Negotiate and design the central revenue distribution system
A viable open pyramid depends on a credible central revenue mechanism. Without it, promotion and relegation become financially punitive rather than sportingly rewarding, and lower-tier and youth structures remain chronically underfunded. The design must balance the commercial interests of top clubs with the systemic need for solidarity, while remaining robust enough to survive underperformance of media rights and the inevitable disputes that follow money.
Core Design Elements
Pool professional media and commercial rights (MLS aggregate club revenues recently estimated in the ~$2 billion range league-wide, with per-club averages often $40–70m+ and top clubs higher).
Create modest solidarity-style flows that also support state youth structures.
Based on MLS-scale revenue, an estimated $240 million fund to support non-professional clubs in the new pyramid (exact size will depend on which rights are pooled and whether MLS itself participates).
In England, Premier League distributions to the EFL have recently totaled around £360m in a season (roughly 12% of top-tier distributions), providing a useful but not directly transferable benchmark.
Decide exact percentages, timing of payments, and contingency rules if media rights underperform.
Establish governance over the central pot so that relegated clubs, lower-tier clubs, and youth structures view the system as sufficiently fair that litigation becomes unattractive.
Legal Issues That Must Be Resolved
Authority to pool and redistribute rights
Confirm whether existing media and commercial contracts permit central pooling or require novation/assignment. Many current deals contain exclusivity, most-favored-nation, or consent provisions that can block or delay aggregation. Failure to secure clean title to the rights creates ongoing breach risk.
Antitrust and competition-law exposure
Collective selling of media rights and mandatory redistribution can attract scrutiny under Section 1 of the Sherman Act. Structures must be justified on consumer-welfare and pro-competitive grounds (broader geographic reach, stronger overall product, sustainable lower tiers). Single-entity arguments or carefully drafted joint-venture arrangements may help, but they do not eliminate risk.
Contractual and fiduciary challenges
Top clubs or investors may claim that forced redistribution impairs the value of their franchise rights or breaches fiduciary duties owed by league leadership. Clear governing documents, supermajority approval thresholds, and explicit member consent at the time of restructuring reduce later claims.
Trust and governance enforceability
If solidarity and youth funds sit in a separate trust or SPV, the trust instrument must be drafted to withstand creditor attacks, change-of-control events, and attempts by majority stakeholders to amend distribution formulas unilaterally. Independent trustees or directors with defined duties are essential.
Litigation posture of relegated and lower-tier clubs
Clubs that drop or remain outside the top tier will test any perceived unfairness. Distribution rules, audit rights, and dispute-resolution mechanisms (arbitration with expedited timelines) need to be locked in before the first season of open movement so that challenges do not paralyze operations.
Financial Issues That Must Be Resolved
Size and source of the solidarity pool
An illustrative $240 million fund implies a material transfer from top-tier revenues. Negotiators must decide whether the pool is a fixed percentage of defined central revenues, a fixed dollar amount subject to inflation, or a hybrid. Over-reliance on a single media cycle creates volatility.
Underperformance and downside protection
Media rights can fall short of projections. The system needs clear waterfalls: what is protected first (player wages, essential operations, youth grants), what is reduced pro-rata, and whether top clubs absorb a larger share of any shortfall. Contingency reserves or multi-year smoothing mechanisms reduce annual shocks.
Timing and cash-flow predictability
Lower-tier and youth organizations operate on tight cash cycles. Distributions timed only to the end of a media year create working-capital stress. Quarterly or semi-annual payments, with transparent estimates published in advance, improve planning and reduce the need for expensive short-term borrowing.
Tax and accounting treatment
Characterization of solidarity payments (as revenue share, grant, or equity-like contribution) affects tax liabilities for both paying and receiving entities. Consistent treatment across for-profit clubs and nonprofit youth structures is required to avoid unexpected tax leakage or private-inurement issues for tax-exempt organizations.
Incentive effects on top clubs
Excessive redistribution can reduce the commercial upside of finishing high or remaining in the top tier, weakening investment incentives. The formula must leave enough residual value at the top to justify the capital and operating risk of Tier 1 participation.
Competitive Issues That Must Be Resolved
Balance between merit and solidarity
Too little support and relegated clubs become uncompetitive or insolvent, turning promotion into a poisoned chalice. Too much support and the sporting incentive to stay up or push for promotion is dulled. The English experience shows that even substantial parachute and solidarity payments do not fully eliminate financial distress or competitive imbalance.
Youth pathway funding credibility
State associations and youth clubs will only buy into the broader pyramid if they see material, predictable flows rather than residual scraps. Dedicated line items or percentage floors for youth development (coaching education, facility grants, player-retention programs) give the state-level structure a tangible stake in the professional game’s commercial success.
Perception of fairness across stakeholders
Relegated clubs, perennial lower-tier clubs, and youth organizations each have different interests. A distribution system perceived as captured by the largest clubs will generate permanent political and legal friction. Transparent metrics, independent oversight of the central pot, and periodic formal review clauses help maintain legitimacy.
Impact on sporting behavior
Clubs near the relegation zone or promotion places will make different investment decisions depending on the size and certainty of parachute or solidarity money. The design should avoid creating perverse incentives (e.g., tanking once parachute eligibility is secured, or excessive short-term spending when promotion is near).
Long-term pyramid health versus short-term top-tier maximization
Maximizing immediate distributions to current top clubs can starve the base of the pyramid. A sustainable system treats a portion of central revenue as an investment in the overall product—deeper talent pool, more competitive lower tiers, stronger local markets—rather than pure extraction.
Practical Design Guardrails
Lock core percentages and principles into long-term member agreements that require supermajority consent to amend.
House solidarity and youth funds in bankruptcy-remote vehicles with independent governance.
Publish clear calculation methodologies and annual independent audits of the central pot.
Build in formal consultation rights for lower-tier and youth representatives before major changes.
Stress-test the model against multi-year media-rights declines and rapid expansion or contraction of the top tier.
A well-designed central revenue system is the financial backbone that allows sporting merit to function without destroying clubs or hollowing out the youth base. Getting the legal architecture, downside protections, and perceived fairness right is as important as the headline percentage numbers themselves.
