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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.
 
Expansion
 
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.
 
Conclusion
 
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.
 
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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.

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http://www.espnfc.us/major-league-soccer/19/blog/post/3164341/was-$4b-bid-for-mls-media-rights-tied-to-adopting-pro-rel-grandstanding

Sunday, July 23, 2017

July 17th, 2017 RSL vs Manchester United

 
RSL loses 2 - 1
 
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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.

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http://www.ksl.com/?sid=45070529&nid=857&title=utahns-manchester-united-rsl-match-a-once-in-a-lifetime-opportunity

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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

Sunday, June 4, 2017

Monday, April 24, 2017

Not so hard bro


NYCFC goalkeeper Sean Johnson hugs a teammate a leak is sprung.

Friday, March 17, 2017

MLS Expansion Remains An Enticing Possibility Despite Questions Surrounding Profitability

(sportsbusinessdaily.com 3-3-17)

Twelve cities are "clamoring for the right" to join MLS as the league's latest expansion clubs, which is "pretty impressive for a league that still hasn't proven that most of its teams can consistently turn a profit," according to Matthew Futterman of the WALL STREET JOURNAL. The investment in a team "doesn’t quite pencil out in the short term." However, there is "no shortage of buyers with deep pockets who say they expect a healthy return on their investments over the long haul." MLS Commissioner Don Garber said that the "money coming in won’t cover the league’s continuing losses in coming years." Sources said that MLS franchise revenues range from $15-50M annually, though most are on the "lower end of that spectrum." Each team "receives just a few million dollars in national television rights fees from deals with ESPN, Fox and Univision" that run through '22, so even "doubling or tripling rights fees for the next deal won’t have a major impact" (WALL STREET JOURNAL, 3/1). In N.Y., Matt Pentz writes whether "continued expansion is the best path forward for the league is a topic of debate." Garber "plays down concerns about diluting a still-developing talent pool, but there is little doubt that MLS still has some distance to go on that front to catch up to the biggest European leagues" (NYTIMES.com, 3/3).

LONG-TERM APPROACH: Atlanta United Owner Arthur Blank was asked as part of a Q&A with the ATLANTA JOURNAL-CONSTITUTION's Doug Roberson whether MLS will "supplant all leagues other than the NFL in popularity, as measured by TV ratings, average attendance, etc. within the next 10 years." Blank said, "They've got a long way to go, but the trend line is significantly up. If you are asking if it can exceed Major League Baseball or the NBA, yes, I think it could. I'm not sure when" (ATLANTA JOURNAL-CONSTITUTION, 3/3).

ADVANCING WITH THE TIMES: In DC, Steven Goff notes soccer in general has been "slow to embrace technology," but MLS during the preseason was given "permission to experiment with video reviews on goals, penalty decisions, red-card incidents and cases of mistaken identity." When a "questionable play or decision arises, a video assistant referee communicates with the referee to prompt a review." During the first part of the regular season, the league will "test the system offline in every venue without interrupting the match or changing decisions." It then plans to "implement video review into select matches after the All-Star Game" (WASHINGTONPOST.com, 3/2).

ACCESSIBILITY MATTERS
: Garber appeared on CNBC's "Power Lunch" on Tuesday and said the league's online strategy is "trying to get our players, our games, our fan connections everywhere we can on every device." Garber: "We're really no different than any other content holder or provider. You can't just depend on your broadcasters to do that" ("Power Lunch," CNBC, 2/28).

BATTLE OF THE LEAGUES: MLS Dir of Player Programs Alfonso Mondelo said that the door "remains open and talks are ongoing about the much-touted tournament between Liga MX and MLS sides, but finding dates for it is proving a to be a headache." Mondelo: "The problem is finding dates that are open to insert (the tournament) into the calendars of both leagues" (ESPNFC.com, 3/1).

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http://www.sportsbusinessdaily.com/Daily/Issues/2017/03/03/MLS-Season-Preview/MLS.aspx

Wednesday, March 15, 2017

Major League Soccer's Most Valuable Teams 2016: New York, Orlando Thrive In First Seasons

(by Chris Smith forbes.com 9-7-16)

"If MLS was a publicly traded company, now would be a really good time to buy."

That's the bullish take MLS commissioner Don Garber offers when we recently spoke about the league he's been leading for the last two decades. And we're on the subject of investment because there is a host of prospective buyers who agree with his opinion, and they're lining up around the block to get a piece of the next and, according to Garber, potentially final round of MLS expansion.

The cost to join will be high, and league president Mark Abbott raised plenty of eyebrows when he recently spoke of expansion fees going as high as $200 million for the next round. That represents a major increase to the price of entry, which was $40 million just four years ago. "There were a lot of questions and concerns among potential investors as to the price," says Garber of past expansion rounds, noting that each subsequent round had a then-record fee. "But today I think [team owners] are feeling pretty good about the investment they made in the league, regardless of the price they paid."

The numbers certainly bear that out: The average MLS team is now worth $185 million. That's up 18% over last year, 80% from 2013 and a staggering 400% from our first MLS valuations in 2008, when the average team was worth $37 million. The Seattle Sounders are once again the league's most valuable franchise, now worth $285 million or about as much as a low-level NHL team.

It's of course not as simple as comparing those current values to past expansion fees, since the league and its teams have spent two decades losing hundreds of millions of dollars, but that continuing investment by MLS owners has led to a league that truly seems to be on the path to joining soccer's elite ranks.

More than $3 billion has been invested in the league's soccer-specific stadiums, and a new wave of state-of-the-art training facilities means that millions more are being poured into the league's player development efforts. Those players are also faring much better today than ever before. Three years ago just nine MLS players were making $1 million or more in salary; today nearly two-dozen players have seven-figure salaries. And unlike in years past, when those top-paid stars were typically over-the-hill veterans, many of today's highest earners are also among the league's top performers.

(more to come)

https://www.forbes.com/sites/chrissmith/2016/09/07/major-league-soccers-most-valuable-teams-2016-new-york-orlando-thrive-in-first-seasons/#3bc1345270df

Monday, March 13, 2017

What is the MLS Business Model?

(by Stefan Szymanski soccernomics-agency.com)

“On a combined basis, MLS and its clubs continue to lose in excess of $100 million per year.” — MLS deputy commissioner Mark Abbott, October 28, 2014.

It was widely reported in October 2014 that LAFC agreed to pay a franchise fee of $110 million. Also that in May 2013 NYCFC agreed to pay $100 million, and that the Orlando (November 2013) and Atlanta (April 2014) expansion franchises agreed to pay $70 million each. Which raises the obvious question, by what logic do people pay large sums to enter into a commercial environment in which the existing businesses are already losing money?

Of course, this is a question one might ask about the soccer business globally. For years the accountants Deloitte, whose Annual Review of Football Finance supplies accounting data on English clubs, has bemoaned the persistent losses. UEFA in their annual Club Licensing Benchmarking Reports detail the extent of loss-making across Europe. I know of no country in the world where football clubs are thought to generate profits consistently.

Whilst loss-making in the rest of the world causes great anguish, especially when clubs become insolvent (even though any club of any size always survives), it is widely understood that owners are mainly interested in the status and the glory that goes with controlling the local football club: financial returns are not to be expected. The record of the seventeen clubs that floated on either the London Stock Exchange or the Alternative Investment Market between October 1995 and November 1997 is a good example. Four of them subsequently became insolvent (Leeds, Leicester, QPR and Southampton), all of them have now delisted, mostly without seeing any return on their investment.
A study of the returns on football clubs floated on the stock exchanges in Europe by Aglietta, Andreff and Drut found that average returns over the period 1991-2009 were 3.66% (and I suspect if you took Manchester United out of the sample the figure would be closer to zero), compared to 7.80% on European shares and 6.95% on European bonds. As they say, “with regards to institutional investors, our findings can explain why they do not favour investing in publicly traded football clubs. Football stocks are not attractive when an 8% return per year is required from a number of other financial investments.”

MLS, we are told, is different:

 ”We’ve got to be in a situation where our clubs are making money and not losing money, so that we can continue to invest in this business and continue to build quality of play, relevance of teams and passion of our fans in a way where we ultimately achieve our goals.” — MLS Commissioner Don Garber, March 2015

But how is that supposed to happen?  Thanks to the help of an anonymous source with an intimate knowledge of MLS finances, I have constructed an approximate income statement for the league to demonstrate just why MLS loses money. Let’s go through the process step by step for the financial year 2014. Start with revenues:
  1. Ticket sales. MLS claim that attendance was 6.5 million in 2014, including playoffs and the All-Star game. They also say the average price in 2014 was $26. However, a large fraction of tickets to MLS games are given away via promotional schemes. My source says around 30% of tickets generate no revenue. Taking all this together gives us ticket revenues in total of $120 million.
  2. Broadcast. Until last year MLS and the USMNT had deals with ESPN, Fox and Univision worth about $23 million in total. However, my source claimed that the MLS share amounted to only about $13 million, which makes sense since USMNT games draw much larger audiences.
  3. League sponsorship. MLS boast 18 sponsors, and the largest deal is with Adidas currently worth $25 million a year. The new Heineken deal was reported at $10 million a year and the Audi deal is said to be worth $2-3 million. Allowing an average of $2 million for the remaining 15 deals, gives an annual league sponsorship revenue of about $68 million. But sponsors do not pay all of this in cash. Non-cash in-kind support probably accounts for one third of the total, so cash revenues are probably closer to $45 million.
  4. Team sponsorship. The biggest sponsorship revenue source is the jersey. These are estimated to be worth anything between $1 million and $4 million in value – around $48 million in total. Assuming that teams can put together other sponsorships which in total add 50% to this figure would mean total income of $71 million, but again after taking out a one third in-kind share, we are back to $48 million cash.
  5. Player sales. Far from buying in talent, MLS is a trading organization that according to transfermarkt.de turned a profit of around $7 million on player sales last year.

So that gives us an estimate for total revenue in 2014 of $233 million. In 2013 Forbes published estimates suggesting that league revenues were in fact $494 million- I find it hard to see how they got that and they didn’t respond to an inquiry from me. However, they also said that operating profits amounted to $34 million, when MLS themselves say that losses exceed $100 million.
Turning to costs:
  1. Players. Union figures specify total player wages of $131 million in 2014. However, teams often have additional contracts with players for marketing activities- especially for designated players. So real salary spending is much higher. For example, my source claimed the Seattle Sounders are spending $20 million on wages when the union data suggested spending last year was only $11.5 million. The real total must be at least $150 million
  2. Player development. Grant Wahl did some research on this last year and found that clubs were spending about $1 million a year on player development. Don Garber said last December that the league was spending more on development than on salaries in total ten years ago- which was about $1.7 million per team which would give a figure of around $20 million.
  3. Stadium costs. Each game day involves around 500 employees, and payments to various organizations such as the police. The new NFL Vikings stadium costs are estimated at $17.5 million a year including $3-4.5 million game day operating costs. With 7 guaranteed home games this works out at between $430,000 to $640,000 per game. My source claimed that the figure for MLS was around $400,000. This would amount to $145 million (363 games), more than wiping out the gate revenue. I will ignore other stadium costs, as well as other stadium revenues, given that this depends on ownership and is not strictly soccer related.
  4. Team back-office functions. My source claimed that franchises employ an army of staff on sales and marketing – as many as 40 full-time employees. A conservative figure for these costs is $3m per club, giving a total of $57 million in total.

So, this yields total costs of $372 million. Overall we arrive at an annual loss of $139 million, or just over $7 million per franchise in 2014. No doubt there are various tax write-offs to soften the blow, especially if losses can be written off against profits in other businesses. But I doubt that would make this a profitable venture overall.

I haven’t included MLS Head Office costs in this. The MLS website lists 80 employees; assuming average salaries are around $100,000 this adds up to $8 million. The rental on the league’s swanky Fifth Avenue offices must be at least as much again, and with other costs the annual total for the Commissioner’s office can’t be much less than $20 million.

So what can grow in the future to turn these losses in profits? MLS just signed an 8-year broadcast deal, which is much better than the old contract, but after taking out the USMNT’s share, leaves only about $50 million for the league. This is $37 million more than the old deal, still leaving losses at around the $100 million mark. And the next deal won’t come on stream until 2023!

Attendance revenue will go up, but attendance is already very good, and there’s another 3 years to wait for the World Cup bump, which is in any case contingent on the uncertain fortunes of the USMNT. Part of MLS’ attraction is that it is a cheap ticket for live sport, and that also won’t change soon.

Sponsorships will not grow significantly from current levels with the low TV audiences, and figures supplied by Sport Media Watch suggest that although MLS is doing better on TV so far this year, the new signings have not had a dramatic effect.

Without more revenues the league cannot attract better players, and without better players and a better quality of play most Americans are not going to watch this on TV- especially when they can easily watch better stuff from LigaMX, the Premier League, the Champions League, etc.

Commissioner Garber says “We have a goal in mind of trying to be one of the top leagues in the world in 2022,” but that would mean that MLS will employ a decent share of the world’s top players. Forget the Premier League, The Bundesliga, La Liga, Serie A – truly the top four leagues in the world – even to match the wage spending of the French and Russian leagues, would require an outlay by MLS of around $750 million per year, or roughly six times the current spending levels of MLS.

MLS cannot conceivably pay this amount AND have a situation where the clubs make money.

So one wonders what the owners of the expansion franchises think they are buying into. Since 2005 there have been nine expansion franchises paying money to the league (including San Jose whose owner had to pay to bring the team back), three more signed up in the last year (Atlanta, LAFC and Minnesota) and the promise of more to come. The amounts mentioned in the press amount to $550 million in total, probably enough to cover losses for some of the pre-existing schemes.

But now MLS starts to sound like a pyramid scheme. You can fund a loss-making enterprise from the entrance fees of new buyers for a while, but without making money, the only reason for doing this would be glory, not profits. Americans constantly tell me that owners of sport franchises in the US will insist on making money. If that really is the case, then I predict that MLS will collapse, and probably sooner rather than later.

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http://www.soccernomics-agency.com/?p=692

Saturday, March 4, 2017

United officially break ground on Audi Field


(dcunited.com 2-27-17)

D.C. United have officially broken ground on Audi Field, a more that half a billion dollar investment to construct a state-of-the-art soccer-specific stadium and adjoining mixed use development in the Southwest Waterfront District. The team’s new home will open in 2018.

Legendary United midfielder and current head coach, Ben Olsen, and USMNT and United homegrown product, goalkeeper, Bill Hamid, rallied the crowd and took part in the ceremony of the historic event alongside District of Columbia Mayor Muriel Bowser, MLS Commissioner Don Garber, United Managing General Partner Jason Levien, Audi of America President Scott Keogh, D.C. City Council Commissioner Phil Mendelson and D.C. Ward 6 Councilmember Charles Allen.

Levien, who took over as managing general partner of the club alongside general partner, Erick Thohir, in 2012, thanked the many people who have worked tirelessly to make this vision a reality over the past five years.

“It’s a tremendous honor for Erick and I to be to finally bestow to this club and these fans a world-class soccer stadium, Audi Field, designed to provide soccer fans the ultimate soccer experience,” Levien said. “This process hasn’t been easy, but it has made this moment, shovels finally hitting the ground, even sweeter. Erick and I are grateful for the patience and hardwork that has gone into this process and we’re proud to be a part of this important moment for the franchise, for the league, for the community and for this sport.”

An estimated 500 people celebrated the latest landmark moment in the Black-and-Red’s 21-year journey for a permanent home.

Remediation began on the site in December and concludes in March. Next week, United will file for their superstructure permit to start erecting steel structure above grade.

MLS Commissioner, Don Garber, offered congratulations to United and their fans, noting that the most decorated soccer team in the U.S. is finally moving into the home it deserves, the last of the charter MLS teams to remain in their original venue.

“[Audi Field] will create jobs, create opportunity, hope and development,” Garber said. "What is now sand and dirt in a year and a half’s time will be a state-of-the-art, world-class facility that’s going to give [Washington] international exposure beyond that which it already has. It’s going to be a great cathedral for our sport. Congratulations.”

On February 15, United announced a multi-year stadium naming rights partnership with Herndon-based Audi of America.

“Audi has been a long-time supporter of soccer, and it is only right that we bring this passion home to our community in D.C. with Audi Field,” Keogh said. "We can’t wait to win a title and have this great stadium open.”

District of Columbia Mayor, Muriel Bowser, has been an ardent champion of the stadium project during her term, assisting the club in securing land inside the District to ensure United’s long-term residency in D.C., a key step in her vision to make the nation’s capital the sports capital of the U.S.

"As the nation’s sports capital, we are proud to break ground on D.C. United’s new home,” said Mayor Muriel Bowser. “Buzzard Point will soon be a destination center for all Washingtonians, from the most die-hard United fans to friends and families looking to enjoy our ever-expanding waterfront development. Most importantly, we are paving the way to more jobs and economic opportunity for D.C. residents and future businesses along the Anacostia River.”

Audi Field will be the home for D.C. United, the most decorated franchise in U.S. soccer history and the most championed professional team in the District of Columbia. Opening in 2018, it will also host a variety of other sporting and cultural events, community activities, and concerts. The state-of-the-art urban facility has a capacity of 20,000 fans and will feature 31 luxury suites, a bike valet, and 500,000 total square feet of mixed-use retail and residential space on site, making it a 365-day destination for fans and D.C. residents alike.

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http://www.dcunited.com/post/2017/02/27/united-officially-break-ground-audi-field