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

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

'Soccernomics' author says MLS' collapse is imminenet. His argument is awful.

There is a lot of missing information in Stefan Szymanski's calculations.

http://www.sbnation.com/soccer/2015/4/23/8482407/soccernomics-mls-collapse-stefan-szymanski

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

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