The marketing arm of Major League Soccer made a bid to buy the North American Soccer League's New York Cosmos for $5 million with an aim to "terminate the franchise," new club owner Rocco Commisso has disclosed in legal documents.
The NASL's latest response in its ongoing antitrust lawsuit against the U.S. Soccer Federation included a declaration from Commisso in which he disclosed that as he pursued ownership of the Cosmos -- an organization that had laid off staff and stopped paying players, and whose sale was critical to the NASL's survival -- he became aware of a competing offer from Soccer United Marketing (SUM), the marketing arm of MLS and an entity that has a substantial business dealings with the USSF.
In an email from New York City FC president Jon Patricof dated Dec. 15, 2016, with MLS deputy commissioner Mark Abbott included, SUM offered to buy the Cosmos' remaining assets for $5 million.
Among the terms of the offer was that the new owners of the Cosmos wouldn't operate a soccer team in the New York Metropolitan area for a period of 10 years. Commisso stated that offer was made with "the intent to terminate the franchise and eliminate the organization as a competitor."
Commisso's rival offer was eventually accepted, and he completed his purchase of the team in early January. But the existence of the offer from SUM, and any intention to shut the Cosmos down, will likely be used by the NASL to buttress its claim that that MLS, SUM, and the USSF were engaged in a conspiracy to put it out of business.
The NASL's original complaint alleges that the USSF has violated federal antitrust laws through its anti-competitive "Division" structure that divides men's professional soccer for U.S.-based leagues based on what an NASL press release described as "arbitrary criteria that the USSF has manipulated to favor Major League Soccer (MLS), which is the commercial business partner of the USSF."
The division structure is intended to provide a set of minimum requirements for a league, including number of teams, geographic distribution of teams, market size of a team's city and stadium capacity, as well as the minimum financial requirements for team owners.
The complaint alleges that the USSF has selectively applied and waived its divisional criteria to suppress competition from the NASL and benefit MLS and the United Soccer League (USL).
The USSF granted the NASL provisional Division 2 status earlier this year. But in September, the USSF announced it had denied the NASL's application to be sanctioned as a Division 2 league, due to the fact that it could not guarantee it would field at least eight teams in 2018.
Commisso's declaration also details the NASL's expansion plans, which are intended to meet the USSF's Division 2 standards of having at least 12 teams. The plans entail adding six teams for 2018. This is in addition to the teams in San Diego and Orange County that already have been announced. It then plans to add two more squads for 2019, as well as an undisclosed number of additional teams by 2020.
The names of the cities involved were redacted, but previous court documents, including a 78-page declaration by USSF president Sunil Gulati, indicate that two of the cities in question are Detroit and Atlanta. Commisso indicated that all of the interest from the proposed expansion teams is contingent on the NASL retaining its Division 2 sanction.
On Oct. 16, the USSF filed a response of its own, including the aforementioned statement from Gulati, in which he disputed that the standards were intended to suppress competition, since they were formulated years before the NASL even existed.
Gulati expressed concern in August when he was told by NASL interim commissioner Rishi Sehgal that two teams -- Edmonton FC and the San Francisco Deltas -- had not committed to return, but that California teams in Orange County and San Diego would join the league. Gulati also expressed concern that North Carolina FC had not specified what league it would play in for 2018.
Gulati also contended that the numerous waivers the USSF had granted the NASL over the years undercut the league's argument that the USSF was trying to put it out of business.
"Given the large amount of turnover in the NASL since its founding and the lack of specific information provided, it was difficult to conclude that the NASL would have even 8 teams for 2018 -- the same number of teams as in 2017, still 4 teams short of the Division II minimum of 12 teams, and still with no team proposed for the Central time zone," said Gulati in his statement.
"In other words, at best the NASL had made no progress towards compliance with the Division II standards and, at worst, it had taken a significant step backwards by losing 2 or 3 teams while proposing 2 replacement teams with relatively little information."
At a Sept. 1 meeting between the USSF and the NASL board of directors, the NASL asked for three years to meet the Division II standards, but that offer was turned down.
In a declaration made by NASL interim commissioner Rishi Sehgal, he maintained that the USSF's decision not to grant Division I sanctioning in March 2016 thwarted the NASL's momentum, and that Gulati never informed the NASL that it had to be fully compliant with the Division II standards in order to receive that status for 2018.
Sehgal also contested Gulati's assertion that the USSF gave the NASL 30 days to appeal the decision to not grant Division II status.
Sehgal's statement read, "On September 1, 2017, in a suite at Red Bull Arena in Harrison, New Jersey, shortly before kickoff of the FIFA World Cup Qualifier between the United States and Costa Rica, Lydia Wahlke, General Counsel of USSF, informed me of USSF's decision to deny the NASL a Division II sanction for the 2018 season.
"I asked Ms. Wahlke if there was an opportunity to have further dialogue about that decision, and she informed me that there was no such opportunity but that the NASL would have the opportunity to have further dialogue regarding the ability to apply for a Division III sanction."
Sehgal concluded his statement by reiterating the NASL's argument that "irreparable harm" would be done to the league by virtue of losing its Division II sanction.
Arguments are scheduled to be heard before U.S. District Court Judge Margo K. Brodie on Oct. 31.
http://www.espnfc.us/north-american-soccer-league/story/3241322/nasl-contends-sum-tried-to-terminate-the-new-york-cosmos
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NASL alleges SUM tried to buy New York Cosmos to eliminate club
(by Brian Strauss si.com 10-24-17)
As part of its effort to establish a pattern of anti-competitive behavior by the U.S. Soccer Federation, MLS and Soccer United Marketing, their $2 billion marketing arm, the NASL late Monday night alleged that SUM tried to buy the New York Cosmos last December “with the intent to terminate the franchise and eliminate the organization as a competitor.”
That claim was made in a filing by current Cosmos owner Rocco Commisso, a cable TV magnate who’s now helping to fund the NASL’s antitrust lawsuit against U.S. Soccer. The NASL is seeking an injunction that would prohibit the federation from stripping the league’s second-division sanction, thereby allowing it to operate next year. The injunction hearing is scheduled for Oct 31. at the U.S. District Court in Brooklyn. Commisso’s declaration was part of the NASL’s filing in advance of that hearing.
Commisso testified that SUM, a partnership between MLS and the USSF, offered $5 million for the Cosmos to former club chairman Seamus O’Brien. A term sheet, sent in an email from New York City FC president Jon Patricof, outlined the transfer of the Cosmos intellectual property and assets and indicated that, “To avoid consumer confusion in the marketplace, for a period of ten (10) years following the closing, New York Cosmos LLC and its owners shall not own or operate a soccer team in the New York metropolitan area under any name.”
The email was dated December 15, 2016. That morning, O’Brien reportedly was ready to accept another offer for his club from GF Capital Management, a New York private equity firm. The Cosmos had lost some $30 million and already had furloughed players and staff. GFCM didn’t intend to field a team, but O'Brien still preferred its offer of approximately $3.5 million. SUM’s intentions are unclear, at least based on the Patricof email (it's also unclear why NYCFC's president was the point man). But O'Brien's reticence may be telling. Commisso contacted O'Brien through intermediaries on the night of the 14th and the next day, they met for more than 12 hours in order to close the deal and keep the Cosmos on the field.
Had the Cosmos gone under, the NASL almost certainly would’ve followed. Commisso’s arrival spurred remaining owners to keep the Jacksonville Armada afloat until Robert Palmer bought the club this summer, allowing the NASL to play the 2017 season with provisional D2 sanctioning.
That sanctioning was stripped for 2018 in September, however, prompting the lawsuit. The eight-team NASL also claimed in Monday’s filing that it has commitments from six new clubs to join next year and an additional two for 2019—as long as D2 sanctioning is maintained. The cities and ownership groups were redacted from the filing, but Detroit, Atlanta and New Orleans are thought to be among the potential expansion markets. Commisso, Palmer and Miami FC owner Riccardo Silva likely will help buttress those new teams in order to keep the league in business.
There doesn’t appear to be anything illegal about the SUM offer. O'Brien wanted out, and it's possible MLS or SUM could've revived the brand. But the NASL hopes to establish at next week’s hearing that there’s a pattern of behavior resulting from the partnership between MLS and the USSF that unfairly limits and inhibits competition. If that's enough to secure the injunction, the NASL can move forward with its 2018 season while waiting for more evidence to come to light during the case's discovery phase.
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