I often see discussions about pro/rel in soccer fizzle on the following questions, without good answers, I thought I would try to provide some good answers.
What is promotional/relegation?
It’s also known as an ‘open pyramid’ system. It has been used by soccer-loving countries since near the beginning of soccer as a sport, as a way to organize the competition.
It’s a club-centric system, rather than a league-centric system. That means that the soccer federation organizes the competition more like a Battle of the Bands than the WWE.
In Battle of the Bands, the organizers try to take all comers into the competition and let their musical talents decide how far they go.
The WWE controls the competition, the characters, the story lines and the matches.
In countries that use an open-pyramid, you can start a soccer club and enter a team from the club into the pyramid, probably somewhere down on the 5th or 6th tier of the pyramid. You don’t have to pay exorbitant franchise fees to join the league or meet any particular high hurdles, like have an enormous stadium for an unproven product, or be somewhere where a lot of people happen to live.
Your club can win its way up the pyramid (promotion) based on results. If it doesn’t do so well, it might be relegated to the next lower level where the level of competition might be more fitting.
This is how the youth soccer leagues in my area work. In any one age group, there might be a 100 teams. Those are split into divisions and the top 1-2 teams from each division are generally promoted up the next season and the bottom 1-2 teams are relegated down, with the idea of finding fitting competition along the way. Over time, this results in the best teams being in the first division and makes that division the most competitive.
Pro/rel became standard that was adopted by the world governing body of soccer, FIFA. In fact, FIFA, which charters (i.e. gives power to each nation’s soccer federation), requires that the federation maintain an open pyramid of competition. This is actually job #2 of a FIFA chartered federation, right behind organizing the country’s national teams for the international competition.
However, FIFA has granted a few exceptions, including to the U.S., for not following its charter.
Who would invest in a team that could be relegated?
To me, that’s like asking, who would invest in a restaurant since it might go bust? It turns out, quite a few folks.
But, we don’t have to draw an analogy to restaurants to imagine what might happen. A lot of countries around the world already have open pyramids with pro/rel, so we can just look to them. They have no shortage of investors in their top 3 levels and a number of Americans have invested in clubs in clubs in those countries, as well.
So, if you wonder who would invest in teams that have a chance of being relegated, just ask Americans Stan Kroenke, Stu Holden (MLS Commentator) and Ryan Reynolds why they did, rather than assume nobody would.
How do we protect the investments of the owners of the current MLS teams?
It sems like this has become a more legit question over the last few years as franchise fees to buy into the MLS have gone up to $200-300 million. While I’m no fan of ‘protecting billionaires,’ I do recognize that they paid those fees for a certain set of terms — to have a club in the MLS.
Now, I also think we should recognized that they didn’t pay those high fees only for the MLS team. Packaged with their MLS franchise ownership is a share of the 2026 World Cup TV revenue, too, along with other TV revenue from international games played in the U.S. I think it’s possible that most of the $200 – $300 million they paid was for that (through their part ownership in Soccer United Marketing). If that’s true, then the real value of the MLS team that came packaged with a share of the World Cup TV rights is de minimis and no protection is needed. Just make sure they still get their share of the those World Cup fees.
If it’s not true, I would appreciate if someone set me straight on that.
But, I also think there’s a case to be made that if MLS teams were converted to true clubs, rather than franchises, and placed in an open pyramid, the financial upside would be orders of magnitude better than the current path, with minimal downside risk.
Here’s why I’m not convinced the current path will work:
The high valuations of sports teams is driven mostly by the value of their TV contracts and MLS shows no sign of being able to draw much more of TV audience than figure skating or the Little League World Series.
I think there’s good reason for that. It’s mediocre soccer, by design (i.e. outwardly rigged via roster controls to even competition across teams to make for closer games, prevent powerhouse teams and to keep the players from gaining too much power over their salary).
While MLS is fun for locals to sit in stands for game ambiance and drink beer, it’s not all that interesting to watch on TV when you can just as easily watch the best players in the world in European leagues playing in games with consequences.
MLS is betting that fans will become more interested in their WWE-style rigged entertainment, so their league can be like the NFL, MLB and NBA and pull in 10-20x more revenue from TV than they do from the stands. But, given the previous paragraph, I think that’s a long shot. I think it works for the NFL, MLB and NBA because they do not have competition elsewhere in the world with better players.
Would the NFL be as popular if there was a football league in Europe that made NFL talent look like Division 2 college players? No.
Here’s why I think pro/rel has a better shot at increasing value:
Under pro/rel, I think there’s a shot for MLS teams to become worth 5-10x what they are currently, for 2nd division teams to become worth what top MLS squads are worth and 3rd division teams to become worth what bottom MLS teams are worth.
So, even if your team is relegated, it will be worth about as much as it is today.
This would eliminate the roster controls that seek to even the competition and give owners the freedom to pay better players and put together better teams. Better soccer is what what draws a TV audience.
But, won’t that just lead to powerhouses?
Sure. And it works in Europe! For every critic of powerhouse teams, I bet there are 3 or 4 fans walking around somewhere in the world wearing a Manchester United or Barcelona jersey.
I would say that it not only works, it is KEY to unlocking those TV $s. Few people beyond the locals will ever care about whether mediocre team A or B wins the MLS cup. That’s just not an interesting enough story line.
They do care if powerhouse team A and powerhouse team B, with 20 years each of powerhousy-ness behind them, are duking it out. That increases the appeal of the story line by orders of magnitudes, well beyond their official geographic borders. Even the critics of powerhouse teams will tune in. Even the power house haters will tune in, hoping to see the powerhouse get knocked off.
But, won’t that just lead to an arms race to buy the best players money can buy and put a lot of marginal teams out of business?
Maybe. But, if they are marginal, they were probably going out of business soon anyway. And, that opens the door for other investors to come in and give it a go.
But teams would go bust if they are relegated!
Maybe, maybe not. It happens in pro/rel leagues, but I believe that the value of 2nd tier teams in an open pyramid will be much higher than 2nd tier teams in a closed-league (see above), not only in club value, but in interest they receive with ticket sales and TV viewing.
It becomes that much more interesting when the best teams can earn their way to the next level with their play, than to watch teams forever stuck in a meaningless 2nd division.
How does pro/rel work better at finding the best players for the US National Team than our current system?
When pro/rel is mentioned, many folks only see the tip of the iceberg: what pro/rel does at the top. They only see that the bottom teams in the top division go down and the top teams from the 2nd division go up. They don’t see how this might change how things work all the way to grassroots.
But, pro/rel, or an open pyramid, changes the incentives through to grassroots soccer. Currently, youth clubs depend on parents’ checkbooks, i.e. ‘pay-to-play’. This model is even criticized by pro/rel opponents who fail to see how pro/rel is the best antidote to this.
How? It changes the incentives for clubs from attracting parents to finding diamonds in the rough and polishing them for the next level.
Currently, the main financial incentive for a club is to attract more parents. This leads to the the ‘everyone is elite’ ‘pay-to-play’ expensive system that we have.
Pro/rel open clubs to new sources of revenue.
They can make money by ‘selling players’. That means that when they have a player under contract that a team further up the pyramid wants, they sell that contract to that team for a profit.
To sell a player, a club must have the player under contract. That means the club must have a first “pro” team, even if the pros are only making $20/game. That first team would compete on a low level of the country’s open pyramid. It would be similar to high school varsity, college or club academy teams, except that simply being in the local conference, it’s in the local corner of the nationwide pyramid.
Next question is, where do these clubs get the money to put their first team players under contract? Believe it or not, from ticket, merch and concession sales, in addition to selling player’s contracts and receiving solidarity payments and training comp when those players are traded in the future.
Next question is, who is going to buy these tickets and watch the first team? We don’t have the fan base, like soccer loving countries.
True. We don’t have a fan base willing to buy tickets to watch random folks they don’t know play soccer just for the sake of watching soccer, but neither do folks in soccer-loving countries.
This is where we get stuck in our status quo bias of the concept of what a team is. In our world, it’s just a group of players, a coach, a uniform, a venue and tickets sold.
In an open pyramid, a club is more than that. I go into more detail in this post where I make the case that 90% of the benefits from an open pyramid come from the incentives that change at the grassroots level.