And now for the boring stuff. Why the system is what it is and why it is not so simple to match what is done around most of the world.
Anti-Trust Law: This is perhaps the biggest governing reason why the structure is the way it is. The prohibition of sports leagues having a monopoly and the effects on the business of the game in the US is lengthy with the most prominent case being the AFL vs NFL and in soccer over the last 20 years the case of MLS players suing the league and the complete mess that was created by the rebirth of the NASL. Anti-trust laws basically make it illegal for a league or governing body to permit only one league at any given level – therefore if an entity so chooses to do so, there could be multiple Division I leagues in competition to MLS and or lower tier leagues, hence the situation with the NASL (link about lawsuit). These laws are so complex and broad that even foreign league games being played in the US led to a suit against US Soccer.
Franchising: We all pretty much know this system as so many businesses we frequent in person is a franchise. Well sports in America is no different, except that every franchise purchased has a different name. What comes with buying a franchise is certain guarantees in both directions. The team owners expect certain things from the league owner (whether it be a separate entity like USL or owned by the team owners like NFL) and vice versa. In sports, keeping franchise’s value is key long-term for sale, loans etc. There are a lot of small items involved in this is the concept of the owner’s investment not all going down the drain from a few years of poor performance on the field in a sport where in this county if your team stinks all of your revenue sources also suffer tremendously. Most leagues operate on a franchising model, whether they are legally established as such or not (whole other discussion).
Financial Capabilities: Outside of the uber-wealthy that usually go straight to the top, investing ownership groups have their limitations. Those limitations are usually weighed by the leagues they are entering (and based on USSF criteria established for each tier). Those components and their limitations are often what makes promotion to higher leagues impossible for lower tier teams. These capabilities can and often fluctuate and effect those teams – sometimes from completely unrelated matters such as life-changing factors in a primary owner’s personal life (death, divorce, etc). This is why many teams have folded over the years.
Geography: The US is massive. One of the biggest financial components of running a team is travel budget – see Financial Capabilities. The composition of a league and/or division and the related match schedule plays a critical role in a team’s ability to compete. Moving up a tier may be fine in a smaller nation or if the footprint of travel is the same but ballooning a travel budget (along with most likely higher player salaries) puts significant stress on that.
NCAA Amateurism: One of the largest and longest ongoing roles in the lower tiers is the issue of collegiate eligibility. Nearly everything below the Professional Division III status is amateur as those clubs (with a few exceptions) are amateur teams that do not pay players either for budgetary constraints (see Financial Capabilities) or desire to utilize collegiate players for a number of reasons. NCAA eligibility rules regarding when/how eligible players can compete have changed a lot over the rules [painstakingly slow], but the system below D3 has not altered much.
Team Purpose: Many teams below the top professional tiers are created for a different reason. Among them some owners want to bring pro soccer or a sports entertainment option to their city, some just want to create playing opportunities in their market and in some cases, it is a youth club looking to provide an extension of their development process for its members. These goals often dictate a team’s placement… for instance – reserve teams, which led to MLS and USL pro teams competing in various different leagues over the years. Some of those teams were completely different operating structures serving as a sports entertainment offer in their market while others were just a team playing a league schedule.
League Branding: As you will read below. What a league is called and how it operates is a long-standing debate amongst owners within the given leagues. That has led to many branding changes, disputes and a confusing soccer name system that many general American sports fans used to collegiate and minor league systems do not understand. It is also some of what leads to the previously mentioned off the field conflicts over competition that have led to friction between leagues that in some cases resulted in lawsuits.
Closed System vs Open System: All of the above (some more than others) are the primary reasons why soccer in the US is what is considered for lack of a better term a ‘closed system’ where there is no promotion or relegation – an ‘open system’ – in which teams move up and down levels based on competitive performance. For decades everyone has had a theory of how to create an open system (most without consideration of these factors), but if you expect it to change any time soon don’t hold your breath. On a side note, it should be pointed out that not all leagues around the world use a completely open system and many, such as Mexico have historically or continue to use off-the-field financial standards as benchmarks for a team to be eligible to be promoted.
There are of course many more factors, especially when you dive into a league-by-league or team case basis… but these are the primary drivers.