What USL’s franchise agreement tells us

Image credit: USL

Any discussion of the NASL vs. USL “soccerwarz” often sets off mad ideological arguments about the the pro soccer leagues and their “independence.” NASL proponents have long conflated the structures of MLS and the USL as one-in-the-same, when in fact they are very different. MLS employs a single-entity model which, believe it or not, is at least partially individual owner/investor driven. The USL operates a pure franchise model which is highly centralized and top-down in its execution. The NASL, of course, operates a decentralized model which has led to at times virtual chaos within its ranks and frequent club failures.

A common critique of the USL by NASL supporters is that it houses not only MLS reserve teams but independent clubs affiliated with MLS clubs, which some NASL proponents claim is unnatural in world football. This later model is used all over the globe contrary to the narrative — one doesn’t have to look further than this weekend, when Girona upset Real Madrid. Girona is an affiliate of Manchester City whose shares are partially owned by City Football Group. Girona currently has five players on loan from Manchester City, the same number on loan that another affiliate of the Citizens, NAC Breda, has in the Eredivisie. NAC Breda is a completely independent Dutch club where U.S. men’s national team legend Earnie Stewart both played and served as technical director. The NAC Breda-Manchester City relationship is no different than the FC Dallas-OKC Energy relationship currently.

But where the USL’s structure and business model are different than that of any other professional league we know of that is sanctioned by a FIFA-recognized federation, is in the direct franchise model. Here are some highlights based on a 2016 document obtained by Soc Takes (Edit 11/1/17: As such, it would rely on financial information true of the 2015 season):

FINANCES

The USL, as of 2016, has an initial franchise fee of $3 million. We understand this has risen to the $5 million level in 2017. Keep in mind the USL was a sanctioned Division III pro league in 2016, but in 2017 is a provisionally sanctioned DII pro league by the U.S. Soccer Federation (USSF). Annual participation fees of $110,000 were significantly lower than the same fees for NASL play in 2016 — the USL’s critical mass of clubs allowed individual fees to be lower to fund the entire league.

The franchise agreement is fairly restrictive, though it must be noted many of the provisions are logical and make perfect sense from the USL perspective. One of the most interesting restrictions is one on team owners organizing an ownership lobbying group or union. This restriction no doubt harkens back to the formation of the Team Owners Association (TOA) in 2008 among owners in the USL First Division, which was a sanctioned second division by the USSF in spite of its cleverly misleading name. This TOA was the genesis for the eventual formation of the NASL and the soccerwarz that have consumed lower division proceedings since 2009. This precludes any independent effort to create perhaps a better soccer pyramid or system among existing USL owners. The contract allows the USL to terminate a franchise if they are actively trying to organize a group of teams or aid a rival league.

Another interesting aspect of the agreement is that if the principal owner or any person holding more than five percent ownership of the club acquires an MLS franchise, you must pay seven percent of the entry fee — which would be $10.5 million if one paid $150 million to join MLS — to USL. While this seems punitive and a direct refutation of the USL’s openly stated rationale for why prospective MLS owners should join their league over the NASL, it does make some sense in the bigger picture. Since MLS doesn’t pay a “transfer fee” to the USL as you would for a player you buy from another league or division in global football, it can be theorized that the USL is entitled to the spoils of their work in developing clubs and honing markets ready for the jump to MLS.

#USL franchises have a 60 day window where Nike can negotiate exclusively with clubs. pic.twitter.com/QB1bsPGrn9

— Kartik Krishnaiyer (@kkfla737) October 31, 2017

(Edit: This financial info would be true of the 2015 season, given it is a 2016 document).

One of the most surprising aspects of the agreement is that Nike has right of first refusal on apparel deals. The exclusive 60-day window which new franchises have to negotiate with Nike can be viewed as inconvenient by some, but perhaps wise by others — for new soccer brands, linkage with Nike, a leading global name, can only help credibility. Nike sold the league to current owners NuRock Soccer Holdings in 2009.

SALARIES

Whether the NASL and USL have a comparable wage structure has remained an area of discussion amongst supporters of both leagues. Per documentation, the USL expects annual player salaries to be between $200,000 and $400,000. Prima facie, this is troubling. If teams have 20 players, that would mean very low wages for many players. It has to be stated that USL salaries may have increased since being awarded DII status. As a comparison, documentation obtained by Soc Takes shows that Rayo OKC — an NASL team — anticipated spending $530,000 on salaries last season, whereas Brian Helmick of the San Francisco Deltas said the team expected to spend $1.2 million on players. Both Miami FC and the New York Cosmos currently have a player budget higher than the Deltas’.

Photo credit: NASL

So, while the NASL might provide the opportunity for players to be paid more, the model — given the death of Rayo OKC and the potential demise of the Deltas — is more unstable.

RELOCATION/TERMINATION

Any franchise relocation would require the owner(s) to pay 10 percent of the current expansion fee to the league for the ability to relocate. While this provision struck me as odd, I am assured by those who understand the franchise-based U.S. professional sports setup, that it is a common provision. Another common provision I am told is the one related to “protected territory,” though in soccer leagues across the globe part of the attraction of local clubs is the proximity to rivals within driving distance or in the same urban area. In the USL, based on the way the contract is written, this seems an impossibility. For example, would Manchester and Liverpool, which are closer to one another than Fort Worth and Dallas, be considered the same “territory” if a USL-type league were set up in England? It’s worth pondering…

The most troubling aspect of the agreement, from the standpoint of those whose personal preferences match the way the sport is structured in the rest of the world, is when it comes to trademarks and intellectual property. If a franchise is not renewed or terminated, the franchisee is obligated to “not compete in a rival league,” defined as the NASL, NPSL or PASL (and perhaps now amended to include UPSL) for two years. In fact, per the franchise agreement, the league can continue to use those trademarks for two years into the future.

However, if the USL were to fall below the USSF minimum number of teams requirement, teams would be free to move to rival leagues.

The USL’s approach to its clubs and soccer structure is not only different than the NASL’s, but different than MLS and leagues across the globe. Whether or not this matches the personal preference of fans can be debated, but no doubt the Tampa-based league has been able to create a critical mass of teams and at least the perception of stability using these means.

Soc Takes staff writer Nipun Chopra contributed to this story.

Follow Kartik on Twitter: @kkfla737.

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