Fraser v. Major League Soccer, L.L.C.

• Citation: 284 F.3d 47
• Decision Date: 20 March 2002
• Docket Number: No. 01-1296.,01-1296.
• Parties: Iain FRASER; Steve Trittschuh; Sean Bowers; Mark Semioli; Rhett Harty; David Scott Vaudreuil; Mark Dodd; and Mark Dougherty, Plaintiffs, Appellants, v. MAJOR LEAGUE SOCCER, L.L.C.; Kraft Soccer, L.P.; Anschutz Soccer, Inc.; Anschutz Chicago Soccer, Inc.; South Florida Soccer, L.L.C.; Team Columbus Soccer, L.L.C.; Team Kansas City Soccer, L.L.C.; Los Angeles Soccer Partners, L.P.; Empire Soccer Club, L.P.; Washington Soccer, L.P.; and United States Soccer Federation, Inc., Defendants, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

284 F.3d 47

Iain FRASER; Steve Trittschuh; Sean Bowers; Mark Semioli; Rhett Harty; David Scott Vaudreuil; Mark Dodd; and Mark Dougherty, Plaintiffs, Appellants, v. MAJOR LEAGUE SOCCER, L.L.C.; Kraft Soccer, L.P.; Anschutz Soccer, Inc.; Anschutz Chicago Soccer, Inc.; South Florida Soccer, L.L.C.; Team

Columbus Soccer, L.L.C.; Team Kansas City Soccer, L.L.C.; Los Angeles Soccer Partners, L.P.; Empire Soccer Club, L.P.; Washington Soccer, L.P.; and United States Soccer Federation, Inc., Defendants, Appellees.

No. 01-1296.

United States Court of Appeals, First Circuit. [D] Heard October 1, 2001.

Decided March 20, 2002.

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Jeffrey L. Kessler with whom James W. Quinn, Bruce S. Meyer, Michael A. Rona, Allan L. Garcia, Tamir M. Young, Weil, Gotshal & Manges LLP, Paul B. Galvani, Ropes & Gray and Richard A. Berthelsen were on brief for appellants.

Michael A. Cardoza with whom Steven C. Krane, Lee M. Goldsmith, Brooke H. Spigler, Daniel L. Goldberg, Daniel S. Savrin and Bingham Dana LLP were on brief for appellees Major League Soccer, L.L.C., et al.

John Paul Robbins with whom McLaughlin & Stern, LLP and Morgan, Brown & Joy were on brief for appellee United States Soccer Federation, Inc.

Before BOUDIN, Chief Judge, COFFIN, Senior Circuit Judge, and WOODLOCK,^* District Judge.

BOUDIN, Chief Judge.

Professional soccer players sued Major League Soccer, LLC ("MLS"), nine independent operator/investors in MLS, and the United States Soccer Federation, Inc. ("USSF"), alleging violations of Sherman Act sections 1 and 2, 15 U.S.C. §§ 1-2, and Clayton Act section 7, id. § 18, and seeking injunctive relief and monetary damages.¹ The district court granted summary judgment for defendants on the section 1 and Clayton Act counts. After a twelve-week long trial on the section 2 count, the jury returned a special verdict leading to judgment in favor of defendants. Players now appeal the disposition of all three counts. We begin with a statement of the background facts.

I. BACKGROUND FACTS

Despite professional soccer's popularity abroad, the sport has achieved only limited success in this country. Several minor leagues have operated here (four such leagues exist today), but before the formation of MLS, only one other U.S. professional league — the North American Soccer League ("NASL") — had ever obtained Division I, or top-tier, status. Launched in 1968, the NASL achieved some success before folding in 1985; MLS attributes the NASL's demise in part to wide disparities in the financial resources of the league's independently owned teams and a lack of centralized control.

In 1988, the USSF, the national governing body of soccer in the United States, 36 U.S.C. § 220501 et seq., was awarded the right to host the 1994 World Cup soccer tournament in the U.S. by the Federation Internationale de Football Association ("FIFA"), soccer's international governing body. In consideration for the coveted sponsorship rights, the USSF promised to establish a viable Division I professional soccer league in the U.S. as soon as possible.

The USSF decided as early as 1988 to sanction only one Division I professional league. The concern was that sanctioning rival leagues would dilute revenues, drive up costs, and thereby dim the long-term prospects for Division I soccer in the U.S. Indeed, MLS contends no other country has sanctioned more than one Division I league within its borders, although arrangements in other countries could be variously described.

Just before World Cup USA play began, in early December 1993, three organizations presented competing plans to develop a Division I professional soccer league to the USSF National Board of Directors. The three competing organizers were: League One America; the American Professional Soccer League ("APSL"), an existing Division II league; and Major League Professional Soccer ("MLPS"), the precursor to MLS, headed by the USSF's own president, Alan Rothenberg.

At its December 5, 1993, meeting the USSF board tentatively selected MLPS as the exclusive Division I professional soccer league in the U.S., based upon its relatively strong capitalization, higher proposed spending, business plan and management. The board also reaffirmed its intention to sanction only one Division I league. But in January 1995, the USSF announced that it would consider sanctioning additional leagues which could meet rigorous new financial and operating standards beginning with the 1998 season.

In the wake of a successful World Cup USA, MLS was officially formed in February 1995 as a limited liability company ("LLC") under Delaware law. The league is owned by a number of independent investors (a mix of corporations, partnerships, and one individual) and is governed by a management committee known as the board of governors. Some of the investors are passive; others are also team operators as explained below.

MLS has, to say the least, a unique structure, even for a sports league. MLS retains significant centralized control over both league and individual team operations. MLS owns all of the teams that play in the league (a total of 12 prior to the start of 2002), as well as all intellectual property rights, tickets, supplied equipment, and broadcast rights. MLS sets the teams' schedules; negotiates all stadium leases and assumes all related liabilities; pays the salaries of referees and other league personnel; and supplies certain equipment.

At issue in this case is MLS's control over player employment. MLS has the "sole responsibility for negotiating and entering into agreements with, and for compensating, Players." In a nutshell, MLS recruits the players, negotiates their salaries, pays them from league funds, and, to a large extent, determines where each of them will play. For example, to balance talent among teams, it decides, with the non-binding input of team operators, where certain of the league's "marquee" players will play.

However, MLS has also relinquished some control over team operations to certain investors. MLS contracts with these investors to operate nine of the league's teams (the league runs the other three). These investors are referred to as operator/investors and are the co-defendants in this action. Each operator/investor has the "exclusive right and obligation to provide Management Services for a Team within its Home Territory" and is given some leeway in running the team and reaping the potential benefits therefrom.

Specifically, the operator/investors hire, at their own expense and discretion, local staff (including the general managers and coaches of their respective teams), and are responsible for local office expenses, local promotional costs for home games, and one-half the stadium rent (the same portion as MLS). In addition, they license local broadcast rights, sell home tickets, and conduct all local marketing on behalf of MLS; agreements regarding these matters do not require the prior approval of MLS. And they control a majority of the seats on MLS's board, the very same body which runs the league's operations. Among other things, the board is responsible for hiring the commissioner and approving national television contracts and marketing decisions, league rules and policies (including team player budgets), and sales of interests.

The operator/investors also play a limited role in selecting players for their respective teams. While the operating agreements provide that the operator/investors will not bid independently for players against MLS, they may trade players with other MLS teams and select players in the league's draft. Such transactions, however, must follow strict rules established by the league. Most importantly, no team may exceed the maximum player budget established by the management committee.

In return for the services of the operator/investors, MLS pays each of them a "management fee" that corresponds (in large part) to the performance of their respective team. The management fee equals the sum of one-half of local ticket receipts and concessions; the first $1,125,000 of local broadcast revenues, increasing annually by a percentage rate, plus a 30% share (declining to 10% by 2006) of any amount above the base amount; all revenues from overseas tours; a share of one-half the net revenues from the MLS Championship Game and a share of revenues from other exhibition games.

The remaining revenues of the league are distributed in equal portions to all investors. Thus, while the investors qua investors share equally in the league's profits and losses, the individual team operators qua operators fare differently depending at least in part on the financial performance of their respective teams. It bears mentioning, however, that neither the league nor, apparently, any of its teams has yet made a profit.

Although the league retains legal title to the teams, the operator/investors may transfer their operating rights, within certain limits, and retain much of the value created by their individual efforts and investments. Investors may transfer their ownership stakes and operating rights to other current investors without obtaining prior consent; transfers to outside investors, however, require a two-thirds majority vote of the board. For its part, MLS may terminate any operating agreement on its own initiative if, by a two-thirds vote of the board, an operator/investor is determined to have failed to act in the best interests of the league. If so, it must still pay such operator/investor fair market value for its operating rights and ownership interest.

The league began official play in 1996. The following February of 1997, eight named players sued MLS, the USSF, and the operator/investors under various antitrust theories. The injunctive class was certified in January of 1998. Fraser v. Major League Soccer, LLC, 180 F.R.D. 178 (D.Mass.1998). In count I, the players claimed MLS and its...