Will USL's move to pro-rel change U.S. soccer, threaten MLS?

In the past 30 years, the biggest debate in U.S. soccer circles has been whether leagues in this country should adopt promotion and relegation, or "pro-rel." While leagues the world over have such a structure -- whereby high performers of lower divisions move up to the tier above them, with the strugglers getting demoted to the league below -- MLS has never seriously entertained the idea. The same was true of the alphabet soup of professional leagues that have dotted the U.S. in the past half-century.

That could be about to change.

Back in March, the United Soccer League (USL) with its three tiers, and plans to add a fourth at the top of that pyramid, announced plans to institute pro-rel in either 2027 or 2028. If the soccer stars align, it could amount to a sea change for the sport in this country. Games at the bottom of the league standings would be just as compelling than those near the top -- if not more so -- and would introduce the ultimate form of accountability for teams, players and executives.

Implementing the system also carries with it the risk of devaluing an investment if a team gets relegated. Yet the inherent meritocracy also has considerable appeal. That's why the USL's announcement was lauded by fans and owners alike.

"It's going to bring in better players, better staff and just a better show for our fans. So that's going to allow us to have even more of a positive impact to our community," said former MLB All-Star Jose Bautista, who is now the owner of the Las Vegas Lights in the USL Championship. "So how can we say no to that?"

The USL is made up of three leagues: the second-tier USL Championship, third-division USL League One and the amateur USL League Two. The USL Championship is the second-highest level of professional soccer in the U.S., below MLS. The creation of a new Division I league would be a clear alternative to MLS for fans and players alike.

"As we are in our 30th season with 30 clubs, world-class stadiums, a global fanbase, and significant investments in player development and top talent, we welcome the continued growth of soccer in North America," MLS said to ESPN in a statement regarding USL's intent to create a rival Division I league.

Pro-rel would be a differentiator. As it is, the champions at any level in the USL get no reward beyond the pride of winning their league.

"No one felt as though we were gaining enough relevance," said USL CEO Paul McDonough. "The monies weren't there from sponsorship, tickets and things like that.

"It's pretty tough to get the fans excited when the game doesn't matter."

'I do believe it's a game changer'

In late 2021, the league went out and enlisted sports consultants Twenty First Group to examine what the impact would be of implementing changes to its business model. These included moving from a spring-fall calendar to a fall-spring calendar in line with European leagues, adding a Division I tier above the USL Championship, and implementing pro-rel. The latter two proposals carried the day.

According to a USL spokesperson, among the report's findings was that implementing pro-rel could potentially increase matchday and commercial revenues by 15% to 30%, although the spokesperson noted that "the specific impact will vary depending on a club's position in the pyramid and its operational readiness to capitalize on new opportunities." This rise in revenue would be primarily achieved through increased ticket sales and sponsorship.

The league's owners met in May 2023 to discuss pro-rel, but decided they weren't ready. One source said the USL's pro-rel presentation fell flat, only for Rhode Island FC owner Brett Johnson to step up and deliver a compelling presentation of the system's merits. Subsequent conversations led to another meeting in March of this year, at which point the USL decided to take the plunge.

"I do believe it's a game changer for USL, and I'm just a massive, massive fan of the construct of promotional-relegation and games of consequence," said Johnson, who is also part of the consortium that owns English side Ipswich Town, which was relegated from the Premier League in April. "And I think it's something that's sorely lacking in North America writ large, not just obviously MLS, but also in USL. This is a very clear alternative league and structure and format, one that looks a lot more consistent with global football."

According to McDonough, the announcement has resulted in an uptick in interest on the business side. He recalled how one ownership group said that a potential investor was now willing to quadruple their investment because of the allure of climbing the USL pyramid, and the possible increase in revenue and fan interest that would come with it. He also says that sponsors who weren't interested before have now returned to the bargaining table.

It helps that the price point for a USL team is far below that of an MLS counterpart. San Diego FC paid MLS a $500 million expansion fee ahead of the 2025 season and invested tens of millions more in infrastructure. The cost of acquiring a franchise in the USL Championship is around $20 million, with League One costing around $5 million, according to the league's 2024 Franchise Disclosure Documents (FDD).

The pro-rel approach dovetails neatly with the creation of a Division I league that would have teams in bigger cities and stadiums.

"The bull case around all of the USL properties is clear and compelling," said Bobby Warshaw, vice president at Bloom Sports Partners, an advisory firm that helps sports organizations on strategy and executive placements. "Build beautiful new 15,000-person stadiums in up-and-coming cities; introduce pro-rel to the American audience; construct world-class rosters without the burdens of MLS and NWSL rules, and you can do it all at accessible price points relative to other American leagues."

McDonough also said about the increased interest, "I think when you see that and there's more money pouring into the system to help the teams, then we hope that's a driver to make it."

But "hope" is still doing a lot of heavy lifting. There has been scant detail on how exactly USL will implement pro-rel, even beyond the mechanics of deciding how many teams there will be in each tier and how many will be promoted or relegated each season. The USL's push into pro-rel is also making a lot of assumptions, the biggest being that enough fans will care about the league to a demonstrably greater degree than they have up to this point.

"There's now a sort of promotion-relegation-curious set of consumers out there, and I think this is [USL] responding to that," said Dr. Stefan Szymanski, a professor of sport management at the University of Michigan. "How it will actually work in practice will depend very much on how consumers react when they actually see it in the flesh, as it were. They may get very enthused and it may do great things, it may be a big fat nothing and nobody cares. And anything in between is possible."

'There are a lot of hurdles to go'

On the business side, there are myriad questions to sort out. To what degree will implementing pro-rel drive ticket sales and sponsorships? How will it affect media rights? How much more money will teams have to spend on players as they move up the pyramid? Will there be parachute payments for relegated teams? What will the USL Players Association (USLPA) think in terms of a new Collective Bargaining Agreement (CBA)? The U.S. Soccer Federation has minimum standards for market size, stadium capacity and the financial heft of owners of Division I teams; will the USSF hold the USL's feet to the fire, or will it allow for some flexibility?

Of the more than a dozen people ESPN interviewed for this story, many of the responses to such queries sounded something like, "We still have to figure that out."

"The PR releases have been genius because people are now calling and asking," Warshaw said. "Every early-stage company needs to will things into existence, so I don't blame the league at all, but there are a lot of hurdles still to go."

Warshaw added that when he talks to potential investors, he breaks it down to a handful of "bets," such as building a 15,000-seat stadium, and asks whether the investor thinks those bets will come to fruition.

"Once you get granular, you realize how much has to happen and how long the odds are," he said in reference to those bets. "It doesn't mean an investor shouldn't do it; it's just important to have a clear understanding of the situation, probabilities and returns."

The Twenty First Group report points to an approach where driving local revenues is, at least initially, the main aim of implementing pro-rel. Is that enough? Sources told ESPN that only a handful of teams across the USL Championship and League One are profitable.

Andrew Vassiliadis is the former owner of USL Championship side San Diego Loyal, which shut its doors following the 2023 season when, with San Diego FC starting up in MLS, the Loyal couldn't find a stadium solution. He estimates that he lost $40 million over the course of four seasons, although some of this was due to the onset of the COVID-19 pandemic. He admits the spending was done with an eye on moving to MLS, but he still feels merely relying on local sponsorships and ticket sales is limiting.

"I could have sold out every single game at [our home venue], and I was still losing money because ticket sales is really the only avenue to success in the USL Championship," he said.

Vassiliadis thinks there are some teams that can make the current environment, combined with pro-rel, work, but too many owners are running their clubs "like a minor league baseball team." One benefit of pro-rel would be eventually weeding out some of the more poorly run teams, but that only works long term if enough team owners want to compete at a higher level. And there is a sense among some owners that the USL needs to do more to drive national sponsorships.

"We have a responsibility as teams to enhance our league. The league has a responsibility to the teams to be a better league, to be a good league," said Ray Beshoff, owner of USL Championship side Monterey Bay FC. "The way they're a good league is if they drive sponsorship."

Then there are media rights. The USL has deals with ESPN (ending in 2026) and CBS (ending in 2027), but whatever revenues they generate, very little of it trickles down to the clubs. Part of this is because the USL league office is also losing money, according to multiple sources. The rights fees also aren't large enough to generate a tangible level of revenue for the clubs.

The lack of revenue sharing is also because the USL uses a franchise model. In addition to franchise fees, the teams pay annual fees to the league, the amounts of which go up as you climb the divisions. One source confirmed information in the league's FDDs that the annual fee in the USL Championship is between $250,000 and $287,500, although like the franchise fees, each team negotiates that amount. Implementing pro-rel is unlikely to change that arrangement.

More critically, the league is owned by two individuals: USL chairman Bob Hoskins and USL CEO Alec Papadakis. Because of this arrangement, the teams don't have a stake in the league, and the vast majority of national revenues -- be it media rights or sponsorships -- stay with the league. McDonough says any excess broadcast revenue is poured back into improving the TV product, and he doesn't see the arrangement changing, at least in the short term.

Yet the team owners that ESPN spoke to for this story feel that eventually media rights dollars will make their way down to the teams, as will national sponsorships.

"I do think that if there is a significant increase in the national-level revenue growth from a league perspective ... I'm sure the league will be open to sharing that in a fair manner with the local teams," said Bautista.

The idea of sharing more of the league's national revenues with the teams -- becoming stakeholders and not franchisees -- has been brought up with the USL's ownership before, though, and as one former team owner put it, "That was quickly stomped out."

That dynamic seems to be setting up conflict down the road between the league and its team owners. As one industry source said, "Incentives need to be aligned. Otherwise, what are you doing?"

There is near-universal agreement that climbing divisions will require greater investment by teams, both in players and infrastructure. Scouting and youth development expenses are almost certain to increase, especially in the proposed Division I.

Those increased costs are why McDonough, when asked if there would be parachute payments for teams that get relegated -- a standard practice around the world to soften the financial blow of dropping down a division -- said that the opposite would take place. One concern about a pro-rel system is that if a team gets relegated, it might close up shop due to plummeting revenues. But McDonough feels that because of the lack of television income, relegated teams won't necessarily see a huge drop in revenue, but rather promoted teams will need an infusion of cash in order to better compete in higher divisions.

"We don't want a team to get promoted and then get busted [financially]," he said. "That's our biggest concern."

McDonough added that the increased league fees could be waived, and prize money for winning a lower division could help offset increased costs. Where that prize money would come from is still one of many unknowns.

The likely increase in player salaries brings up another obstacle in instituting pro-rel: negotiating a new CBA with the USLPA. The USL Championship and League One have separate CBAs, with different expiration dates; the Championship version in 2025, and League One CBA in 2027. Overseas, players on relegated teams are often vulnerable to having their salaries reduced when their team is relegated. What will happen to player salaries for a relegated team in the USL? That will need to be collectively bargained.

Both McDonough and the USLPA confirmed that negotiations on a new CBA are underway, but one source stated that the impacts of pro-rel haven't been part of the discussions yet.