The Recession Killed Profits in MLS
by Dave Clark on Mar 12, 2010 2:16 PM PST
in Major League Soccer
32 comments
So we all know the Forbes study about 2007. We should all know that it did not include the money from Soccer United Marketing. SUM makes a lot of money. That will be true in recession or not, but recently the Timbers had to publicly declare how they as an MLS side would make money and pay back the city for all those great tax breaks, etc.
Let's first look at 2007 though - only 3 teams were "profitable" without SUM money.
THREE - Los Angeles, Toronto and Dallas. One could argue that with SUM money that another 3-6 clubs likely made money in that single year. At least it could be argued. Let's also remember that sports teams almost never make money on a year-to-year basis, but instead are like real estate, and have annual costs past their income, but when sold makes the owner some bank. This is true for all but the top 10% of teams in pretty much any league in the world.
But since 2007 the world has changed. Iceland nearly doesn't exist as a financial entity. Governments in most democracies have changed their ruling party. The WORLD has reached a Recession nearing on depression. How did that hit MLS?
The answer is HARD. It hit MLS very hard. Despite the Seattle Sounders magical attendance numbers the league was still down. This is a league that makes more money off of gate than it does off of TV, and that hurt. The shine of Beckham is gone. The newness of TFC is GONE. Dallas still doesn't know how to market in Frisco.
So I did some math. Really basic stuff, but the Portland release filled in some data points and I could extrapolate a range of profits for MLS sides in 2009 based in part on the 2007 study and in part on how the Timbers plan to make money.
Things in MLS aren't really that good. Revenue is high, but profits aren't following, unless you include SUM. There are some mysteries surrounding how that money is distributed, but let's ignore SUM for a bit.
Only 2 clubs turned a profit in 2009 - Seattle and Toronto. I'm going to have to deal with ranges, because the math is a bit fuzzy, and I had to estimate, but Seattle took in about 36M$ in revenue. No joke. In the down economy Seattle launched to a perfect storm. No other team in any American league will ever do that again. Toronto barely turned a non-SUM profit though. While Seattle had a non-SUM profit of between $10 and 17 Million, TFC only came in at about $1 to 3 Million US.
No one else likely made a profit during the Recession. If we count SUM money the way Portland does (which isn't necessarily the "right" way to do so, as I have heard that it is an incentive rather than even distribution) the following "profits" were made in MLS, accounting for gate, and announced sponsorships since 2007:
The Galaxy had about $2M less in Gate revenue from 2007 to 2009. Dallas still mainly makes money from non-soccer revenue, so it was harder to estimate. Salt Lake will start climbing the revenue ladder as it starts to pay off the stadium.
In all things in MLS aren't good. A 12% reduction in attendees crushes a league that depends on gate.
| Seattle | 15,322,672 |
| TFC | 2,819,697 |
| RSL | 934,144 |
| FCD | 678,151 |
| San Jose | 501,318 |
| LA | 259,161 |
| Houston | 258,397 |
| C-USA | -612,923 |
| NER | -962,664 |
| CR | -2,079,073 |
| KCW | -2,278,705 |
| DCU | -4,203,862 |
| CCrew | -4,232,625 |
| Chicago | -4,348,156 |
| NY | -6,068,760 |
Obviously these are ugly estimates. Quite rough. One would likely be better having a range, based on some unknown factors not listed in either report, so let's do some jujitsu on the numbers;
| Seattle | 10m to 17m |
| TFC | 0m to 3m |
| RSL | neg2m to 0m |
| FCD | neg2m to 1m |
| San Jose | neg2m to 0m |
| LA | neg5m to 2m |
| Houston | neg3m to 0m |
| C-USA | neg3m to neg1m |
| NER | neg4m to neg1m |
| CR | neg5m to neg3m |
| KCW | neg4m to neg3m |
| DCU | neg7m to neg5m |
| CCrew | neg6m to neg5m |
| Chicago | neg7m to neg4m |
| NY | neg8m to neg7m |
There are still teams that despite having labor costs in the $2-3M range are losing twice that much money. At least if the Forbes estimate and Portland numbers are remotely accurate. Yes, a majority of clubs are making money if we COUNT SUM, which is technically a seperate entity, but let's also remember that almost ZERO MLS players are responsible for the earnings from SUM.
SUM holds the rights to the World Cup, the Gold Cup, the WPS, the US MNT, the Mexican NT when in the USA, Barcelona in the USA, Interliga, Superliga and the PanPacific Championship. Those last two are the only ones that MLS players participate in by nature, and they are also the only two that don't exist in 2010. Should MLS players get a portion of that money? Likely no.
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I'm not clear
how you were able to take the very limited publicly available data (2007 revenue & net income from Forbes, 2008 MLS ticket and sponsorship revenue from PDX) and come up with any kind of reasonable estimate at all.
Can you explain how you developed your estimates? Did any additional data go into them (e.g., 2009 attendance – anything else?) What assumptions did you have to make along the way?
Thanks.
Yes I applied 2009 attendance
and used it towards all gate based revenue. I also added in sponsorships announced since 2007.
The range represents that averages (and for merch sales the HIGH) are merely that. I assumed in the range that all clubs made +/- 10% of the numbers that had close to a reasonable amount of accuracy.
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I am not a Fan
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Sounder At Heart
Reasonable strategy
but it seems like there are too many things we don’t know to be able to come up with any kind of decent estimate. Off the top of my head, here are some things I don’t think we have any kind of infomration on:
Revenue— non-MLS gate revenue for teams that own their stadium (did you use PDX numbers to infer?), broadcast income (local and national, TV & radio), parking revenue if applicable, etc. The PDX presenation included league-wide numbers for merch and concessions, so I’m assuming you used those to base estimates off of.
Cost— debt service (for teams that own their stadium), rent (for teams that don’t), auxilary facilities costs (e.g., practice fields & training facilities), front office staffing (seems to vary widely), etc.
I’m not trying to be overly critical, just trying to understand how you came up with these, and if they are likely to be pretty reasonable.
yep, used those
For all teams that existed in 2007 I used their 2007 numbers as baselines and then adjusted for inflation, but using the numbers that PDX assumed for inflation, not true COL numbers.
Same for revenue, for gate I included concession, ticket and merch numbers.
I am not a Supporter
I am not a Fan
I am a Sounder
Sounder At Heart
I like seeing these numbers
but I have no idea what to do with them, nor whether they really mean anything. I suppose these figures support MLS’s position more than MLSPU’s?
Is our FO actively looking for loopholes so we can beat the system and put our $15m to good use? Your Injured List-USOC/CCL players scheme is a good start. Surely there are more cheats to be found in this game.
a few things
1) With a much better look at the numbers then our ability to judge them, the league is racking up groups looking to put in expansion teams and pay expansion fees.
I’d imagine if the league was really as poor as they claim, you wouldn’t have people with money jumping at the chance to drop $40mil into it.
If you factor in the 160mil in expansion fees for the 4 year window that includes Seattle thru Montreal, how does that profitability thing look?
2) On the Portland projections they claim a very healthy EBITDA profit of 3mil. I know EBITDA has it’s flaws, but it is widely seen as a good measure of operational profitability for businesses that have complicated costs (like stadium deals) .
3) You said that MLS players shouldn’t get SUM money, because of the other competitions they aren’t part of. I guess that’s true to a point. Except SUM also does MLS, which I suspect, the players are part of.
Plus it reaks of a little bit of slime to create a shell company, shift some murkey amount of money to it and then claim poverty. I suspect teams will never be profitable as long as SUM is excluded from the viability of the league.
4) Teams are like real estate. You don’t operate a team for profit, you operate it to increase value. Then you sell the team for the real profit. If team values are going up, then owners are making money that isn’t getting reported to the bottom line. Last I saw, the value of MLS teams was going up, in some case significantly.
5) The other thing the numbers leave out is transfer fees. They aren’t calculated in each teams bottom line, but all the owners share in the fees. So, if Landycakes goes to Everton for 15mil, the owners dine out on a million per team that doesn’t show in the team profitability calculations.
point by point
Blake,
on pt 3, I agree with you, but SUM does not include MLS broadcasting rights, only non-MLS rights. Yes, it is a shell company of sorts that hides tens of millions in profits. I have reason to believe that these are given as incentives, not just an X divided by 16 teams figure.
on pt 4, I fully agree and mention such.
on pt 5, transfer fees are kept at ~30% by team transfering out and then the league and its co-owners split the rest. This means that if Donovan goes out for 15M$ about 5M$ goes to Galaxy and just over 1/2M$ go to each team, as the league gets a cut as well.
I am not a Supporter
I am not a Fan
I am a Sounder
Sounder At Heart
Profit in MLS
I enjoy posts like this.
I think, as has been alluded, that we need to stop separating MLS clubs from SUM when we think of profitability. The two are inextricably linked as every owner/investor has an interest in SUM.
A ’club’s’ profitability is a good benchmark up to a point, but as for the owner/investor, it’s only part of the story. It’s entirely possible for an owner/investor to be making money while the ‘club’ is showing red.
SUM Money
I agree that funds that SUM feeds back to the teams should be included in their numbers, I believe that in past years that number has been about 1.5 to 2.0 million the last couple years ( I will research that further). However the funds that SUM creates for non MLS related things, should not be counted towards MLS financial reports. WPS, the Mexican and US National teams, those funds don’t go to MLS owners and counting SUM’s finances would be a very tricky thing indeed.
MLS’s TV deals are somewhat known and combined they are about 15-20 million a year from ESPN and FSC based on what has been reported. The ESPN deal was more valuable because it included the 06,10, and 14 World cup rights.
Here are a couple links about the TV deals: Link one, Link two
I still go back to the 2004 Business Week article that points out that owners lost about $350 million in the first 8 years of the leagues history, do you really think they have made that amount in the last 5?
It is easy to look at TFC and SSFC and say look at the big crowds and great merchandise sales everyone in MLS must be making money, that just isn’t true.
PDX is reporting that the "average" team makes
1.6M$ per year in SUM
But I have heard that in 2007 two clubs made 8 figures and others made substantially less. This operates as an incentive, not an amount to keep a club in the black.
I am not a Supporter
I am not a Fan
I am a Sounder
Sounder At Heart
re: SUM Money
denz:
If I recall correctly, the Forbes report had the SUM distribution at under 1m.
The MLS domestic national TV deals(the last numbers I found):
ESPN 7.5M
FSC 2.2M
Univision 9.5M
Certainly the league has yet to recoup the massive early losses, but they have collected upwards of $185m in expansion fees since 2005. Additionally SUM pocketed quite a tidy sum(no pun intended) from last year’s ‘Summer of Soccer’ and will do so in the future with its FMF and Barcelona deals(just to mention a couple of their properties).
Again, MLS investor/operators also have a piece of SUM, so their teams need not make money as the distribution to MLS teams does not account for all revenues.
sports as "business" is actually a fallacy
If you read “Soccernomics” by Simon Kuper (seriously, everyone rush out and read that book right now) the author makes the salient point that soccer clubs are actually pretty lousy businesses — and that includes the “giants” like Real Madrid and Manchester United!
Too put it most briefly, its best to think of these clubs as “charitable trusts” which should NOT be considered profitable business. He goes on to make the point that “soccer people” are lousy businessmen, and businessmen are lousy “soccer people.”
If you want/need elaboration on what I’m saying, read the book — I’m not going to repeat the entire section verbatim because I want to keep this brief.
In American big-time sports, we’re all convinced that sports are a “business” because not only is that what we hear all the time, but team owners — and thus the people that run the leagues — are generally successful business people. But, as we all saw in Seattle with Starbuck’s magnate Howard Schultz; who bought the Sonics for all the right reasons, was by all reasonable definitions a wildly successful business man, and proceeded to absolutely fall flat on his face and be throughly embarrassed in his ill-fated ownership and subsequent sale of the franchise; the two worlds rarely equate.
...that's MISTER Keller to you!!!
addendum
I forgot to credit Stefan Szymanski as a co-author of “Soccernomics”
Also, its chapter Four, titled: “The Worst Business in the World: Why Soccer Clubs Don’t (and Shouldn’t) Make Money”
I will quote the end passage of the Chapter as a teaser:
“Soccer clubs need to know who they are. They shouldn’t kid themselves… they are like museums: public-spirit organizations that aim to serve the community while remaining reasonably solvent. It sounds like a modest goal, but few of them achieve that.”
...that's MISTER Keller to you!!!
by malcontentjake on Mar 13, 2010 1:42 PM PST up reply actions
Except that MLS sides aren't even "reasonably solvent"
I am not a Supporter
I am not a Fan
I am a Sounder
Sounder At Heart
True to a degree
But we also can’t just expect owners to flush money down the drain at whatever rate we’d like them to. Teams might not be making money, but if the endeavor doesn’t pencil out one way or another, owners sell. And if the operation is losing money too quickly, the club disappears.
by Jeremiah Oshan on Mar 14, 2010 9:13 AM PST up reply actions
look at England
supporters of clubs like Man U and Liverpool expect their owners to flush money down the drain at whatever rate they’d like them to. Both those clubs have racked up enormous debts, and have American owners unwilling to use their personal wealth to bail out the clubs, and in both places you have supporters having fits and trying to boot those owners out!
One of the “tricks” clubs use is to talk about revenue, but never really discuss profits. Clubs like Real Madrid, Man U, and the like have considerable revenue, but nonetheless manage to run up deficits, mainly via the transfer market, and this is done mainly to keep supporters happy.
In Europe, clubs rarely, if ever, disappear (again, read “Soccernomics” for clarification). This is mainly because of the layered, divisional, structure of European sports, something that is howled at as unworkable here because owners might lose money if they get dropped down.
news flash: OWNERS ARE LOSING MONEY AS IT IS! So explain to me why a layered, divisional structure won’t or can’t work?!
This is why I truly believe that if the MLS, and professional soccer in general in USA/Canada, is going to be sustainable and solvent in the LONG TERM, then we are going to have to adapt a more European model of operation. Look, I applaud the MLS in what they have done to make the League viable so far, and they have done a lot of things right and take a lot of the right steps. But, as is being demonstrated by the difficulty over the CBA (and we know from biology) evolution isn’t always a gradual process, as there are often catastrophic shocks that spur rapid development. We are in one of those periods now, and I think that the MLS, NASL, USL, USSF, and [whatever the Canadian federation is called] are going to have to get together and map out the long-range vision of where soccer is going to go… and follow the lead of the PROVEN, historical track record of Europe.
...that's MISTER Keller to you!!!
by malcontentjake on Mar 14, 2010 11:44 AM PDT up reply actions
Don't ignore
That in MLS 3 owners have still lost hundreds of millions. Until you find a way to actually make them money they will take their 5 teams and vote against what ever idea you have.
Also, if you look at page 93 of soccernomics you will note that annual profit and league position have a general relationship. For MLS this is not true, in over 200 team seasons there are less than 10 profitable years.
But I do think its funny that you argue, as Soccernomics does, that soccer isn’t business and than think that a better business model would be to copy leagues where teams die on a regular basis.
I am not a Supporter
I am not a Fan
I am a Sounder
Sounder At Heart
page 93
I will admit to being a little confused about that part of the book, seeing as how Manchester United has over $1 billion in debts right now….
...that's MISTER Keller to you!!!
by malcontentjake on Mar 14, 2010 2:02 PM PDT up reply actions
Not sure I follow
It seems that you are suggesting MLS owners should just accept the fact that they will lose money and that will always be the case, so they may as well lose even more money and have the best players possible.
If that is what you’re saying, I suppose I can understand as a fan why you feel that way. But if you really think that’s a sustainable business model — we are talking about American businessmen here, who don’t have the same passion for the sport as their European counterparts — I don’t think you’re working with a realistic proposition.
by Jeremiah Oshan on Mar 14, 2010 12:42 PM PDT up reply actions
For clarification
That’s a question for Malcontentjake.
by Jeremiah Oshan on Mar 14, 2010 12:43 PM PDT up reply actions
Paul Allen
maybe I’m wrong, but I’ve never considered Paul Allen to be particularly “passionate” about American tackle football — and this is the guy who literally saved the Seattle Seahawks… maybe I’m wrong about that…
He IS passionate about the NBA, and sunk quite a bit of money into the Blazers, so maybe “passion” has something to do with it. I really don’t know…
as far as “realistic” model, I don’t see where that fits into ANY major American professional sport… the aforementioned NBA is projected to lose $400 in a single season!!
As far as your first paragraph, that’s not what I’m saying at all… so I’m a little confused with your interpretation…
...that's MISTER Keller to you!!!
by malcontentjake on Mar 14, 2010 2:01 PM PDT up reply actions
I have no idea
If you’re not talking about accepting losses, you’re right, I’m totally missing your point. Pro sports in America might not be about making money in the here and now, but I can’t think of many owners here who just accept tens of millions or even hundreds of millions in losses in perpetuity. They may do so in the short-term, but it’s almost always on the assumption they’ll start making money at some point, whether by selling the team or using the team to make other business ventures profitable.
NBA owners may be losing money, but they are also trying to change that. They certainly aren’t just accepting the losses and writing them off.
by Jeremiah Oshan on Mar 14, 2010 2:06 PM PDT up reply actions
Think I get it now...
Just think we’re talking about different stuff and I still don’t see what American businessmen have to do with whether we’re playing in a relegation-style league or not and don’t see how relegation makes owners more likely to want to participate. I’m assuming you don’t think that’s important, but I guess I’m just wondering who you think will run these teams and pay for their operation?
by Jeremiah Oshan on Mar 14, 2010 2:44 PM PDT up reply actions
with relegation comes PROMOTION!
Don’t forget that! Let me make an analogy. With relegation/promotion comes a elimination of things like franchise relocation — which is a absolute travesty IMO.
Howard Schultz would have found the Sonics economically untenable and they may have gone through a painful Portsmouth-esque crisis… but I have to stress, Portsmouth is going nowhere. They will still exist , they will just drop down a division or two and eventually, if things get sorted out, have a chance to play their way back up. As would be the fate of the Sonics.
The Oklahoma City group would have simply seized control of a club in OK (its reasonable to assume they would’ve had a lower-division club, or if not, one could have been formed) and invested in that club to make an effort to “play their way up” to the top NBA championship division. If the OK city group wanted to own a top-division club in their hometown, what possible motivation would they have to buy a struggling club in a city half the country away?!!!
Yes, the Sonics would have been relegated, it would have been painful for their fans… BUT THEY WOULD STILL EXIST!!! As it stands now, the Seattle Supersonics have ceased to exist…
So, looking at soccer, there are enthusiastic ownership groups in places like Portland, Vancouver, St Louis, Montreal, and Florida (for the sake of this discussion lets overlook the fact that Portland and Vancouver have been granted MLS franchises). Instead of having unviable clubs like NYRB, Columbus, and Chicago simply fold up shop and potentially pull down the League with them, wouldn’t it be better to have these teams relegated (and still exist) and have lower-division owners who are willing to invest their money in clubs to be promoted and fill those spots. How does this not work?! And how is it not better for the LONG TERM viability of the sport as a whole?!
...that's MISTER Keller to you!!!
by malcontentjake on Mar 14, 2010 5:34 PM PDT up reply actions
btw...
… if the argument is “that’s great but it’ll never happen here,” then , well, I actually agree with that…
…it’s not gonna stop me from talking about it, though, because perceptions have a funny way of changing over time…
...that's MISTER Keller to you!!!
by malcontentjake on Mar 14, 2010 5:52 PM PDT up reply actions
I think the problem is not just owners, but fans, too.
In other leagues, in other places, the teams have been around for sometimes 100 years. Their fans are their fans. They will stick with their team, to a degree (I think someone already mentioned attendance drops from relegation).
If the Sonics were relegated, even less fans than they were getting would come.
Once they came to understand it, fans could be intrigued and get caught up in the glory of a relegation/promotion battle. But in the meantime, sports would suffer deeply.
I feel like there would be very few teams in the US that could have any semblance of previous attendance if they were relegated.
American fans want to support winners, and they want to support the best. Relegated teams would experience mass fan exodus, with loyalties shifting to whatever top-level team is attractive enough. These teams would only recover if someone with significant money to burn wanted to struggle through huge losses to get back up. Because fans won’t come just because you’re doing well in Div. 2. They won’t show up until a team returns to the big show.
Relegation/Promotion is fun. But it won’t happen, nor is it effective in other leagues. Promoted teams almost always go back down the next year.
There’s a forum at Goal Seattle where you’d fit right in.
to say that "promoted teams almost always go back down the next year" is simply untrue
...that's MISTER Keller to you!!!
by malcontentjake on Mar 15, 2010 1:43 PM PDT up reply actions
I salute you
I guess you could say I’m a “it’ll never happen” guy, but I’ll at least give you a reason. I get the incentive from a community standpoint. But what’s the incentive for a league to do things this way? The reason it works other places, I assume, is because of legacy. How do you propose getting past that issue here? What incentives does MLS have to do this? I’m actually intrigued in that those are totally honest questions.
by Jeremiah Oshan on Mar 14, 2010 7:30 PM PDT up reply actions
I would say the "incentive" is to keep the sport/league in operation
...that's MISTER Keller to you!!!
by malcontentjake on Mar 15, 2010 1:44 PM PDT up reply actions
LEEDS!
You guys aren’t following me, so let me make this as clear as possible.
In an American system, Leeds United would have closed up shop and ceased to exist.
Yet, oddly enough, they are still around, and ABSOLUTELY NOTHING is preventing that club from getting their act together and playing their way back up to the Premiership!
And what’s odd about that, when you think about it, is that is a far more "free market’ approach than what we have here in the good ol’ USA, a country that seems to pride itself on having the most “free market” economy in the world!
...that's MISTER Keller to you!!!
You won't get any arguments here
Pro sports are definitely not real “free markets.” In fact, they’re usually designed in a way that discourages real free market forces, at least here. I’d love to see some league in the U.S. use some sort of relegation format. I get the sense, though, that the main reason it works other places is because of the traditions and histories that teams have built. I don’t think there’s any reason to believe American fans would show the same kind of loyalties that allow those systems to work. Certainly would be an interesting experiment, though.
by Jeremiah Oshan on Mar 14, 2010 2:13 PM PDT up reply actions
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