Tom Fath, FC Edmonton

News

A Game of Chicken: Steep Price of Exit Fees Dictating NASL’s Future

by on 15 December 2016

Depending on the day, hour, or minute, the NASL is either headed off a cliff Thelma and Louise-style or poised for a comeback. Those close to the decisions have reported both scenarios in the last week. Behind the confusion is a Reservoir Dogs-style stalemate, largely due to the high price of exit fees involved with decamping from NASL to USL.

When FC Edmonton owner Tom Fath spoke to Steven Sandor of The11.ca last week, he raised eyebrows with his “this is fine” pronouncement regarding the future of the NASL: “I am still fully committed to playing in NASL,” Fath said. Reports had already been circulating that the league’s demise was only delayed to arrange for the gentle landing of some of its clubs parachuting into the USL. Those clubs are reported to be: Indy Eleven, Jacksonville Armada (probably under new ownership), Miami FC, North Carolina FC (formerly the Carolina RailHawks), Puerto Rico FC, and the San Francisco Deltas.

Fath’s assurance may have simply been a posture, as Tom and his brother Dave Fath own a significant portion of NASL’s shares. With a larger stake in the league, they could see financial gain from fees generated by exiting teams. A source says that the Faths have leveraged their interests with the NASL several times in order to garner concessions. Under this scenario, the Faths would try to secure a portion of the aforementioned exit fees. FC Edmonton ownership could not be reached as of publication time for comment.

But sources also indicate that FC Edmonton and Miami FC have been working in overtime to salvage the league under the prospect that Peter Wilt’s Club 9 can help deliver a new round of expansion clubs. There is a hope that the league can continue on with as many as 8-10 teams, some of whom will be joining in the fall. With Rayo OKC and the New York Cosmos indefinitely mothballed and Fort Lauderdale and Jacksonville in serious financial trouble, it’s difficult to imagine how this possibility will shake out, but the league seems intent on trying to make it work. But it should be acknowledged that this number is coming from the rosiest of colored glasses.

Two teams on the fence are the Fort Lauderdale Strikers and North Carolina FC. The Strikers have reported interest from a new ownership group, but those owners want to make sure they will have a league to join a month from now. NCFC, on the other hand, are waiting to see on whether the USSF gives USL Division II status.

However, to discourage defection, the NASL made the cost of leaving its league very high under normal circumstances. And that creates a strong financial incentive to stay as long as possible before jumping ship.

The current stalemate is a high-stakes soccer version of the prisoner’s dilemma. Each club that is currently viable needs to have a league to play in for the 2017 season. However, to discourage defection, the NASL made the cost of leaving its league very high under normal circumstances. And that creates a strong financial incentive to stay as long as possible before jumping ship. Leave the NASL too early and risk paying millions in exit fees. Jump too late and a club may find itself without a league to play in, suspending play for its first team for an entire season (at best) .

FiftyFive.One has reviewed the NASL’s 2014 legal arrangements for league operation that were publicly disclosed by the league, then later sealed. While time may have led the league to change some of the specifics, it is likely that similar language still exists; especially when it comes to significant actions such as exiting the league.

Assuming Minnesota United gave the NASL notice it was leaving prior to June 30, it would have been required to pay a $500,000 fee. However, it is widely believed that Minnesota had an exit agreement in place that would have allowed it to leave for free, or at a substantially discounted rate. Ottawa and Tampa Bay, by giving notice between June 30 and the Championship, would have been required to pay $1.5 million each. The remainder of clubs, assuming they decide before December 15, would have to pay out $2 million each, unless the league drops below seven teams, at which point a club would only have to pay $25,000 to exit.

A drop in divisions would have allowed any team to leave the league without having to pay an exit fee. However, by dropping the league down the USSF could open themselves to lawsuits from the remaining NASL clubs who are holding fast.

Issues surrounding NASL exit fees could have been resolved externally had the USSF decided to revoke the NASL’s second-division status and designated the league as its third division. A drop in divisions would have allowed any club to leave the league without having to pay an exit fee. However, by dropping the league down, the USSF could open themselves to lawsuits from the remaining NASL clubs who are holding fast.

With the public announcement of Ottawa and Tampa Bay’s defections, it is possible that one or both teams paid exit fees. However, a common belief from those with knowledge of the situation is that Rowdies owner Bill Edward’s recent lawsuit against the Fort Lauderdale Strikers and the NASL is most likely an attempt to get out of paying those fees. The exit fees for Ottawa and Tampa Bay could run $3 million or more. While conjecture, that windfall could have covered the amount the NASL needed to buy out its Class B shares previously owned by the infamous Traffic Sports USA.

For the remaining teams, the NASL’s precarious position has created a game of chicken. If the league drops to six teams, it is basically a get out of jail free period.

For remaining clubs, the NASL’s precarious position has created a game of chicken. If the league drops below seven teams, any remaining clubs can exit at a substantial discount. There are presently 10 teams listed on the NASL’s website (ignoring Ottawa which is USL bound). But three of those teams face financial problems to the extent they may not participate in 2017: the New York Cosmos, Fort Lauderdale Strikers, and Rayo OKC. If true, that leaves seven teams for the 2017 season. Only one team needs to leave to drop exit fees from about $3.5 million to $25,000 for any remaining clubs. But the first club among that group of seven will be obligated to pay the full exit charges.

Those three aforementioned financially-troubled teams have yet to announce any intention to sit out the 2017 season, which protects them from being charged exit fees. If their parent clubs entered bankruptcy, the league probably wouldn’t get paid anyway. But avoiding unnecessary debt increases the chances a club will come out on the other side. As a result, all clubs may have reason to sit on their hands, play chicken, and wait for someone else to go first — even if they are 100 percent sure they will not play in the NASL in 2017.

Additionally, the language in the league’s governing document requires a unanimous vote for the league’s dissolution. This means that if the Fath brothers stand to monetarily gain from teams leaving the league, they may prevent the league’s dissolution until the very end.

It remains unclear just who will break the current stalemate. USSF could announce USL as the new Division II and likely end the NASL altogether (while perhaps exposing it to lawsuits and bad press of a league failing). NCFC could simply take the financial hit of the exit fees and pull one more Jenga piece from the already precarious league. Or we may simply see the status quo continue for another year.

Dave Laidig and Brian Quarstad contributed to this article.

Tags: , ,

  • Jon

    We joke about Peak MLS, but in some ways this article is Peak NASL. All it needs is three vaporteams, and Bill Peterson talking about how he’s in talks with 147 ownership groups at once.

    • Alex Schieferdecker

      Imagine a league in which no owner wants to admit they’ve left the league, but no owner wants to pay players or staff to actually compete. So it’s a league of names, and all the results are made up, with the one exception of FC Edmonton traveling all over North America holding practice sessions in Florida, Carolina, Florida, Indy, and Florida.

      League of Brands, it’s basically Seamus O’Brien’s favorite novel.

  • BJ

    Isn’t today an expected announcement day of some kind….

    • Dave Ostroske

      Tomorrow will be the day after December 15, and ten days since US Soccer delayed their sanctioning for 7-10 days. So, expect something to be decided within the next 24 hours. Or so I hope!

  • joe Bottlcaps

    Remember the NASL is operating under waivers by the USSF and have been since it’s inception. While those waivers have been approved by the USSF, it was only because each year the NASL was looking closer to having the required teams within the year (or two) the waivers were granted. The USSF has not announced the extension of the waivers, yet, for next season. They may decline the granting of the waivers for the next season as it looks that there will be no way the required number of teams for the waivers will be met. If the USSF does not extend the waivers, the NASL will become a de facto D3 League, and if the various teams agreements with the NASL called for them to be in a D2 League, they may make an exit (at least for less money) as the contractual basis for the exit fee (from a D2 League) have not been met by the league.
    The NASL could not sue the teams of the NASL, or even the USSF (at least not successfully) as it is a contractual arrangement that they, the NASL, could not (or did not) meet.

  • Dave DuJour

    What’s this news of the Armada folding now? They’ve released the players from their contracts? Looks like Jacksonville blinked first.