Ohio Sues to Keep Major League Soccer Team While Funding Expansion

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By Alex Ebert

It’s less than a mile walk from the building where Ohio is suing Major League Soccer for threatening to leave to the building where Ohio is pledging the league $4 million in taxpayer dollars to expand.

Ohio is simultaneously courting the league by putting up taxpayer money to help FC Cincinnati become the next MLS expansion team, while also taking the league to court, suing to keep the Columbus Crew in the capital under a law restricting the sale of teams that get taxpayer support.

So far, MLS has tried to end one game early—by filing a motion to dismiss the Ohio Attorney General’s suit—while taking the second match into overtime. Despite MLS statements that FC Cincinnati is furthest along in its bid, and the team securing around $40 million in state and local infrastructure assistance, the team still hasn’t scored.

State Support

FC Cincinnati’s owners issued statements saying the team was willing to pay the entire cost of the stadium and the $150 million investment the league demanded. But it needed infrastructure support for the area around the team’s new digs, or the bid was DOA.

On April 16, the night before MLS was set to consider its next expansion team vote, the Cincinnati City Council squeaked out approval for $35 million in taxpayer support for public improvement projects around a proposed $250 million, 21,000-seat stadium for the city’s pro soccer club.

The team also netted state and school support. FC Cincinnati received $4 million from the Ohio Legislature in this year’s capital improvement budget, if the team gets the MLS expansion. The team also struck a property tax deal with Cincinnati Public Schools to build its stadium on an old high school field in return for constructing the schools a new $10-million field. That deal allows the team to pay 25 percent of what its property tax liability would have been without abatement.

Under legal theories in a complaint filed by the Ohio attorney general, any of these funds or deals would be sufficient reasons for the state to prevent FC Cincinnati from ever leaving Ohio.

The state is currently suing the Columbus Crew, whose ownership has threatened a move to Austin, Texas, under an untested statute that essentially forces a team to give local buyers a right of first refusal if the squad received taxpayer support. Ohio claims the Crew leases its stadium’s land below market rates from Ohio State Fair grounds, benefited from $5 million the state invested into improving a nearby parking lot, and received more than $1.6 million in the city of Columbus support for road and storm sewer improvements.

Unconstitutional, Possibly Unimportant

The Crew disputes that it has received taxpayer support. It argues that its lease is higher than others on the fairgrounds, is pegged to inflation, and the state gets 30 percent of parking revenue during team games. But the team’s larger argument is that Ohio’s law is unconstitutional.

Ohio’s untested law is “blatantly unconstitutional,” the team said, because the local right of first refusal “impermissibly interferes with Defendants’ abilities to conduct their business operations in interstate commerce.”

The team cited several U.S. Supreme Court cases striking state laws that barred moving goods from one state to another, or disadvantaged out-of-state purchasers. The law violates federal theories under the commerce clause and the privileges and immunities clause, and state and federal contract protections.

“For more than 90 years, the United States Supreme Court has held that states may not restrict the movement of resources out of the state,” the league and team said in their motion to dismiss. “There is no reason why sports teams should be treated differently.”

Limited precedent suggests the league is right, Matthew Mitten, Marquette University Law School professor and executive director of the National Sports Law Institute, told Bloomberg Tax May 1. In choosing locations, teams generally weigh factors such as suitable stadiums and population bases over local laws protecting state interest that might be unconstitutional.

“States can regulate activity in their own state, but if it has too much of a territorial effect regulating a national league, then it’s unconstitutional,” Mitten said.

‘Persuasive Precedent’

While there isn’t much case law on government regulation like Ohio’s law, California state courts and the federal Ninth Circuit Court of Appeals prohibited government actions seeking to stop a pro team from moving or impose state restrictions on a national league’s internal labor practices.

“Courts have accepted an argument that an effort to apply state imminent domain law to keep an NFL team in Oakland would violate the dormant commerce clause even though it was an interstate move and the NFL opposed it,” Mitten said. “I would see this as pretty similar, and there’s an even strong case here. If the owner of the Crew wants to move the team to Texas, this is persuasive precedent.”

The court is holding a status conference on the case May 3, but a response brief isn’t due from Ohio and the city of Columbus until mid-May. Columbus has also asked the court to delay any out-of-state move until the case and any appeals are finished, and the league has moved to delay discovery.

Attorney General Mike DeWine (R) “hopes the process results in both Columbus and Cincinnati having MLS teams,” Dan Tierney, spokesperson for the AG’s office, told Bloomberg Tax in a May 1 email. “Ohio Revised Code 9.67 applies to the defendants and is constitutional. We will strongly oppose this motion to dismiss and respond further in court.”

The league and FC Cincinnati didn’t respond to request for comment. The Crew declined to comment.

The case is Ohio v. Precourt Sports Ventures LLC, No. 18 CV 1864, initial status conference scheduled 5/3/18 .

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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