" from the collegiate game and "traded" between franchises. So far, so American. Indeed, to become a distinctly different "product," deviations from the International Football Association Board (IFAB) laws of the game were adopted such as countdown clocks, different referee arrangements, and the adoption of a one-on-one shoot-out competition instead of kicks from the mark (penalties) to settle tied games. Somewhat unusual names (the "Wizards," etc) and bizarre uniforms only added to the otherness of MLS. The league was largely underpinned by a small group of founding investors such as Lamar Hunt, Philip Anschutz, and the Kraft family.
The early years were difficult with the league's loss-making and the rule deviations unpopular both with traditional U.S. soccer fans and FIFA. MLS looked in trouble. Two of the original teams folded. However, under the leadership of new commissioner Don Garber in the 2000s, the league conservatively but steadily moved towards a more hybrid model of governance. Out went the rule deviations and IFAB laws were adopted in 2005. While the draft remains, the league started to compete in the global transfer market with novel accounting mechanisms allowing the move of David Beckham from Real Madrid to the league in the 2007 transfer window and many others since then. Indeed, the league has started to realize significant revenues by selling domestic and South American players into Europe’s top tiers. The alignment of rules allowed teams to more easily compete in international competitions, albeit still with limited success. Manufactured parity might work domestically but not in international competition such as The Confederation of North, Central America, and Caribbean Association Football (CONCACAF) Champions League which MLS has only won once in its current format.
Now in his third decade helming MLS, Don Garber can be credited with success domestically. The league now comprises some 29 teams, including 3 in Canada. The value of franchises has grown from next to nothing in 1996 to an average of $550m in 2022, with Los Angeles FC becoming the first $1bn MLS franchise. The League overall is profitable, although many of the clubs still operate at a loss. Largely gone are the largely empty National Football League (NFL) stadiums with grid-iron markings on a plastic field. Most teams now play in small, well designed "soccer-specific" stadiums with average attendance up from a low of 13k in 2000 to around 21k now. So on the pitch, the game now looks and feels much the same as the rest of the world. New commercial deals have been struck, notably the new Apple TV global streaming partnership which has recently launched with Messi driving subscriptions quickly to the one million mark.
So as the league approaches its 30th anniversary, it has evolved to be a strange hybrid; a distinctly American league operating within a global sport that still regards it with raised eyebrows. And in this global landscape, MLS will have to increasingly compete both with the other domestic sports leagues (the gap to the "big four" U.S. major leagues is still a chasm) and also with existing and new soccer leagues such as the Saudis. This competition is not just on the pitch but for talent, sponsors, attendance, and TV audiences. So what next?
The recent debacle over the creation of the European Super League highlighted the clash of philosophy, culture, and values between U.S. and European approaches to soccer/football. MLS has done a good job of riding both horses, so far. But has the closed league, parity model run its course? For the league to compete globally and achieve anything like the attendance and viewership visiting European football teams command for friendly pre-season games every summer, things will need to evolve. Most notable is the quality of the game, what MLS calls the "on-field product." Messi might still be the best player in the world but the ease by which he is dissecting teams whose defenders might only earn around $86k per annum may start to become counter-productive. To progress and attract viewership, the quality of play will need to continue to improve. Signing Messi and building a raft of new stadiums has shown that there is little doubting the ambitions of many MLS ownership groups but their ability to field deep rosters of high-quality players is severely constrained by the complexities of the "one size fits all" parity model.
The "most valuable game" in club football is surprisingly the annual promotion play-off game for the 3rd and final promotion slot from the English Championship to the Premier League. Played in Wembley to a global television audience, the value of this one game is in the hundreds of millions of pounds. Indeed, often the most exciting games in football are not those for the Cup but the relegation and promotion battles across all leagues in all countries worldwide. The promotion of Wrexham FC into the bottom tier of the English Football League was another global event with its own accompanying Amazon documentary. Indeed, promotion and relegation are so fundamental to the principles of football that Article 9 of the FIFA Statutes lays out that “A club shall qualify for a domestic league championship by remaining in a certain division or by being promoted or relegated to another at the end of a season." The U.S. Soccer Federation has never enforced compliance with this principle.
In the USA, the United Soccer League (USL) is likely to move sooner rather than later to allow promotion and relegation. The USL, which at the professional level currently is comprised of the Championship and League One divisions, represents the second and third tiers of soccer in the United States, below MLS. The USL also contains an additional tier, the semi-professional League Two. In some respects, it is analogous to the English Football League. A vote by the USL Governors in August 2023 could see promotion and relegation adopted across USL as soon as the 2024 season. So as MLS approaches 30 teams and more, can it also adopt a hybrid version of promotion and relegation by creating two divisions of MLS? Instead of the Eastern and Western Conferences; how about MLS Division 1 and MLS Division 2; or similar?
Adopting a limited promotion and relegation model between two tiers of a still-closed MLS might create the jeopardy which drives the game elsewhere in the world while limiting the financial risk to franchise owners of dropping like a stone down the USL pyramid. In some respects, this divide already exists between those that make the MLS Cup playoffs and those who do not. For example, Houston Dynamo and Chicago Fire have not made the so-called "postseason" in the last 5 years; they and others are essentially already in a quasi-second tier of MLS, albeit with the guaranteed chance next season to make amends.
Instead of only wondering which of 30+ teams will make the playoffs and win the MLS Cup there would be exciting battles across both levels of a new two-tier MLS. Adopting a looser parity model, perhaps based on balancing income and expenditure, would allow more ambitious owners to compete at the level they can afford both domestically but increasingly also in the regional Champions League and the new, expanded FIFA Club World Cup. In years to come this could see an MLS team genuinely compete with a Real Madrid or Manchester United to be the best team in the world; how American is that?! Less ambitious teams would have their own exciting battles to stay in the upper level of MLS or to regain promotion to that level. While some of the more traditional MLS owners may still be instinctively wary of this impacting their investments, it is highly likely that the rising tide of quality, excitement, and drama will float all valuations. A technical study with projections and valuations within a still-common-ownership model might ease their concerns.
MLS has come a long way in the thirty years since the last FIFA World Cup in America. It has successfully ridden the two horses of a domestic U.S. sports league and the global game of football. That balance has shifted in a careful and considered way over time more towards the latter. As the MLS owners consider the next steps, a model of promotion and regulation within a two-tier closed league might once again provide a uniquely American solution to take the league onto the next stage of its success.
 MLS Salary Cap 101 | Andrew Visnovsky (wordpress.com)
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.