Structuring Considerations for Start-Up Sports Leagues

Launching a new sports league is not for the faint of heart, and there are many consequential decisions to be made during the early stages. One of the more significant and consequential issues is the structure of the league. League structures are important as they enable different monetization and revenue generation strategies, impact expansion and growth plans, and define team operating parameters and economics. While established leagues like the National Football League (NFL), National Basketball Association (NBA) and National Hockey League (NHL) operate under traditional club-based models, this structure can present unique challenges for start-ups and emerging leagues. This article explores structuring considerations for early-stage leagues, highlighting advantages and addressing potential legal and financial implications related to league structure. The importance of this analysis now extends to college sports, as schools and conferences grapple with the need to develop new business models and potentially new conference structures to address the significant changes currently taking place.

Challenges of Traditional Structures for Start-Up Leagues

The traditional club model, employed in many professional leagues, is straightforward. League ownership is denominated in member club interests, meaning the owners of the clubs/teams own the league, with the Commissioner/CEO reporting to a Board comprised of club owners. Most decisions are subject to review by ownership, as established in league by-laws or constitution. This traditional structure, which might technically be classified as a joint venture, has the benefit of being familiar and can provide stable and favorable financial conditions for member clubs. But this structure can have downsides for less well-established or emerging leagues, including:

• Increased Antitrust Risk: Leagues can face antitrust scrutiny in connection with agreements among and between teams in that league and players or commercial partners. For example, a traditionally structured league seeking to implement a salary cap might face scrutiny under antitrust laws, as an agreement among potential or actual competitors setting the price for player compensation. This issue is at the crux of the House antitrust settlement, which challenged the National Collegiate Athletic Association’s (NCAA) limits on player compensation and eligibility.
• Potential Instability: Start-up leagues with individually owned clubs and business operations are more vulnerable to team failures, which can have significant negative impacts on a league's reputation, brand value, investment prospects and, ultimately, survival. Numerous teams across various professional leagues, even relatively well-established and successful ones, have faced financial struggles and even sought bankruptcy relief in recent years.
• Overemphasizes Local Revenue: Clubs trying to generate local revenues can hinder a league's ability to secure more lucrative national media rights and sponsorship deals that often require exclusivity. Teams struggling to make player payrolls may be incented to take on even marginal local revenue opportunities, rather than a share of national deals—which often take longer to develop and close.
• Limits Strategic Market Selection: Team placement may be driven by the location of potential owners, rather than the suitability of the market for expansion or to suit the league’s other strategic objectives.

The Single-Entity Model

The single-entity model, where the league owns the teams, controls key operations across the league and clubs are “owned” pursuant to operating rights agreements, offers a compelling alternative to traditional structures. This model, famously adopted by Major League Soccer (MLS), has several advantages:

• Lessened Antitrust Risk: Traditionally structured leagues and conferences can face antitrust scrutiny for actions regarding player salaries, exclusive arrangements with sponsors, team assignments and media rights. In National Collegiate Athletic Association v. Alston, 594 U.S. (2021), while addressing NCAA restrictions on college athletes, the Court suggested that joint activity among member schools or clubs in a professional league could still be subject to rule of reason scrutiny under the antitrust laws. In the single-entity model, since the league acts as a single entity, there is less concern about exclusive agreements among and between teams. Courts have held that decisions on league-wide matters may be treated as unilateral conduct, as opposed to concerted action by potential competitors.¹ No league structure completely eliminates legal risk, and leagues should always take steps to ensure that league-wide activity enhances fan value and consumer welfare.
• Centralized Control and Governance: This more-centralized structure helps ensure uniformity in brand messaging, marketing, media distribution and expansion strategies, streamlining governance and enabling a cohesive league-wide brand identity.
• Enhanced Financial Stability: In this structure, teams are largely similarly situated from a financial perspective, and since the league assumes responsibility for many of the impactful financial decisions, the risk of team failures is reduced. In addition, league controls on player salaries through collective bargaining agreements, or other mechanisms, have helped leagues create and maintain a competitive balance, one of the most critical elements in long-term league success and securing investments.
• Strategic Expansion and Team Placement: Teams can be placed in markets that best support the league’s growth objectives, rather than where investors live and want to buy teams.
• Exit Strategies Through Club Sales: A league owning the rights to multiple teams, or investors who possess operating rights for multiple teams, can sell operating rights to those additional teams, generating returns and exits. MLS employed this strategy, with two owners controlling multiple teams and eventually selling the operating rights to third parties, as the value of the league and its teams increased. The Saudi Professional League is employing a similar strategy and currently owns four of the teams in the league. Of course, there are also potentially significant synergies and efficiencies when operating multiple clubs.

Case Studies

• MLS: MLS successfully used the single-entity structure to navigate start-up challenges, ensuring financial stability at an early stage and establishing a national footprint while mitigating antitrust risks. This structure also allowed for flexibility in securing innovative investments, like Providence Equity's stake in Soccer United Marketing (SUM), which was one of the early private capital investments in U.S. professional sports leagues. MLS grew from 10 teams in 1996 (nine of them owned by the Anschuetz and Hunt families) to 29 in 2024, with several teams now valued at more than one billion dollars and 24 of the 29 teams valued at over $500 million.
• Professional Women's Hockey League (PWHL): Formed in 2023, the PWHL features a single-entity structure with centralized control over business functions and strategy. The league completed a successful first season and is now determining expansion plans.
• Formula One: While not strictly employing a single-entity structure, Formula One Group (FOG) holds the exclusive commercial rights to the races and licenses them, along with the right to participate in the races, through an arrangement with the teams known as the Concorde Agreement. The Concorde Agreement fixes the division of revenue between teams and FOG, centralizes much of the revenue generation and media distribution and allows for greater influence over team operations and finances.
• India Premier League (IPL): This league was established by the Board of Control for Cricket in India (BCCI) and employed an auction-based model to sell operating rights to teams in the league. Despite being in its early years of operation, the league has already generated billion-dollar team valuations and media rights packages.

Legal and Financial Implications of Single-Entity Structures

Implementing a single-entity structure for a sports league (or evaluating an investment in a league employing such a structure) requires careful consideration of several legal and financial issues:

• Defining Ownership and Operating Rights: In this model, “owners” do not actually own the teams, but the right to operate a team in the league pursuant to specified terms. It is critical that the operating rights agreement clearly outlines the rights and obligations of the league, investors and team operators, including who is responsible for which categories of revenue and any geographical or channel exclusivities. Such agreements will also spell out revenue allocations and operational responsibilities and standards and ownership transfer rules and requirements.
• Navigating Potential Legal Challenges: While single-entity structures can reduce antitrust risks, they are not immune to legal scrutiny. The Alston and American Needle cases highlight the need to carefully structure collective licensing arrangements and other forms of concerted economic activity, to ensure that such joint activity promotes the interests of fans and consumer welfare, as well as the league, as a whole.
• Balancing Centralized Control with Team Autonomy: Allowing some degree of team autonomy in areas like local marketing and fan engagement is crucial for connecting with local audiences, yet it’s important that owners be engaged and incented to help grow and develop not just their own teams, but the entire league.

Conclusion

Start-up leagues should consider the choice of structure very carefully. While single-entity structures can offer a compelling alternative for start-up leagues by facilitating centralized control, minimizing antitrust risk and offering greater financial stability, many investors still prefer investing in traditionally structured leagues, often because of the familiarity of the model and the desire for more traditional ownership of the assets. As the sports landscape evolves, understanding the nuances of various league structures–and potentially creating new ones, as may be the case in college sports–will be essential for building thriving, balanced and financially sustainable leagues.

^{1 In American Needle, Inc. v. National Football League, 560 U.S. 183 (2010), the Court determined that while teams in a league might not possess the “unitary decision-making quality[ies]” of classically independent actors, that, as a legal matter, exclusive league-wide licenses could potentially constitute violations of Section One of the Sherman Act. In Fraser v. Major League Soccer, 284 F.3d 47 (2002), the Court held that the single-entity structure adopted by MLS helped shield the team from Section One liability.}