The CAS Pro/Rel Case: De Facto Promotion

Nashville SC fans celebrate the announcement that their team is moving up to MLS

In a previous post, I discussed the Court of Arbitration for Sport’s denial of Miami FC and Kingston Stockade’s promotion and relegation claim. The Panel’s 66-page opinion is packed with information — thus, leaving a slew of trails, passages and hidden rooms for the legal mind to explore.

My previous post explained the reasoning behind the Panel’s decision. This post will dig deeper, into an argument and a section of Article 9 (the FIFA statute that addresses pro/rel) the Panel did not analyze in great detail. Essentially, in their ruling, the Panel confronted two arguments. The first was that Article 9 required countries with closed systems to adopt pro/rel. As the Panel noted, the history behind Article 9 confirms FIFA did not intend for it to impose such a requirement. The Panel devoted less attention to the second argument — that the US Soccer Federation was violating Article 9 by allowing teams to move up to the first division for reasons detached from sporting merit (I will call this “de facto promotion”). While the Panel also rejected this argument, their grounds were less clear and invite further examination.

Section 1 of Article 9 states as follows:

A club’s entitlement to take part in a domestic league championship shall depend principally on sporting merit. A club shall qualify for a domestic league championship by remaining in a certain division or by being promoted or relegated to another at the end of a season.

FIFA enacted Article 9 in May 2008. To that point, no US team had moved from a lower division to the country’s highest division, Major League Soccer. That changed in 2009, when the Seattle Sounders jumped from the Division II United Soccer League to MLS. Since then, MLS has accepted 13 new teams, 8 of which came from lower leagues. In all but one of these instances, the new team leapt to Division I over higher finishing Division II teams. MLS has been clear that sporting merit played no role in the new teams’ “promotions.”

So in short, 8 clubs have qualified for the United States’ “domestic league championship” based entirely on non-sporting factors. In the process, numerous clubs have been denied the opportunity to “take part in the domestic league championship” despite outperforming the new MLS teams. So without getting into the remedy, the overlooked teams can plausibly argue that the USSF has violated Section 1 and, as a result, they suffered a concrete injury — denial of a 1st division opportunity.

Both directly and implicitly, the Panel rejected the de facto promotion argument.

Direct. In a single paragraph, the Panel addressed and dismissed the de facto promotion argument. In their view, Article 9 did not bar de facto promotion because the US never sought to operate “a system of promotion and relegation based on sporting merit.” Rather, as “MLS has always been a closed league…such a practice is well-known to FIFA and not prohibited by Article 9.”

Implicit. The Panel held that Article 9 was “only intended to apply to member associations that had already implemented the principle of promotion and relegation and to avoid, [among other things], within such existing systems, cases like the ‘Granada Case’.” While the Panel did not state the issue in these terms, the de facto promotion argument conflicts with this holding because it challenges a practice that is not enshrined in the USSF’s rules or employed in a formal pro/rel system.

The de facto promotion argument depends on the meaning of Article 9, Section 1. Unfortunately, the Panel’s opinion focused on issues that provide little help in making this determination.

Primarily, they discussed how Granada inspired FIFA to pursue Article 9 and the subsequent FIFA committee debates clarified that the provision would not apply to closed systems, like the United States. From these sources, the Panel concluded Article 9 was, for the most part, about preventing another Granada, but, in any event, did not apply to countries without a formal pro/rel system.

Most of this does not apply to de facto promotion. First, Article 9, Section 3 bans the Granada scheme explicitly. Thus, Section 1 must ban more than Granada — otherwise it would be surplus language. Second, when examining the historical sources, the Panel only seemed concerned with whether they established a requirement to install pro/rel. Third, not surprisingly given the first two problems, the Panel offered little evidence to support its conclusion that Article 9 only applies to formal pro/rel systems.

That said, when the text and historical sources are examined, Section 1’s meaning is still ambiguous. Add to that the Panel’s deference to FIFA’s interpretation of its statutes, and a full analysis of Section 1 may have led to the same result.

Granada only plays a minor role

The Panel discussed the Granada incident at length. As Granada motivated FIFA’s push for Article 9, its role would seem to be crucial. But based on the statute’s plain language, and portions of the historical record, Article 9 goes beyond preventing another Granada.

As background, the Granada incident occurred in 2007, when Granada 74, a lower division team in Spain, purchased 2nd tier Ciudad de Murcia, moved them to Granada and kept their 2nd division license. While the Spanish federation, UEFA and FIFA tried to block Granada’s climb through the divisions, the Spanish leagues granted Granada a 2nd division license for the next season. The CAS later deemed Granada’s maneuver “legal,” thus, allowing the club to play in the 2nd division.

From the historical record, there is little doubt Granada spurred FIFA to begin the process that eventually led to Article 9. Notably, FIFA began considering the measure soon after the CAS allowed Granada’s move. More to the point, FIFA’s direct statements and Executive Committee minutes identify Granada as the reason Article 9 was necessary.

That aside, the statute’s final version expresses a principle broader than preventing another Granada. Under most legal systems, statutes should be read as a whole, giving effect to all of their provisions. Here, Article 9 consists of four sections. The aforementioned Section 1 demands that clubs qualify for a “domestic league championship…principally on sporting merit.” Section 3 then describes — and prohibits — Granada’s scheme:

3. Altering the legal form or company structure of a club to facilitate its qualification on sporting merit and/or its receipt of a license for a domestic league championship, to the detriment of the integrity of a sports competition, is prohibited. This includes, for example, changing the headquarters, changing the name or transferring stakeholdings between different clubs. Prohibitive decisions must be able to be examined by the member association’s body of appeal.

The most natural reading of Article 9 is that Section 1 states a broad principle of sporting merit, and Section 3 bans a specific loophole — the Granada scheme — that clubs may use to qualify for a league championship.

Limiting Article 9 to Granada would render Section 1 useless because FIFA could have banned the scheme with Section 3 alone. Therefore, such an interpretation would not give effect to all of the statute’s provisions.

All told, Granada served as the catalyst for Article 9 and continues to serve as an example of how the statute’s broader principles can be violated. Nonetheless, Article 9’s purpose must extend beyond that case.

Article 9’s drafting history does not foreclose the de facto promotion argument

Without making a direct reference to Section 1, the Panel drew two conclusions that could bear on its meaning: (1) FIFA did not intend Article 9 to require countries without pro/rel to adopt it; and (2) Article 9 only prohibits clubs from circumventing formal pro/rel systems.

Support for the first conclusion is robust. I discussed this evidence in my initial article on this decision, and it also features prominently in the opinion itself. Nonetheless, it does not eliminate the possibility Section 1 bans the United States’ de facto promotion.

Moreover, evidence backing the second conclusion is sparse. The Panel cited Chuck Blazer’s exchange with the FIFA Executive Committee in late 2007. During the committee’s October 29, 2007 meeting, Blazer requested adding the phrase “where the principle exists” to the beginning of Section 1’s second sentence. Blazer thought this would clarify that Article 9 did not apply to closed systems, like the United States. At a subsequent meeting, the committee assured Blazer Article 9 could not apply to closed systems. Along the same lines, it denied his language addition because Article 9’s title — “Principle of promotion and relegation” — already made the same point.

When Blazer made his request, Article 9’s title would have left the US beyond the statute’s reach, as its system neither promoted nor relegated teams. Likewise, there is no indication Blazer contemplated promotion or relegation within the US when he made his request. But when the US began promoting teams, the question of whether Article 9 now applied became legitimate. And this is not an issue Blazer or the Panel addressed.

The Panel also relied on the evidence Article 9 was adopted to prevent schemes like Granada. Their thinking appears to be that, because Granada involved manipulation of an otherwise open system, Article 9 must be limited to the same idea. Again, there is little doubt Granada motivated FIFA to adopt Article 9. But this does not mean Article 9 is limited to that one scheme, or even schemes resembling it. Section 3’s text covers Granada. Section 1’s text advances a more general defense of sporting merit. It is unclear how close a scheme must come to Granada to violate the sporting merit principle. And the Panel’s opinion did not offer much guidance in that regard.

The historical sources and Section 1

The historical evidence reinforces FIFA’s intention to promote sporting merit through Section 1. But it does not offer concrete guidelines for how that principle could be applied.

On October 28, 2007, approximately two months after the Granada decision, FIFA convened a meeting of its Bureau of the Legal Committee. The minutes include a section titled, “Buying league status,” where measures to combat future Granada’s were discussed. In relevant part, the committee chairman stated

The CAS judged [the Granada] transactions as legal, but for FIFA such action infringed principles, which allow promotion only on sporting merit. FIFA’s current legal norms would therefore be supplemented with a new article that would do justice to this sporting principle.

Two months later, FIFA issued Circular 1132, which emphasized its commitment to preserving the “integrity of matches or competitions.” Among other things, this meant the “entitlement to take part in a domestic league championship must depend primarily on sporting merit.” FIFA then noted the recent attempts in Spain to undermine this value by “facilitat[ing] qualification for a particular competition and/or the issue of a license” through company law. In short, the circular identifies a general concern — protecting competition and sporting integrity — and a specific example of how that principle has been violated. This structure mirrors Article 9.

Lastly, there is the FIFA Legal Committee’s rejection of then-USSF General Counsel John Collins’ proposed amendment to Article 9. During a meeting at the May 2008 FIFA Congress, Collins proposed inserting the term “where applicable” at the beginning of Section 1’s second sentence. His addition relied on different grounds than Blazer’s October 2007 proposal to add “where the principle exists” to the beginning of the same sentence. Collins wanted his amendment because (1) he believed the possibility of relegation would discourage investors in the US game and (2) he wanted to make “clear that associations had the right to do what was best for the game in their territory.”

But the Legal Committee rejected Collins’ amendment and the rationale behind it. In particular, members questioned his desire to encourage investment by eliminating relegation, arguing it “only underlined the growing problem of third parties coming into football only to make money.” The minutes also lack any indication the committee deemed Collins’ proposal superfluous.” This suggests that, unlike Blazer’s proposal, the committee did not believe the text encompassed Collins’ concerns.

The Legal Committee’s rejection of Collins’ amendment may cut deeper than a mere dispute over statutory text. Given the chance to endorse a more autonomous bubble for the United States, FIFA declined. Put another way, FIFA demonstrated it was not enthusiastic about giving the US a free hand and did not believe encouraging investment was a value worth safeguarding against Article 9.

Conclusions on Section 1’s text and historical sources

The fairness issues that block lower division US clubs can fit Section 1’s text. But the text is so general that it is difficult to gauge what kinds of real-world situations the law intends to prohibit.

This leads the analysis to historical sources, which only offer a mild dose of clarification. Specifically, they reveal broad principles behind Section 1: protecting competition, sporting merit and sporting integrity. The principles may extend beyond formal pro/rel systems and cover any effort to advance through divisions by means other than sporting merit.

Still, based on the record, any firm conclusion that Article 9 extends this far would be tough to support.

The US system may encroach on the values Section 1 was conceived to protect. Further, the Panel’s counterpoint — that Section 1 could not apply to the United States — has little evidence behind it. Nonetheless, the historical sources deliver no clear answer on Section 1’s meaning. So the Panel took a sensible approach: deference. Indeed, for an outside body to penalize FIFA for violating its own statute would seem out of place. And this would be even more awkward in a situation like this — where the statute’s precise meaning is unclear.

In short, two seemingly incompatible results could both be true: the Panel’s decision was correct and the USSF has repeatedly violated Article 9.

Founder of Terry Brennan Law (terrybrennanlawyer.com). Ex-college athlete (well, runner). Here, I write about soccer: law, market and data. Try my website too.