December 4, 2017

Part II: Can the Columbus Crew Legally Relocate?

by Gerrod Bede, James E. Arnold & Associates, LPA

Several weeks ago, I addressed some questions about whether the Columbus Crew SC could relocate to the city of Austin, Texas. Since that time, multiple developments have emerged, most of which suggest that the Crew is headed to Austin.

On November 15, Mayor Andrew Ginther and Alex Fischer, President and CEO of the Columbus Partnership, met with the commissioner of Major League Soccer and Anthony Precourt. The purpose of the meeting was to discuss the future of the soccer club in Columbus and the options available for keeping the club here. Following that meeting, Ginther and Fischer released a joint statement indicating that they were “united in putting all options on the table, with the expectation in return that the MLS and ownership would cease pursuing moving the team to Austin,” but that “the MLS and ownership did not come to the meeting willing to commit to staying in Columbus.”1 Not to be outdone, Precourt Sports Ventures, LLC (“PSV”) released a competing statement saying that it was “extremely disappointed that no concrete offer or proposal was presented” at the meeting.2 This led many to wonder whether these folks were even at the same meeting.

Further details have now emerged about the content of that meeting, and it appears that Ginther and Fischer presented a proposal to the league and Precourt involving several different parcels of land near downtown Columbus.3 Moreover, the league apparently told Ginther and Fischer at the November 15 meeting that Columbus could attempt to get back into the league through the expansion route in the next few years — for the typical expansion fee of $150 million.4 Of course, this ignores the obvious point that the City of Columbus has been making: it already has a team. Why shouldn’t the team’s prospective owners in Austin be the ones to fork over the $150 million? Why should Columbus be forced to pay $150 million for something that it already has?

San Antonio's Potential Lawsuit
It turns out that people outside of Columbus are also asking these questions. For example, a judge in San Antonio wrote a letter to the MLS asking for an explanation of the Crew’s potential move.5 According to the judge, the MLS President made promises to the San Antonio expansion group about what San Antonio needed to do in order to have a “clear path” toward MLS ownership. In reliance on those comments, the San Antonio committee spent more than $20 million acquiring land for a future stadium in the city. Of course, now that Austin seems likely to be the new home of the Crew, San Antonio has no chance of getting a new franchise. This fact was confirmed when the MLS released the four finalists for the next expansion cities — and San Antonio was not on the list.6

The San Antonio judge has also asked the local district attorney to investigate the matter further, and has asked for a consideration of both civil and criminal actions. While the district attorney will handle any potential criminal investigation, on the civil side, San Antonio probably would not be able to file a claim for a breach of contract. It’s unlikely that a contract existed between the MLS and San Antonio regarding the “clear path” toward ownership. San Antonio could, however, consider filing a promissory estoppel claim. Under this theory, San Antonio would be seeking a monetary recovery based on the promises made by MLS and the damages San Antonio suffered by relying on those promises.

For example, suppose the MLS told San Antonio that it would receive a new franchise if it acquired the $20 million parcel of land. In response, San Antonio went out and acquired the land, but the MLS thereafter refused to grant them a franchise. In that case, San Antonio might have a claim for the $20 million, as well as any other costs it incurred in reasonably relying on the promise by MLS.

On the other hand, suppose the MLS told San Antonio that many cities had applied and that a good way to increase the chances of getting a franchise was to have a stadium plan near downtown. Under that scenario, the MLS did not make a promise about a franchise, even though it suggested a way for San Antonio to increase its odds of getting a franchise.

Without knowing exactly what was said between the MLS and the San Antonio expansion group, it’s impossible to know whether the city has a claim. But if the San Antonio expansion committee was led to believe that they were a shoe-in for a franchise if they acquired the $20 million property, I expect that we’ll be hearing more from them in the coming days.

Potential Lawsuits by Columbus Entities
The big question is whether the City of Columbus (or perhaps any local entities) have a cause of action against the club if it moves to Austin. The short answer is, “it depends.” There are likely local entities that may have a breach of contract claim against the club, with the most obvious one being the 30-year stadium lease that doesn’t expire until 2023.7

There may also be local sponsors with deals running past the 2018 season (when the team is expected to leave), such as those owning the naming rights to the stadium, jersey sponsors or the host of other businesses with advertising in the stadium. These entities likely have contracts that spell out the rights and responsibilities in the event one party breaches the contract. Merely telling a local sponsor that the team will finish the multi-year advertising contract in Austin is unlikely to pass the smell test — so it’s likely that the team may have some damages to pay to local sponsors with deals running past the 2018 season. Of course, if the Crew has been planning this move for some time, it may have reduced or completely eliminated any sponsorship contracts past the 2018 season for this very reason.

The calculation of any damages for the Crew’s potential contract breaches may be specified in the contract (which would be considered liquidated damages), or the sponsors may have to calculate their actual damages and sue for a breach of contract (or otherwise work out a resolution agreeable to both parties). Either way, the non-breaching party’s damages would generally be limited to monetary claims, rather than any claims for an injunction to prevent the team from moving.

Although the timing of the Crew’s decision about whether it will move to Austin is uncertain, it will likely be made soon. The MLS is expected to announce the next two expansion cities by the end of 2017, and the Crew’s potential move is undoubtedly part of that process.

Gerrod BedeGerrod Bede