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Friday, August 18, 2017

Wednesday, August 16, 2017

Monday, August 14, 2017

Unpacking the Major League Soccer Business Model

(by Isaac Krasny medium.com 6-7-17)

Major League Soccer has a complicated business model. This is an investigation into how it works. How does MLS make money? Where does the money go? How is it structured so teams compete with each other, but also succeed together? I hope to answer these questions and more. The foundational information for this article was gathered from public sources and news articles listed below— there’s no insider information here. Just a reasoned investigation of what makes MLS succeed where so many others have failed.

The Investor-Operator

MLS teams don’t have owners in the classic sense: they have Investor-Operators. It’s actually an important distinction when considering the MLS business model. Unlike other American sports leagues, MLS isn’t structured as a legal cartel where a number of competing interests work together to facilitate healthy competition. Instead, MLS Investor-Operators are all financially invested in the same business entity — Major League Soccer, LLC — and succeed and fail together. They all made their initial investment in the LLC, and they all receive a pro-rata share of the profits if and when MLS generates a profit (or they can write off their share of the losses, should MLS lose cash in a given year.)
Being an investor in Major League Soccer entitles you to operate one of the teams owned by the league. For their respective team, Investor-Operators are entitled to earn certain revenues directly. This includes revenues from selling local broadcast rights, merchandise sold in the stadium, local sponsors, and all parking and stadium revenue. Certain items require the Investor-Operator to send a portion of their revenue to MLS, like 30% of ticket sales and between 25% and 44% of money earned through player transfer fees. MLS directly takes all revenue from national broadcast rights, league-level sponsorships, and online merchandise sales.
On the expense side of the equation, MLS pays all normal player salaries, as well as salaries covered under the flavors of allocation money (TAM and GAM). The rest of the operational expenses are largely up to the individual Investor-Operators. This includes stadium expenses (construction cost or rental expense), player development mechanisms like academies and training, all front office expenses like staff and budgets for marketing, sales, operations, and coaching to name a few, as well as team travel and salaries for designated players above the salary cap threshold.
It’s important when discussing the costs that the “league” bears to remember that the league is owned by the same people running the teams. At the end of the day, those player salaries are coming out of the Investor-Operators’ pockets just the same as if they had been direct costs. Similarly, even though teams don’t directly see national broadcast revenues, any profits derived from those revenues will end up pro-rated among the Investor-Operators.
MLS Investor-Operators see the same ultimate costs and profits as they would were they more loosely organized, but in the MLS model there is a requirement of collaboration. One team can’t simply decide to change the status quo and spend more on players; the Investor-Operators must agree that all teams should spend more. The competitive risk is capped — no one team can hijack the league.
How does Major League Soccer make money?
They sell soccer.
The product is the game. They pay players to battle it out week after week for your entertainment. You pay to watch this in the stadium, or you pay for a cable package to watch it on your TV, or you buy MLS Live to stream the games. Soccer is the key product. MLS has to make a game that is attractive, interesting, and convincing enough to get you to make the trip, or at least tune in for 90 minutes.
Once you’ve been hooked into paying to watch games, MLS has a number of other products for you to consume. There’s a bevy of merchandise options: team jerseys, apparel, and accessories made by Adidas, or one of the other 70 official merchandise partners. When you’re at the game you can buy food and drink. You can also choose to pay more for a premium experience: closer parking, better seats, luxury boxes, and more.
Now that MLS has sold you on soccer and has your attention, they’re going to re-sell that attention to sponsors and advertisers. MLS has over 20 national sponsors you’ll see advertised in stadiums and on TV during game broadcasts. Additionally, Investor-Operators are encouraged to cultivate local sponsorships for their clubs, including the big logos on the front of MLS jerseys and stadium naming rights.
In order to keep you coming back to games, and to stay relevant throughout the week instead of just on game days, MLS created its own editorial arm. They create articles, blogs, videos, podcasts, and recaps to keep you thinking about the game you watched last weekend, and looking forward to the one being played this coming weekend. They’ve also created their own fantasy game so you’ll remain engaged throughout the week in setting your lineup. All of this activity is pushing you to attend games, or at least watch them on TV or online.
One of the single biggest revenue streams for MLS is their national broadcast rights. Since the 2015 season, MLS has earned $90 million per year from the national broadcast deals struck with ESPN, Fox, and Univision. This figure is more than three times larger than the previous broadcast deal, and allowed MLS to invest further in growing their core product. For example, this revenue likely allowed MLS to introduce Targeted Allocation Money, effectively giving each team a salary cap boost to sign higher-quality players, thus increasing the quality of the competition and giving you more reason to watch week after week.
While MLS receives criticism for their relatively small player salary spend, they have managed to find a balance. They are continuously growing their customer (fan) base while effectively containing this potentially explosive budget line. MLS knows having higher quality players — improving their key product — will lead to increased attendance and viewership, which cascades down and improves all other revenue streams. They also know that growing a fanbase to support those increased salary expenses takes time. This is the sort of measured, responsible growth that sets MLS up to be a lasting entity.
Soccer United Marketing
Any discussion of the MLS business model is incomplete without considering Soccer United Marketing (SUM). SUM may be the key to the continued growth and success of Major League Soccer, and positions the league and its Investor-Operators to reap maximum benefits from the growth of soccer in America.
MLS developed a skill set for selling its soccer. SUM was created to leverage that same skill set for selling the soccer of other entities. For example, SUM approached the Mexican Men’s National Team and said that if they were to do an American tour with SUM representing them, they’d be guaranteed at least $2 million in revenue per game. SUM coordinated the tour, setting up venues, marketing the games, and securing broadcast deals, and earning a portion of the revenues for their trouble. They’ve done similar work for the US National Teams, and visiting professional teams from around the world.
SUM represents a sizable portion of the overall MLS enterprise value. While details and numbers are scarce, it was reported in 2016 that MLS was seeking to buy back the 25% stake in SUM it had sold to Providence Equity Partners in 2011. This chunk of equity was valued at over $200 million, indicating SUM has a total value of around $800 million. Guessing at revenues based on this valuation would prove foolhardy, but we can be sure that SUM is bringing in at least tens of millions on an annual basis.
Providence Equity Partners continues to list SUM as a portfolio holding (listed as “MLS Media”), so it would appear MLS was unsuccessful in buying back their shares. The remaining 75% of SUM is owned by MLS, LLC, and in turn the Investor-Operators.
There has been a glut of expansion talk lately as MLS has two clubs readying for their entry into the league (LAFC and David Beckham’s Miami team), and the league is currently evaluating bids for teams 25 and 26. The MLS Board of Governors — a subset of Investor-Operators — met earlier this year to set the expansion fee for teams 25 and 26 at $150 million each. This raised some eyebrows as just ten years ago Toronto FC entered the league for a much smaller $10 million payment. How can the league demand such a high payment? The answer lies in examining what exactly Investor-Operators get in return for their expansion fee.
While critics characterize the expansion fees in a number of (often creative) ways, they’re best viewed as investments into MLS, LLC. New Investor-Operators are, with their fees, buying a portion of equity ownership of MLS, their share of profits, and a seat at the decision-making table. As the value of that portion of MLS equity increases, so do the expansion fees. With the new television deal signed in 2014, MLS revenue jumped significantly, adding to enterprise value and potentially, profits. With each new team there is an increase in overall value as its local market is cultivated and a customer-base is built. Maple Leaf Sports & Entertainment was buying a spot for Toronto FC as the 13th team in the league, while the groups bidding for the 25th and 26th teams are buying into a league more than twice as big, and one with higher individual team values and vastly more national revenues.
Slip on your Investor-Operator Shoes
In order to understand why someone would want to lay out the cash to be a Major League Soccer Investor-Operator, let’s take a walk in their shoes.
You need to be the right kind of investor. There are many flavors of investors out there, from Venture Capitalists seeking a high-return exit within a few years, to Warren Buffet’s value investors who buy conservatively, barely intervene in operations, and reap their rewards over decades. MLS investors are likely somewhere in the middle: you have some real capital to invest and you aren’t going to need to see a return on that money anytime soon. You may see some cash come back out, but it’s highly unlikely you’ll recoup the value of your investment until you sell the team to a new owner. However, at that point, given the growth trajectory of MLS over the last decade, you’re likely to make a handsome return on your initial investment. You’re also looking for a bit of a project — something you can help build. Finally, you’re interested in the notability that comes with owning a sports franchise.
Now that you’ve bought your team, where should you invest your efforts and capital? It’s entirely the Investor-Operator’s responsibility to finance a new stadium, and you’ll want to make sure it’s nice. You’ll keep 70% of revenue from tickets sold, and all other revenues derived from fans attending your games. Ideally, it’s a dream to get to, it’s comfortable to be at, and the food is good. You can subsidize the cost of your stadium by selling the naming rights and bringing in local sponsorships, both of which allow you to keep 100% of the revenue. In terms of working on recouping that investment, the best thing for you the Investor-Operator to focus on is filling that stadium week after week and building the brand.
When it comes to building a coaching staff and a team roster, it’s less clear how much of an investment to make. Certainly being more competitive and winning games will lead to improved attendance and revenue, but there’s little evidence to suggest that spending on expensive coaches and players is correlated with success. In the 2016 MLS season, the conference winners FC Dallas and the New York Red Bulls had some of the lowest overall player salary spends in the league. By design, the parity restrictions of MLS make it so that success on the field can’t simply be purchased.
Overall, you want your team to play exciting soccer. You want your opponents to play exciting soccer. You want all the teams in the league to play soccer worth watching. You want your rivals to succeed financially as well, as 30% of league-wide ticket sales go to MLS and eventually your pocket. When NYCFC set up shop in the Bronx, the New York Red Bulls and Red Bull GmbH weren’t rooting for the franchise to fail. Instead, both organizations are rooting for intense rivalry that raises the specter of soccer in New York City, increases ticket sales for both stadiums, and gets fans buying more merchandise to represent their team. It’s an environment where healthy competition is a boon to all parties.
Is MLS going to fail?
Some have suggested that MLS is a bubble, or a Ponzi-like financial scheme where income from new investors is keeping the league afloat instead of growing revenues and real value. MLS doesn’t help its case by being secretive of its revenues, and even cries poor whenever it’s time to negotiate a new collective bargaining agreement with players. MLS likely doesn’t care about being transparent as it doesn’t need to convince us that it’s financially stable, and it’s likely even better served by obfuscating the true financial state of the league. Given it’s a private company, there is no statutory transparency requirement, and so we’re forced to speculate as to the financial situation of the league.
Revenue estimates put MLS at well into the hundreds of millions. We know the league brings in $90 million per year from the TV deal. We also know, based on an interview with Maribeth Towers, the chief of consumer products at MLS, that the league earns $25 million per year from Adidas in addition to a “nine-figure annual business” for consumer products, rounding merchandise out to be worth at least $125 million annually. If you count expansion fees as revenue, which we will to assess overall financial health, MLS will collect approximately $917 million in expansion fees between 2005 and 2020 (assuming Beckham’s Miami team begins play before 2020, and teams 25 and 26 begin play by 2020 as planned). This amounts to roughly $61 million in annual revenue for those 15 years. This puts our running annual revenue figure at $276 million.
Revenue estimates get fuzzier beyond those numbers. Ticket sales are extremely challenging to estimate as MLS teams are well known for giving out complimentary tickets to boost reported attendance. SUM revenues are unknown, but likely in the tens of millions based on the valuation. There are also national sponsorship revenues which likely add more tens of millions in revenue. Ultimately, it’s easy to build a case for MLS bringing in more than $400 million in revenue annually. And that’s just the league. It’s entirely possible, and even likely, that some MLS teams are being run at a profit. In their 2016 estimates, Forbes claimed 10 MLS teams were generating a positive operating income.
On the expenses side, beyond the player salary budget it’s difficult to estimate total league expenditures. While the league trumpets big sponsorship deals and television revenues, it doesn’t send out PR blasts about renegotiating the lease on MLS headquarters in New York City. It’s challenging to find reference points for the cost side of the MLS equation. We won’t engage in that kind of raw speculation.
Even if expenses are outpacing revenue at this point, given the steady growth of the league and its ability to command higher and higher prices for equity stakes, it would suggest that those who have seen the books are convinced MLS is a solid investment. As recently as 2016 Providence Equity Partners opted to retain their stake in SUM, not something they’d have done were MLS a sinking ship. Additionally, were MLS to find itself in some kind of cash crisis, it would likely have little trouble taking on debt with such a robust income. And finally, MLS could always issue a capital call to its Investor-Operators, who represent well over $100 billion in cash and assets. It seems highly unlikely, given the information available, that MLS would suddenly fail.
The MLS business model is complex, but purposefully built. Incentives are aligned so Investor-Operators focus on building their teams locally while MLS promotes the league nationally. Centralized salary controls and tightly managed competitive rules ensure that more ambitious Investor-Operators can push the whole league forward, but not drive a spending spree that bankrupts the enterprise.
The model has many critics who feel that it is monopolistic and detrimental to true, healthy competition like fans see in other leagues around the world. But the proof is in the pudding. MLS is the first truly lasting successful soccer league in America. And with so many investors and groups lining up for the chance to bring MLS to their cities, it seems MLS may have found the way to plant the soccer seed in America.

Wednesday, July 26, 2017

Pro/rel component made $4B bid for MLS media rights a non-starter

(by Jeff Carlisle espn.go.com 7-25-17)

Four billion dollars. No matter the context in which you look at that figure, it is a significant amount of money. And, apparently it could have been put in MLS' pocket in exchange for its worldwide media rights over a 10-year period.

But for MLS, the proposal contained the ultimate poison pill, that being the implementation of a system of promotion/relegation. And the proposal was made by MP & Silva founder Riccardo Silva. Silva just happens to be co-owner of NASL side Miami FC, and he's been pushing for a pro/rel system to be implemented in North American soccer for some time. Last year he funded a study by Deloitte that looked at the potential benefits of a pro/rel system, but one that MLS president and deputy commissioner Mark Abbott dismissed as having "serious credibility questions".

Then there is the fact that the league's current deal with ESPN, Fox and Univision prohibits MLS from even discussing a new media rights deal for several years. All of this led MLS to rebuff Silva's offer.

"We're very fortunate that we have long-term, successful partnerships with some of the world's leading media companies in ESPN, Fox and Univision," MLS said in a statement to ESPN FC.

"These agreements run through 2022 and provide each broadcaster with exclusive negotiating windows and renewal rights. As was stated to Mr. Silva both in person and in a subsequent letter, Major League Soccer is prohibited contractually from engaging in discussions about our media rights with other distributors. Accordingly, we are not in a position, nor are we interested, in engaging with Mr. Silva on his proposal."

Privately, more than one MLS source referred to what Silva is doing as "grandstanding". It's easy to make such an offer when you know the intended recipient is in no position to accept. One source indicated that Silva asked to meet with Garber, and Garber accepted without knowing that media rights were specifically on Silva's agenda. When asked what exactly was on the agenda, and whether it was related to the league's attempted expansion foray into Miami with David Beckham, MLS didn't provide an answer.

Silva declined an interview request through a spokesperson.

So was Silva grandstanding? In some ways yes, though there are reasons why he might not have been. MP & Silva is an established player in the media rights business with existing deals in soccer, motor racing, tennis and the NFL, just to name a few.

"I definitely think the bid was something that was done in earnest," said Michael Colangelo, the assistant director of USC's Sports Business Institute. "You want to table-set this because you want to get ahead of it. It sort of allows him to show that he's serious. You don't make an offer like this unless you have some sort of consistent plan that you can execute on. So by setting things up and having it so in 2023, once you have the rights in hand, you can start to figure out the more difficult things like cord-cutting, and getting viewership on a digital platform instead of a traditional platform if that's where the market is trending."

And what about Miami FC, Silva's NASL team? While instituting a pro/rel system would be one way to get around having to pay an expansion fee, it seems unlikely that's the only thing that's driving Silva.

"I think when you talk about someone like Riccardo, I think he sees a business opportunity, he sees a chance to grow MP & Silva on its own, more than a chance to get his team in," said Colangelo.

But the pro/rel component remains a non-starter. Would it make the end of the MLS regular season more compelling? Without question. Such a system would also add a layer of accountability to teams as well. There are also host of negatives on the business side, however. What the game needs right now is investment in terms of stadiums, players and youth academies, just to name a few. The willingness on the part of owners to build that kind of infrastructure would lessen considerably if there were a risk of relegation.

MLS is also in the midst of an expansion-bidding process with entry fees starting at $150 million. In all likelihood, the introduction of a pro/rel system would give prospective ownership groups and communities -- some of whom are contemplating providing public land for stadiums -- reason to have second thoughts.

"No owner with deep pockets is going to say, 'I'm going to line up all my sponsorships, and then get relegated,'" said Colangelo. "No sponsor is going to come in and be the kit sponsor if you can relegated in a year or two. Right now the system just isn't built for the risk.

"A system like England is so established. In the U.S. is there the right amount of teams to start this? Are the markets the right fit? Are the venues the right fit? Right now it's not in the cards. Now, if we're talking 10 to 15 to 20 years down the line, maybe it is. But right now, it just doesn't make sense for MLS with the business structure and trying to expand the league and these franchise fees and making sure that the product is up to par. It doesn't make much sense for the league as currently constructed."

Then there is the issue of control as it relates to media rights. MLS has historically negotiated rights deals on its own, and isn't going to give away that kind of power any time soon.

"This ensures that [MLS] and its partners can structure an agreement that addresses all elements, such as scheduling, marketing and digital distribution, that are required for a successful partnership," the MLS statement read.

Exactly how the media landscape will look in six years is another giant unknown, especially as it relates to cord-cutting, and the move to digital platforms. The advent of streaming companies wanting to get more into sports is another changing aspect. Then you have entertainment entities like UFC and WWE who own or control their own streaming rights.

"MLS has time on its side," said Colangelo. "In a few years they may know the landscape a little bit better, and how to monetize things like cord-cutters. So why rush into something right now when they may get five or six more bidders down the line? They may figure out a business model where it's league owned and they can benefit from their own distribution model.

"The number is astounding, it's jaw-dropping. How can you turn down $4 billion? But the way the business is moving, you could have left millions and millions on the table just because of that."
Will Silva jump into the bidding fray when negotiations open up? It's possible, though as long as pro/rel is part of the equation, MLS is almost certain to look elsewhere.



Sunday, July 23, 2017

July 17th, 2017 RSL vs Manchester United

RSL loses 2 - 1
Utahns: Manchester United - RSL match a 'once-in-a-lifetime opportunity'
(by Xoel Cardenas ksl.com 7-18-17)
It’s not every day that one of the biggest names in world sports comes to the Wasatch Front. But on Monday night, Manchester United, one of the biggest names in international soccer, arrived at Rio Tinto Stadium to face Real Salt Lake.
While it was just a friendly match, for the 20,241 fans in attendance it was more than just a game — it was an experience the Salt Lake Valley has never seen. Thousands of Manchester United fans packed the “RioT” along with RSL fans, as, for the third time in club history, Real Salt Lake hosted a past winner of the UEFA Champions League. Manchester United continued their winning ways on their U.S. tour with a 2-1 victory over RSL on Monday night. For most fans at the game, the score wasn’t significant. What mattered was seeing one of the premier clubs in the world — beloved by millions worldwide — come to Utah and play a match.

Some even came from out of state to watch the likes of Paul Pogba and Romelu Lukaku play.

Brian Spere, who came down from Jackson, Wyoming to attend the match, has been a Manchester United fan since he was six years old. Spere said he couldn’t pass on the opportunity to watch his lifelong team in person. “To see them in a small venue like this, with only 20,000 people, is pretty cool,” he said. “You get really up and close with the players.”

Spere acknowledged that getting big international clubs to the Salt Lake City area can be tough in the future, but said if Real Salt Lake could bring other big clubs to play friendly, it would leave a big impression locally.

“If you can get it, it’s sweet. Obviously, the draw from a smaller market is tougher, but it would bring a lot to the area,” he said.

Family affair

In Utah, soccer is a family affair. Utah has grown into one of the country’s leaders in soccer popularity and participation, especially among youth. In a report by Brigham Young University in 2014, Utah saw youth participation in soccer grow 10 percent every year since 2009. With the popularity of RSL and the rise in youth participation (both league and school level), it’s no wonder why soccer has arguably become the favorite sport among Utah families.

Kathryn Butler of Sandy became a Manchester United fan thanks to her husband, who’s a fan. She said her entire family loves the team and the sport. “We are big soccer fans. All of our children play soccer,” Butler said.

To further confirm the Bulters’ passion for Manchester United and the beautiful game, Kathryn and her husband named their son after a legendary United player.

“We named our son Beckham. That’s how big of fans we are,” Butler said with a smile. Their son is named after David Beckham, who played for United from 1992-2003, and was one of the most popular players in his day — not only for his skills, but also for his model looks and celebrity wife, Victoria.

More than just a game

Butler said she likes how soccer teaches children so much more than just a game.

“When youth get to play soccer, it helps. It helps them develop so many skills and working as a team, working towards goals, and just having something positive in their life that look forward to,” she said. Butler hopes participation in youth soccer helps her children build life skills and directs them away from trouble in the future. “Hopefully it keeps them out of trouble. That’s what we hope with our kids that play soccer,” she said.

Dream come true

For young Callahan Droitsch of Salt Lake City, seeing her favorite team in person was a dream come true.

“I was very, very excited,” Droitsch said. “(It’s) a once in a lifetime opportunity 'cause I’m probably not going to go over to England anytime soon.” Droitsch, a big soccer fan who also plays goalkeeper in youth soccer, said her favorite part of the night was seeing Manchester United’s goalkeepers, including Sergio Romero, who also plays for the Argentine national team. In the media mixed zone after the match, young Callahan was fortunate enough to get autographs and photos with Romero and with starting goalkeeper David De Gea, completing a day she told her mother was “the best day of her life.”

Droitsch said she is grateful that Real Salt Lake has been able to bring two of her favorite teams to play in Sandy.

“I’ve seen my top three teams here: RSL, Man U and the United States Women’s National Team, so it’s been really cool,” she said.




Saturday, June 24, 2017

RSL and the US Open Cup

(by 15 to 32 bigsoccer.com 5-18-17)

Road game against a USL team? What could possibly go wrong...

2005: Eliminated at Minnesota
2006: Beat Virginia Beach at home, eliminated at cRapids
2007: DNQ
2008: DNQ
2009: DNQ
2010: DNQ
2011: Beat Wilmington at home, eliminated at FCD
2012: Loss at home to Minnesota
2013: Played every game at home and loss in final
2014: Loss at Atlanta
2015: Won 3 home games before losing to SKC in the semis
2016: Beat Wilmington at home (pks), eliminated vs Sounders (pks)

We've never won a road game in USOC

Friday, June 16, 2017

Sundown in Colorado

Dick's Sporting Goods stadium