November 10, 2017

Can the Columbus Crew Legally Relocate?

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

The Columbus Crew is in the news, and not entirely because of its on-field accomplishments. On October 17, Precourt Sports Ventures, LLC (PSV), which owns the Crew, announced that it was “potentially relocating the Club to the city of Austin, Texas.”[1]

Many found the timing of this statement odd, given that the Crew had, just days earlier, finished a season-ticket push for 2018 and had qualified for the 2017 Major League Soccer Cup Playoffs. Less than a week after the relocation announcement, thousands of Crew fans flooded to Columbus City Hall in a show of support for the team.[2] Columbus business leaders tried to prevent the potential move by offering to buy a 50 percent stake in the team, but to no avail.[3] With so many unanswered questions about the team’s future pending, many people have asked whether a sports franchise can simply pick up and relocate to a different city. Although more common in other professional sports leagues, this situation is virtually without precedent in Major League Soccer (MLS).

MLS Ownership Structure
The ownership structure of MLS and its teams is quite unusual in the sports world. MLS is set up as a single entity limited liability company, with the entity owned by a number of independent investors and governed by a management committee.[4] MLS owns all of the teams in the league and exerts significant control over the league and operations of the individual teams.[5] MLS then contracts with investors to operate the league’s teams, with these operator/investors hiring local staff, coaches and general managers.[6] These operator/investors receive a “management fee” in return for providing these services — a fee that generally corresponds with the performance of their respective team.[7] In this sense, PSV is not really the owner of the Crew (it belongs to the MLS as a whole), but for all intents and purposes, PSV is held out to the public as the owner of the Crew.

What Does it Cost to Own an MLS Team?
MLS currently has 22 teams and has publicly stated its desire to expand to 28 teams over the next several years.[8] The expansion fee is constantly changing, but the next set of new teams will each reportedly have to pay a $150 million fee in addition to building (and financing) a suitable stadium, building a training facility and developing a youth soccer academy.[9] Thus, the total cost to buy a new team is estimated to total more than $300 million.[10]

Forbes estimates that the Crew is currently worth $130 million, based on 2016 revenues of $26 million.[11] PSV reportedly bought the Crew for $68 million in 2013, which at that time was a record price for an existing MLS team.[12] Given the disparity between the sales price of the existing brand ($68 million) and the cost to acquire a new MLS franchise ($150 million+), some have speculated that the Crew’s potential move to Austin was simply a business decision to avoid paying the expansion fee for setting up a team in Austin—and if that was indeed the impetus, it will save PSV nearly $80 million.

Have Any MLS Teams Previously Relocated?
The procedure for transferring an MLS team is not one that has been utilized frequently. If Columbus does move to Austin, it would be the second MLS franchise to relocate (the 2006 San Jose Earthquakes were the first, and resumed operations in 2008 under new ownership). At least one source has indicated that in order to relocate, two thirds of MLS’s Board of Governors would need to approve the move.[13]

When a professional franchise relocates, it often leaves behind a trail of broken promises, unhappy fans and cries of a conspiracy between the team and the league. And it sometimes ends up in court, as it did between the City of St. Louis and the National Football League (“NFL”).[14] There, the City of St. Louis sued the NFL over the relocation of the Rams to Los Angeles in 2016, seeking hundreds of millions of dollars of lost revenue due to the move. Notably, the goal of that lawsuit was only to recoup monetary damages; it was not focused on preventing the team from moving away. Whether St. Louis will ultimately be successful remains to be seen, as the lawsuit is in its early stages at the time of this writing.

Whether a lawsuit will be filed over the Crew’s potential relocation to Austin remains to be seen. If such a lawsuit is filed prior to the Crew’s relocation, a party about to suffer irreparable harm (as opposed to money damages) could theoretically ask the court to issue an injunction to prevent the team from moving. While rare, such a lawsuit is not unprecedented.[15]

It’s too early to determine whether this battle will end up in court, as Columbus city leaders will be meeting with the MLS and PSV in the coming weeks and months to further discuss these issues. Oftentimes, the best resolution is an early one that allows the parties to devote their resources to something other than litigating a matter. Of course, that may not always be possible depending on the parties involved.

4. Fraser v. Major League Soccer, LLC, 284 F.3d 47, 52-53 (1st Cir.2002)
5. Id. at 53.
6. Id. at 54.
7. Id.
10. Id.
14. See St. Louis Regional Convention and Sports Complex Authority, et al. v. National Football League, Case No. 1722-CC00976, 22nd Judicial Circuit Court, St. Louis City (filed 4/12/17).
15. See, e.g., Los Angeles Mem'l Coliseum Comm'n v. Nat'l Football League, 726 F.2d 1381, 1401 (9th Cir. 1984) (enjoining the NFL from prohibiting the Oakland Raiders from moving to San Diego); City of Cleveland v. Cleveland Browns, Inc., et al., Case No. 95-297833 (Cuyahoa C.P.) (seeking injunction preventing Cleveland Browns from moving to Baltimore).
Gerrod BedeGerrod Bede