Will MLS’ (Contract) Options Remain Open?

Besiktas/Twitter

In January, Canadian striker Cyle Larin completed a move from Major League Soccer’s Orlando City to Turkish club Besiktas. Reportedly, Besiktas paid Orlando a transfer fee in the neighborhood of $2.3 million.

That was the simple part.

The complicated part was a stinging dispute over the option years in Larin’s MLS contract. In 2015, Larin left the University of Connecticut to sign with MLS. His original contract was for three years, with two one-year team options. Orlando drafted Larin with the first overall pick in the 2015 MLS Draft and, thus, held his two options. (NOTE: Technically, MLS players sign with the league, rather than an individual team).

Larin enjoyed three successful seasons in Orlando. But near the end of 2017, he began expressing his desire to play in Europe. As it planned to exercise Larin’s first option, Orlando believed it would still have him under contract for 2018. Thus, any club wanting to acquire him would have to pay a transfer fee.

But this was not how Larin or Besiktas treated the situation. Two months after Orlando exercised its option, Larin signed with Besiktas, without notifying Orlando. (In fact, Besiktas announced the signing on Twitter, without notifying Orlando). Unsurprisingly given the circumstances, Besiktas had not paid a transfer fee or even attempted to negotiate one. Essentially, Larin and the Turkish club acted as if Larin was out-of-contract.

And that was the disconnect. Orlando City believed the options were valid, and thus, Larin was still under contract with the team. Based on that, any club wanting to sign him would have to pay a suitable fee. Conversely, Besiktas and Larin argued the option years were invalid, meaning Besiktas (or any other club) was free to sign him without a fee.

Eventually, Besiktas’ $2.3 million soothed all parties enough to end the dispute. But most likely, MLS’ contract options will be tested again. The league uses them frequently, while players wanting to move abroad are finding them more and more restrictive. Consider Larin was not the first MLS player to ignore a team option and sign with a foreign club.

So far, none of these disputes have graduated to a legal claim. But with players willing to ignore options, and the league becoming more determined to seal their escape routes, the possibility is not far-fetched.

In the event of a claim, the legal landscape is unclear. FIFA regulations do not address unilateral options. Still, through case law, FIFA’s Dispute Resolution Chamber and the Court of Arbitration for Sport have developed a set of principles governing them. Importantly, neither body has held team options invalid under all circumstances (though the DRC has labeled them contracts of “disputable validity”). Rather their validity hinges on each case’s unique facts and issues. This leaves a vast gray area, offering players an opportunity and MLS a headache.

The Negatives of Unilateral Team Options

Unilateral options grant teams significant power. If a player is performing well, they can bind him for another year or more at a preset salary. At the same time, if a player is under-performing, his team can drop him without penalty. Basically, teams get the upside of controlling players they want, without the downside of keeping players they don’t.

In many instances, when the contract is being negotiated, the team also enjoys superior bargaining power. This is because many players, especially younger players, have limited choices. They either agree to the contract, with the option, or relinquish hope of playing for the club.

Further, the option could block an improved player from realizing his increased value. Imagine the following scenario: A player negotiates a three-year deal when he turns professional. His unknown status and low market value net him a modest salary. Still, over those three years, the player excels. His value and, consequently, his bargaining power, are now higher. But if the team held an option, it could lock him into a fourth year at his modest salary — a salary now well below his market value. So options can tie players with relatively high value to compensation from a time when their value and bargaining power were low.

The Law

The DRC and CAS evaluate unilateral team options through a totality of the circumstances test. That is, each case turns on its own particular facts and issues. While this can make the decisions seem disjointed, each one’s controlling factors point toward a common goal: equalizing the advantages unilateral options grant teams.

In this regard, two factors have proven the most important: (1) the contract’s total length; and (2) whether the option provides a significant increase in the player’s benefits. Specifically, the first factor combats the danger that a player can be tied to a team for an extended period, thus, limiting his freedom and preventing him from maximizing his value. The second factor prevents a club from using its bargaining advantage to bludgeon a player into an unfavorable term. This is because it requires the team to make the option favorable, through an increase in benefits. The second factor also forces the team to compensate the player for any increase in value during the contract years.

Beyond these two factors, the CAS also considers the practical nature of each case. Defining this standard is tough. But essentially, it reaches past the contract’s terms and examines the parties’ behavior and their relationships with each other.

Contract Length

While contract length is a crucial factor, panels will find it acceptable as long as the “potential maximum duration” is within FIFA’s five-year maximum. This was true in Panathinaikos v. Kyrgiakos, a 2006 CAS case where the player’s contract was two years, with two and one-year team options. The Panel found the contract’s length “wholly reasonable” because its five-year maximum duration was “expressly allowed by FIFA rules.” More recently, in Gremio v. Lopez (2014) and Ascoli v. Waigo (2016), CAS panels deemed option contracts with three-year maximums acceptable for the same reason. So in short, the five-year rule is well-established.

Increased Benefits

As noted above, in many contract negotiations, teams enjoy superior bargaining power. Further, if left unregulated, they can use options to lock players into less favorable terms. Consequently, when a player raises his value, the option could prevent him from translating that into higher wages. To mitigate these issues, the DRC and CAS require teams to give players a “significant increase in benefits” in return for the options.

The point where the increase becomes adequate is unsettled. In Bueno, Uruguayan club Penarol signed then 22-year-old striker Carlos Bueno to a three-year contract, with a two-year club option. For the option years, Bueno’s monthly salary was EUR 1000 higher than during the base term. After three years, Penarol exercised the option. Bueno, however, ignored it and signed with French club Paris St. Germain. When Penarol objected, he asked the DRC to declare the option invalid and allow him to play for PSG. In response, Penarol contended the option was valid because it was “previously negotiated and agreed upon” and contained a salary increase. The DRC sided with Bueno. According to the Panel, the option was invalid, in part, because it did not offer “any significant gain for the player.” The Panel added that “although the [contract’s] financial terms had been specified in advance, they cannot necessarily take into account…the possible enhancement of the player’s value, and hence earning power, over a two-year period.”

In an unpublished 2007 case, the DRC raised the bar slightly when it invalidated an option contract between Romanian midfielder Lucian Sanmartean and Greek club Panathinaikos. The contract was for three years, with two one-year extensions. Each year, including the option years, it increased Sanmartean’s salary by $20,000. The DRC ruled this gain was not significant enough to affirm the contract.

These DRC cases rejected options with modest gains. On the other hand, CAS panels have approved options with much larger increases. In Kyrgiakos, the player signed a contract with Panathinaikos for two seasons, with two and one-year options. The initial two-year option raised his salary 25% and his maximum bonus 66%. The subsequent one-year option doubled both numbers. With six months remaining on the two-year option, Kyrgiakos moved to Glasgow Rangers on a six-month loan with a EUR 1,500,000 option to buy. At the end of the six months, Rangers offered to buy Kyrgiakos, but for only EUR 500,000. Panathinaikos rejected the offer, which meant Kyrgiakos should have returned to Greece. But Kyrgiakos objected, claiming the unilateral option was invalid.

The DRC ruled for Kyrgiakos, in part, because it found the option’s benefit insufficient. But the CAS reversed. The Panel deemed the increase “substantial” and, on that basis, upheld the contract.

Notably, the Kyrgiakos Panel also held that the significance of the increase should not be judged relative to the salary increase available to the player at a foreign club. Kyrgiakos had argued the options in his contract did not provide enough gain because he stood to make much more at Rangers. The Panel concluded Kyrgiakos’ standard was skewed, as clubs in richer countries can offer more money.

Ten years later, in Waigo, a CAS panel approved a contract between Italian lower division club Ascoli and Senegalese winger Papa Waigo. The terms were one year, with a two-year option that increased Waigo’s salary three to five times the first-year amount. When Ascoli tried to exercise the option, Waigo resisted and signed with UAE club Al Wahda. In response, Ascoli brought a claim against Waigo for breach of contract. Specifically, Ascoli maintained the option was valid, as it contained a “substantial increase in annual remuneration.” Without additional comment, the Panel agreed.

Taken together, these decisions do not establish how large an increase must be to support an option. Small increases of roughly $1000 per month are not adequate, whereas doubling or tripling a player’s benefits is. But between those poles, the boundary remains elusive.

Practical Considerations

CAS panels will also evaluate the practical nature of each case. This inquiry looks beyond the contract’s terms to the parties’ conduct during negotiations over the option and implementation of the contract. While CAS panels tout the importance of these practical considerations, their role in the outcome is less clear.

Kyrgiakos is a case where practicality and the parties’ behavior held more sway than usual. There, the Panel believed Kyrgiakos was using the option’s supposed unfairness as a pretext to abandon a valid contract. As evidence, Kyrgiakos did not object to the club exercising the first of its two options. Nor did he object to Panathinaikos and Rangers’ loan agreement, which assumed the second option was valid. Instead, he only argued the contract was invalid when the club exercised its second option and declined Rangers’ watered down fee. As such, the Panel determined Kyrgiakos was trying to “escape his obligations by artificially claiming the nullity of the unilateral option.” Conversely, his real intention was to force a “substantial salary increase [from Rangers], despite an already accepted comfortable salary” with Panathinaikos. These practical considerations reinforced the Panel’s decision to uphold the option.

More often, if they are acknowledged at all, practical considerations are mentioned but not directly relied upon. Their lasting impact is that they exist, lurking in the background. So if ever a party’s claim is not genuine or smells like an attempt to cheat the system, the panel has another way to reject it.

Impact on MLS

As an initial matter, there is little public data on MLS contracts. Normally, the league does not disclose the terms of any player’s deal. And while, each season, the MLS Players Union publishes the players’ salaries, it does not reveal which players have options and, if so, how many. So necessarily, analyzing whether MLS’ options are valid involves guesswork.

With that conceded, evidence suggests MLS team options are common. In 2017, combined, teams held options on nearly 300 players.

The players’ benefits for these options are less clear. But if challenged, some data indicates they could present MLS with a problem. Take Larin. His first-year base salary was $125,000. This increased by $10,000 the second year and another $15,000 for 2017. So his salary increase rose $5000 each season. If this continued for his fourth season, his salary would have increased $20,000 relative to 2017. In raw numbers, this would equal the increase the DRC found insufficient in the Sanmartean case. Of course, we do not know whether MLS provides larger increases for option years. Still, Larin’s contract raises the possibility that the league’s increases are not enough.

Moreover, MLS’ single-entity structure extends its bargaining advantage further than any single club, which a panel may conclude requires an even greater benefit to the player. Indeed, a player negotiating with a club faces the unappetizing choice of accepting the club’s terms or sacrificing any hope of playing there. But a player negotiating with MLS either accepts the league’s terms or relinquishes any hope of playing first division soccer in the United States. So given the league can force players into worse terms than a club, it is possible the DRC or CAS would demand a greater benefit increase in return for the option.

At bottom, there are too many variables to determine whether MLS’ options would withstand a legal challenge. MLS may recognize this doubt, which could explain why it avoided such a battle with Larin. Losing would have wiped years from many of the league’s contracts and, in the process, cost the league control over many of its players. In the end, this was a lot to risk for a higher transfer fee.

Thus, given MLS’ vulnerability, expect more challenges. Larin’s saga, along with similar attempts by other players, demonstrates that the league wants to avoid these fights. In fact, it hates them so much it was willing to let Larin go despite minimal negotiations over a fee and Larin treating his option years like a mirage.

So the next player who wants to leave MLS after three years has every reason to follow Larin’s path. The league risks more than the player.

Random Observations Unleashed

1. While on the surface, Larin’s $2.3 million fee may not seem significant, from Besiktas, it is respectable. During the last two transfer windows, the club has spent roughly $15.7 million on new players. Larin accounted for about $2.3 million of that — so almost 15%. Besiktas only paid more for three other players — the most being $3.7 million for former Brazilian international Vagner Love. The other two players who garnered higher fees were familiar names: Alvaro Negredo and Gary Medel. Though both are probably beyond their primes, Negredo and Medel have played at big clubs (Manchester City and Inter Milan, respectively) and Medel has represented Chile in two World Cups. So despite its tricky negotiating position, Orlando made Besiktas strain a little to get Larin.
2. Apparently, MLS let Orlando keep all of Larin’s transfer fee. Normally, the league takes 30% for non-homegrown players (like Larin). There is no rule providing for Orlando’s dispensation.
3. Larin has yet to make an appearance for Besiktas. This may be due to an adjustment period. After not making the squad for the first five league games since his arrival, Larin has been on the bench for the last two — important games against traditional power, Fenerbahce, and sixth-place Trabzonspor.