MLS tries to build on successes
This week marks the start of Major League Soccer’s 12th season, and the debate about the league’s financial health is again a topic around at least a few water coolers.
It’s not an open-and-shut case.
How, for instance, can MLS be called healthy if 10 of its 12 teams lost money last year, including a reported $14-million loss by the New York Red Bulls?
On the other hand, how can the league be called sickly if Toronto FC, new out of the box this spring, sells all 14,000 of its season tickets months before it plays its first game in its equally new 20,000-seat stadium?
Overall, there seems to be a consensus that, financially speaking, things have never been better for MLS.
“There have been some very, very good developments for the league
Bob Foose, the executive director of the MLS Players Union, is pleased that the league is financially better off but it’s how MLS spends its newfound wealth that concerns him.
“From when we started negotiating four years ago, it’s a very different landscape,” Foose said. “There clearly is a lot more revenue coming in ... [but] they’re still much, much too secretive with us on those numbers ... so it’s hard for us to get an exact picture of where things are.”
Even neutral observers, however, believe that MLS has laid the foundation of a potentially money-spinning league down the road.
“I think the hallmark of this league has been sort of a tortoise approach to building the business, a bit slow and steady,” said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon. “I think the stadium infrastructure is now in place. They’ve had good ownership.... I think the addition of some international partners raises their global visibility.”
The MLS’ biggest marketing story this season, of course, is foreign superstar David Beckham, who will join the Galaxy this summer.
“Beckham’s arrival provides sort of that shock and awe for the American sports fan to take notice,” Swangard said.
Overall, MLS looks a lot different on the eve of the 2007 season.
* The league started with 10 teams in 1996, expanded to 12, shrank to 10 again and has since grown to 13 with Toronto FC added this season. The plan is to have 16 teams by 2010.
* When the Colorado Rapids open the season in Denver on Saturday and when Toronto opens at home later in the month, seven of the 13 MLS teams will be playing in their own soccer-specific stadiums.
Real Salt Lake, D.C. United and the Red Bulls will follow suit in 2008 or 2009.
True, most of the stadiums are only in the 25,000-seat range, but their size is not the point. By owning their own stadiums, MLS teams get extra revenue from concessions and parking and don’t have to worry about lease payments.
Don Garber has been MLS commissioner since 1999. During Garber’s tenure, the league has developed “very realistic expectations -- if [it] can just carve out a nice part of the market now, given the way the country might change demographically, [it] really could be well positioned,” Swangard said.
* There was a time when MLS depended on three men: Phil Anschutz, Lamar Hunt and Robert Kraft. No more.
Whereas Anschutz’s AEG once operated six teams, it now operates only three, including the Galaxy. The Hunt family too has cut down its investment from three teams to two. Eventually, MLS will have one owner per team. That is Garber’s stated goal.
In the meantime, new investors have come on board. Austrian billionaire Dieter Mateschitz bought the MetroStars from AEG for $100 million and turned them into the Red Bulls. Maple Leaf Sports and Entertainment added Toronto FC to a sporting stable that already included the NHL’s Toronto Maple Leafs and the NBA’s Toronto Raptors.
Now, MLS has 10 distinct ownership groups, three of them foreign.
* Last year, MLS secured new television contracts with ABC/ESPN, Univision, the Fox Soccer Channel and HDNet. “For the first time, we’re making money from TV, not paying it out,” Garber said when the deals were announced.
The Wall Street Journal estimated that the TV deals are worth $20 million annually.
For the first time, every regular-season game this year will be televised, either nationally or regionally, and 113 of those 195 games will be broadcast live.
* Three MLS teams have signed deals with sponsors this season, including the Galaxy, which signed a five-year deal with Herbalife worth somewhere between $17.5 million and $25 million -- in other words, a big chunk of Beckham’s salary.
According to Tim Leiweke, AEG’s chief executive, such agreements make an emphatic point, one that other MLS owners should consider.
“Even before David steps on the pitch, the fact is that he’s already gotten us a return on that investment,” Leiweke said.
* As American players have blossomed in MLS, their value has become apparent to teams abroad and the league is developing a healthy sideline in exporting players to Europe. In January, midfielder Clint Dempsey was sold by the New England Revolution to Fulham of the English Premier League for a reported $4 million -- an unthinkable amount for an American player in pre-MLS days. The club gets two-thirds of that amount; the league gets the rest.
And the more players who raise their level to European standards, the more those players and their MLS clubs can profit from this trade, just as clubs in Argentina, Brazil and elsewhere do.
* MLS also has loosened the restrictions on acquiring better players from abroad with the so-called Beckham rule: Clubs can sign a name player for any amount they want with only $400,000 of that amount counting against each team’s $2.2-million salary cap.
Gazidis said the move did not become financially feasible until enough teams had their own stadiums and therefore control of the various revenue streams that stadium ownership brings.
Beckham’s huge contract makes economic sense, Gazidis said.
“It’s not a charity,” he said. “No one is paying him vast amounts of money because they like him or because they think he’s a good guy. They’re paying him for one simple reason -- that they believe he is going to earn them more than that amount of money back.”
* The foundation for everything in MLS has always been the league’s single-entity structure, a system that, in theory, spreads the financial pain and gain between all the owners. So MLS owners contribute to a collective salary pool, the league technically signs each player, and MLS sets the same payroll limit for each team’s roster -- except for any Beckham-type signings.
The MLS Players Union, however, views single entity not as much as a fiscal option but rather as an almost insidious device.
“Thus far the league has exercised and gotten used to exercising complete control over everything,” Fosse said. “That’s a big problem for the players and something that is going to have to change in the next deal” in 2010 when the union agreement comes up for renewal.
For Gazidis, MLS’ financial health is all a matter of perspective and patience.
“Our investors aren’t in this business for where we are today,” he said. “What they really are in it for is a vision of what the sport can become a decade or more from now.”
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