Federal court ruling threat to U.S. Soccer's authority
- by Paul Kennedy @pkedit, Sep 29, 2010
[JURISPRUDENCE] The one thing you should know about FIFA is that it abhors the court system, so the lawsuit moving forward in U.S. District Court in Illinois is
not good news for U.S. Soccer just two months before FIFA's executive committee will decide whether to bring the World Cup back to the United States in 2018 or 2022. Particularly since the lawsuit is potentially the most serious challenge ever made to U.S. Soccer's
authority -- and by extension that of FIFA -- to govern pro soccer in this country.
The case involves ChampionsWorld, the defunct promoter of the ChampionsWorld Series in 2003 and 2004.
The ChampionsWorld Series drew huge crowds for international friendlies involving Europe's biggest teams, but ChampionsWorld filed for bankruptcy with more than $3.5 million in debts in early 2005,
citing the huge costs of putting on the games (click here for original bankruptcy filing).
In the case of ChampionsWorld LLC vs. USSF
et al, first filed in 2006 and initially routed toward FIFA's arbitration procedures for match agents, ChampionsWorld's creditors are attempting to recoup the more than $3 million in fees that U.S.
Soccer charged ChampionsWorld for organizing the matches and suing for damages that they argue ChampionsWorld suffered because of U.S. Soccer creating a "window exclusivity" for MLS to prevent
competitors from competing in the U.S. soccer marketplace.
U.S. Soccer moved to have the suit dismissed on several grounds. It argued that its authority to govern professional and
international matches stems from the Ted Stevens Olympic & Amateur Sports Act. And it also cited FIFA's statutes giving it the authority to sanction these same matches.
But U.S.
District Court Judge Harry Leinenweber knocked down U.S. Soccer's arguments, writing that there was no evidence that the Amateur Sports Act gave national governing bodies
power beyond amateur sports or Olympic-related competitions and that FIFA was not Congress and could not give U.S. Soccer exemption from antitrust laws.
For the last quarter century,
international matches have been big-money events, and promoters have made -- and lost -- fortunes on organizing them. Promoters and stadium operators have chafed at the fees U.S. Soccer charged -- it
earned more than $2.9 million in international game revenues in fiscal year 2009 -- and its
authority to approve or deny the organization of matches.
In 2001, the Los Angeles Coliseum filed a similar lawsuit to that filed by ChampionsWorld, but it was settled out of court before
a judicial ruling on U.S. Soccer's power could be made.
The contention of ChampionsWorld is that U.S. Soccer and MLS have a "historically close and anticompetitive relationship" and
sought to destroy ChampionsWorld and other competitors for fear that the success of international matches undermined MLS, then struggling with only 10 teams in 2003 and 2004. Its claim for damages
from U.S. Soccer and/or MLS stems from what it claims are mail and wire fraud and a "pattern of racketeering activities."
(U.S. Soccer has not commented on the suit. MLS president Mark Abbott told the Sports Business Journal last week, "ChampionsWorld went out of business because it didn't have a viable business model and not as a result of
any improper action by U.S. Soccer or MLS.")
The market for international matches has since matured. Soccer United Marketing -- the marketing arm of Major League Soccer -- has gained
marketing and management rights to most major events (MLS, U.S. national team, Mexican national team, Gold Cup, many of the top touring teams). Charlie
Stillitano, who headed ChampionsWorld and was its largest shareholder, has moved on to CAA Sports and organized the successful World Football Challenge in 2009.
The rise of Soccer
United Marketing certainly brought order to the American soccer market. That order means that there is a reasonable coordination in the scheduling of events -- and Soccer United Marketing has thrived.
But the dynamics would be different if U.S. Soccer's authority was undermined.
What makes the suit unusual is that it is brought by ChampionsWorld's creditors. Unlike the Coliseum, which
had the incentive to settle and remain on good terms with U.S. Soccer -- it's included in the U.S. bid for the 2018/22 World Cups -- the only incentive of most of ChampionsWorld's creditors --
its largest single creditor is the Canadian taxing authority -- to settle is financial.
Pryor Cashman, the law firm representing the creditors, called Judge Leinenweber's ruling "a landmark sports law and antitrust ruling" and is moving ahead with the lawsuit in U.S. District Court. Pryor
Cashman attorney Jamie Brickell told the Wall Street Journal that
he plans on soon deposing U.S. Soccer president Sunil Gulati.
So have NIKE pitch in and settle the case for $3-$5 million. Much smaller loss financialy than if the US does not win the right to host the World Cup.
Shouldn't Champions World be careful of what it asks for? Let's say that the courts decide that US Soccer does not have the authority to sanction a professional match. If I decide to stage a match between Chelsea and Real Madrid in Chicago and I don't get US Soccer's sanction to proceed, does anyone believe that Chelsea and Real would come here to play? FIFA's authority won't supercede US laws, but FIFA still has the authority to allow US Soccer to sanction matches played in this country. Foreign teams won't come here to play if they are in a potential outlaw situation in FIFA's eyes.
This lawsuit is all about money. US Soccer should be pragmatic, move aggressively to settle, and then be reasonable in the future on how much they charge to sanction a match.
Maybe Gulati gets deposed, thus I am supporting the opposition!
Good point George.
In response to Pryor Cashman attorney Jamie Brickell's final statement, how soon is soon?
US soccer should settle the suit out of court. It's not acceptable that they got $3 M for doing nothing, while the ChampionsWorld lost $3,5 M for wroking hard to bring good soccer to this country, at a time when soccer needed some help to grow.
A bit too much legal mumbo jumbo for me...but if it get Sunil Gulati out as USSF president, I'll all for it!!
This is fantastic news, holding USSF/MLS/SUM accountable for anti-trust violations in the marketing of friendly games is the beginning of making those who feel they are beyong reproach with respect to MLS Bob's selection accountable for their actions, it especially undermines Dan Flynn's approach in subordinating the interests of a better USMNT in favor of SUM profits for MLS. The depositions of Gulati, Flynn, Kraft and others could provide some very revealing information as to how the three organizations work hand-in-glove with one another to control and limit soccer development in this country.
This lawsuit may actually help our sport in the USA. I have heard the pleas on SA (Mike Woitalla's latest on Gulati and Klinsman as an example) that ask us to basically "shut up, buy MLS tickets, and place blind trust in Flynn and Gulati to do what's best." But the free market voice in me says that won't work. I see roles that should be separate -- sanctioning, national team management, league management, International match promotion, club ownership and even agent representation -- but they all funnel to a very small, closed group. Such a monolithic structure in any group severely limits the innovation, creativity, and evolution of the overall group -- in Darwinian terms, it's primed for marginal survival or extinction, not growth and domination. As we did in forming our great country, let's get the structure, roles and separation of power correct first, then we can trust that the collective energy of everyone involved in the sport will drive it to greatness.
@Brian - Concur 100%, it will only help by prying power away from the clique that is holding back our USMNT program.