U.S. Soccer's Carlos Cordeiro on the mounting cost of legal fights, workplace issues and the CEO search

• by Paul Kennedy  @pkedit, Dec 7, 2019

The Blackstone Hotel in Chicago has a long history, dating back to the beginning of the last century.

The term “smoke filled room” comes from an Associated Press reporter's account of a meeting of Republican leaders in a suite on the 9th floor of the Blackstone where they broke the deadlock at the 1920 Republic Convention and nominated Warren G. Harding for president.

The barber shop in the basement is where gangster Al Capone did his business while getting a trim.

In 1931, Organized crime was -- well -- organized in the Crystal Ballroom of the Blackstone, where Lucky Luciano hosted the first-ever convention of his “National Crime Syndicate."

That same Crystal Ballroom is the site of this weekend's U.S. Soccer board of directors meeting. Board meetings not held around the federation's Annual General Meeting rarely attract more than a handful of observers. Friday's gathering in the room where Luciano and his cronies met was attended by more than 75 observers.

U.S. Soccer invited its young staff to attend the three-hour session while national media from the Associated Press, Wall Street Journal, USA Today, ESPN, Yahoo Sports, the Athletic and Soccer America attended, reflecting growing attention to the state of affairs at soccer's national growing body.

U.S. Soccer has garnered plenty of negative headlines in the two years since the U.S. men's national team failed to qualify for the 2018 World Cup -- from a series of lawsuits, most notably the suit by members of the U.S. women's national team for gender discrimination, to a small number of withering reviews on the employment Web site Glassdoor about "toxic" workplace conditions at Soccer House, the federation's offices in Chicago.

All this coincided with the retirement of U.S. Soccer's longtime CEO, Dan Flynn, in September, and departures of key executives and almost all youth national team coaches in the federation's sporting department  Flynn's plans for retirement were first reported in October 2018, but U.S. Soccer has yet to hire a new CEO more than a year later. Indeed, the federation's CEO search committee spent Thursday interviewing candidates for the CEO position as the search went into a second round after being first halted in May.

'Increased legal expenses are the major driver'

The open session featured reports by department heads, almost all of them young women who have in their positions for only one or two years. The report that drew the most attention was that of Pinky Raina, the chief financial officer hired in December 2018.

U.S. Soccer's finances aren't in bad shape: A windfall from the organization of the 2016 Copa Centenario left the federation with a surplus of more than $160 million, which the board has planned to draw down over five years until fiscal year 2023 -- U.S. Soccer's fiscal year ends on March 31 -- when its long-term commercial agreements with Soccer United Marketing and Nike will have expired.

Deficits of $30 million or more per year have been budgeted over the next three years as U.S. Soccer expands its staff and programming for things like coaching education and player development.

U.S. Soccer, Net assets
2013: $64,094,906
2014: $73,619,126
2015: $83,082,764
2016: $98,004,402
2017: $148,995,745
2018: $166,900,820
2019: $150,503,732
2020: *$139,879,583
2021: *$111,000,321
2022: *$82,127,385
2023: *$50,179,743
*Budget revised in February 2019.

What has changed this year is the projection for the current fiscal year that will end on March 31, 2020: a spike in the deficit from a budgeted amount of $14.3 million to $20.3 million. As Raina noted in her power-point presentation, "Increased legal expenses are the major driver."

"The concept of deficits isn't new," U.S. Soccer president Carlos Cordeiro said at a media gathering after the board meeting. "We've always had planned deficits, but deficits to grow our investments in our programs.

"What's happened in the last few months and will accelerate into next year is that we have these unforeseen legal expenses that are now basically coming to bear. And they are the reason principally -- not exclusively -- for why our deficits are bigger than what we had planned in 2017 and 2018."

U.S. Soccer is currently involved in lawsuits in federal court with members of the U.S. women's national team, former goalkeeper Hope Solo, the NASL, U.S. Soccer Foundation and Relevent Sports Group, in addition to actions before the USOC and CAS, the international sports judicial body hearing a pro/rel case.

These suits come as soccer has grown into a big business with the World Cup approaching in 2026. The U.S. women are the most successful women's sports team in the world and want to be paid accordingly. Several suits will determine the bounds of U.S. Soccer's authority to regulate soccer and its protection under antitrust law. (U.S. Soccer won two major antitrust cases over the last 20 years but they were not absolute victories, leaving the federation open to more suits.)

The federation's outside legal expenses have been rather steady in the range of $3 million in recent years, even as it was hit by the first wave of suits. Insurance in most cases has covered these legal costs, but Cordeiro said “there’s one case [editor's note: reported by Yahoo to be the NASL suit] where our insurance is running out. Which is why we’ve had to anticipate [greater] expenses.”

Raina said for the remainder of the 2020 fiscal year outside legal costs will be projected at $9 million.

The bottom line: the increased losses will drive U.S. Soccer's budgeted net investments for the next fiscal's budget below $50 million at the end of its five-year plan.

'Glassdoor was a good wake-up call, frankly'

Another recent hire has been chief talent & inclusion officer Tonya Wallach. As the HR chief, she outlined measures being adopted -- "modern work policies" was the title to the power-point presentation -- to cover the federation's growing staff. (All 185 employees were given $2,000 bonuses after the USA won the 2019 Women's World Cup.)

"When I joined the board in 2007 as an independent director," said Cordeiro, "we did not even have 50 employees. That rapid growth, that amount of growth in that period of time is traumatic for any organization. I don't think we managed that growth as best we probably should have."

U.S. Soccer has hired a major commercial real-estate firm to evaluate its work-space needs for a staff that will continue to grow as spending increases -- those deficits again -- over the next three years. Since the early 1990s, the federation has worked out of Soccer House, two old mansions located on Chicago's South Loop. In recent years, walls have been torn down and spaces divided into four to make cubicles.

U.S. Soccer also hired an outside management firm to solicit feedback from staff on workplace issues, including those addressed in the Glassdoor reviews.

"Until recently," admitted Cordeiro, "we managed U.S. Soccer like it was a 50-person organization run out of someone's kitchen. Not to be disparaging, but Soccer House is a little bit like that. I think Glassdoor was a good wake-up call, frankly, because it did alert us to potentially some tremor lines.”

'We don't want to rush CEO appointment'

Cordeiro took exception to some of the media reports about the federation. The Wall Street Journal published on Friday a report about the federation's struggles that received lots of attention.

“I think it's unfair to characterize us as being leaderless and in crisis,” he said. “Would we rather have a CEO today? Of course, we would. But we don't want to rush an appointment and then find out it's the wrong person.”

Cordeiro said he halted the first search in May because he was not satisfied with the shortlist of candidates. A new search firm came on board in September. The current list of finalists for the CEO position includes men and women, and one person from outside the United States.

"They've produced an incredible list of people,” Cordeiro said. “Maybe earlier in the year, there was some hesitancy on the part of candidates to want to come talk to us given a lot of the issues out there. Maybe in September, some of that got clarified, perhaps.”