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Should MLS be Preaching their Financial Parity Model to the World?

Garberatpodium Should MLS be Preaching their Financial Parity Model to the World?

Don Garber will address the "Leaders in Football" conference

Over the next two days, many of soccer’s most influential executives from around the world will meet in London, England for the annual “Leaders in Football” conference. Included in that group are three representatives from the United States: Don Garber, MLS Commissioner and CEO; Sunil Gulati, USSF President; and Tim Leiweke, President and CEO of AEG. Garber joins a panel discussion on managing the wealth gap in professional soccer leagues, while Gulati and Leiweke will be on hand to discuss strategies for weathering the current global economic crisis.

The MLS Commissioner has not released a full account of his speech to the conference, but he did take time to talk with The Associated Press about some of the subjects he plans to address. Garber specifically called attention to revenue sharing, the salary cap, and spending limits dictated by MLS policy that make certain the league’s economic stability. He goes on to conclude that the MLS model ensures “financial fair play” for all member teams.

“We believe to our core that every fan wants to believe that when the season starts they have the tools, the capability, the resources to compete so they can dream about their team winning a championship,” Garber said.

He went on to discuss how his single-entity economic model for MLS prevents runaway spending by individual team owners. “As a person who manages a sports league who is very focused on ensuring that we remain financially viable so we remain in business that’s not a system that could work here,” Garber said. “It would clearly create an arms race of spending that would clearly put MLS out of business as it did with the North American Soccer League in the early 80s.”

No one wants to see MLS follow the road of the NASL, but Garber will need to make changes to league policies that currently prevent the growth and limit the fortunes of individual teams. We don’t want to see financial parity in MLS result in mediocrity on the playing field. The “Designated Player” provision of the salary cap is a step in the right direction, as is allowing teams to build stadiums and collect their own revenue. However, there is more that needs to be done now to prevent stagnation of the product, and apathy among its supporters.

Most importantly, MLS needs to give teams more control over their rosters. One change would be to let teams compete for newly signed players to the league through the global transfer process. Let the team negotiate and pay the transfer fee on incoming players, not the MLS front office. Next, introduce free agency with the next MLS Collective Bargaining Agreement, a system that works in other professional sports leagues in the US. Also, mandate an immediate increase in the salary cap for next season and significantly raise – perhaps even double – the minimum player salary from its current $34,000 a year. Players with higher incomes and improved options in free agency become more accountable to the teams and their fans, resulting in an increase in their competitive play. Likewise, these changes in MLS policy will give each team the flexibility to build a roster they feel can best compete for the league championship.

Perhaps for a niche sport in an already crowded American sporting landscape, the conservative approach of MLS over the history of the league has proven acceptable. And in countries struggling to host a professional soccer league that can’t compete with the big leagues of Europe, the lessons learned in the US could translate successfully during economically difficult times. However, for the long term growth of soccer in the United States, MLS will need to loosen up their regulations and give the team owners more control over financial decisions.

33 Responses to Should MLS be Preaching their Financial Parity Model to the World?

  1. Jack(Vegas) says:

    The NFL should be preaching their financial model to the world.

  2. Brian Q. says:

    This is really well written. Thanks Robert!

  3. Joey Clams says:

    Yes. It should also preach the importance of concentrating on domestic competition. Let’s be honest: what prevents the salary cap in Europe are the out of control egos of superclubs who find their own leagues annoying formalities and preludes to the regal trappings of supranational competitions.

  4. mdb says:

    Great piece and I completely agree with your conclusions. The one problem that MLS still seems oblivious to (and one that has been discussed on this blog before) is that they aren’t just competing with the NBA, NFL, MLB, and NHL anymore. They are increasingly competing against the best leagues and teams in the world for the attention of existing American soccer fans and potential American soccer fans. The growing availability of EPL, La Liga, and Serie A matches on American TV is their real competition. Unless, MLS can increase the quality of play (or at least entertainment) to match them over time, foreign leagues will suck all the TV revenue out of the system – making continued growth impossible.

  5. Vnice says:

    I’m sorry, I have to disagree here. MLS games are absolutely NOT worse than Euro games to watch on TV, unless we’re talking about the best of the Euro teams. For instance, watching games between, say, Wigan and Portsmouth…makes me wanna jump off a building. MLS quality needs to improve, yes, but I don’t think it’s vital. I think much of it comes from getting people to change their preconceived notions. Also, each MLS team needs to try and negotiate their own TV contracts on local levels. Finally, MLS should consider selling its package to networks will the idea that only the best looking venues will be televised. For instance, I’m sure ESPN would like to be able to broadcast only Sounders, Galaxy, and TFC games. Cool…do that. Allowing the networks to pick and choose, even if a game is on tape delay, which games would look the best for them, would be a big sell.

    Salary cap needs to stay. Sure, increase it some, and give teams more control over rosters and development. And perhaps institute a “soft cap”. Otherwise, MLS staying cautious seems to be working out for now.

    • mdb says:

      I agree that Wigan vs. Portsmouth is a less enjoyable viewing than Seattle vs. LA, but that wasn’t really the point I was trying to make. The point is that if the average America-based soccer fan (not necessarily MLS fan) had a choice between watching Champions League action or MLS action, they would choose the CL. If they had a chance to watch Kaka and CR play the beautiful game, vs watching the best MLS has to offer…it’s not a real choice. It’s the reality of American sports. We sell sports based on individual stars, not teams. Think about how every NBA or NFL game is promo’d. 90% of the time all the talk about is the individual stars on each team. In a country where most fans will follow 2-3 other sports in addition to soccer, even serious fans have limited time to devote to watching games. Unless MLS teams can create powerful local connections between fans and their local teams, people just looking to watch the best soccer available will turn elsewhere.

      I like your idea for changing the way MLS sells its TV rights, though.

    • forweg says:

      Vnice, typical Amerisnob talk. I watch EPL and (mostly) ignore MLS, La Liga etc. because of the atmosphere, NOT the level of play. Pompey have some of the best supporters in the world, and NO MLS team can come close to matching their fans, including Seattle.

      Stoke, Pompey, and Spurs have better crowds than Chelsea, Man U, Liverpool, or Arsenal. Assuming that the super clubs are “better to watch on TV” is just that, an assumption with no merit.

      By the way, I attempted to watch the LA-Chicago game a few nights ago, and the Galaxy fans hardly made a sound. Bigger crowds don’t equal betters crowds.

      • Does the Wigan-Pompey game matter?

        Really No. Only fans of the sides are interested and in Wigan’s case they have less fans than most 4th division teams (League Two).

        Is there any MLS game that doesn’t matter towards the title?

        No

        Is the quality of Pompey-Wigan better than the average MLS match?

        No question. Very few players in MLS could settle and make an impact for either side. It is not a coincidence that Wigan has bought Hondurans heavily while not buying a single American since promotion. They see greater value in players from Olimpia and Marathon than from MLS, a more reasonable transfer fee (MLS is famous in Europe for over valuing its players) and guys who make a quicker impact, settling in the country well. Very few American players could go right from an MLS side, and start the opening fixture of the EPL season and be one of the men of the match the way Hendry Thomas, ex-Olimpia was for Wigan at Villa Park on opening day this year.

        As far as improving the quality of MLS, I believe I have repeatedly stated I’d rather have a league that develops Americans well and sells them on to European clubs as ready made competitive products and helps our national team, than a league full over priced, over age foreign stars. MLS is somewhere in the middle right now and isn’t impressing much of anybody unless they pick one path or the other.

  6. Tom says:

    Good article. The structure of the MLS was good to start the league, but now they need to let teams differentiate themselves. Not just in terms of how much money they spend on players, but on how they choose to spend the money. Let teams go for youth, stars from Latin America, older stars from Europe, individualy, so that teams are distinct from one another.

  7. Jack(Vegas) says:

    I think a luxury tax like the NBA or MLB has would prove beneficial to MLS. It would allow for a lot more wiggle room instead of the hard cap. I also feel leagues in Europe would benefit from a luxury tax as it would prevent some of the insane spending and generate some revenue sharing for the smaller clubs.

  8. CleartheBall says:

    Good points. As this league is still in slow growth mode, I definitely think the salary cap should stay in place. Increase it just enough to institute a minimum salary of $65,000. I like the designated player rule, but I agree that we should allow each club complete leeway and signing whichever designated player they want, without league intervention. I love the MLS and will continue to hold season tickets whatever happens. I would love to see just a little growth in salary cap and the general level of play. Also, I want to see and end to our good young players leaving to play in sub-tier European leagues.

  9. Charles says:

    Jack ( Vegas)
    The luxury tax could work, but I could also see a scenerio where Seattle wins it all for many years in a row…and passes money onto teams which fold. Which would kill the league.
    Parity is key for me, like most Americans I will not support annual EPL type losers.
    ( caveat: I rooted for the 1980′s Mariners )

    I might be a bit optimistic, but the MLS is in perfect position to grow.
    As a US player making $1mm in Europe for a team that is going to do nothing in the non-parity league they are in, don’t you take $500k to stay in the US and play for a contender.
    Don’t know that my numbers are exact, but the point being keeping the US and Latin American talent at home at a reduced cost to Europe isn’t a pipedream and at that point you start to have some fairly talented teams. Then will people come to watch, I believe yes.

  10. man99utd says:

    Salaries like this will never attract or retain world class talent. The salary cap is a problem in a world sport like football. Sorry, but if it comes between winning the MLS cup or playing for more money with better overall league talent, not much of a choice to me.

    http://www.mlsplayers.org/files/september_15_2009_salary_information__alphabetical.pdf

  11. sal says:

    Hard cap here to stay, The league still needs to establish itself to all of the Euro footy fans but its not going to happen overnight.
    On a positve note I think we could potentialy see some big name players come to MLS after the 2010 W.C (ie) Henry.

  12. Red devils 09 says:

    Kartik or whomever would know,
    I recenty read an article about FC Dallas sporting an ESPN logo on their shirts , the article went on to mention the fact that the club had to get a league exemption for this two match sponsorship. My question is does the league have dictatorial powers to the extent that clubs can’t negotiate their own shirt sponsorship deals? If so would this not also restrict available avenues of income for the clubs. Someone please explain.

    • Robert Jonas says:

      Of the 15 teams currently in MLS, 11 have a shirt sponsorship deal. The league does impose some guidelines as to what companies can and cannot be represented (e.g. no hard liquor, gambling, or tobacco sponsors), as well as taking a flat cut of around $200K per contract. Additionally, MLS will not approve any deal that does not yield at least $500K/year. All the revenue earned from a shirt sponsorship deal beyond the initial payment to MLS goes directly to the club.

      This was not always the case; prior shirt sponsorship was done league wide in the early years of the league (remember the Toyota ads), and limited to the backs of the jerseys. Now, we have the case of Seattle and Los Angeles earning over $4 million annually from their deals. In the case of the Galaxy, that extra revenue has been instrumental in allowing them to attain profitability in a league where only 3 teams are reported to do so.

      I can speak directly to the issue of shirt sponsorship in San Jose. In the Earthquakes first season back in MLS, the club was reported to have lost nearly $3 million dollars. With their deal with Amway Global — which nets the club between $2 and $3 million a year — a significant amount of their operating loss is eliminated.

      The change in MLS policy regarding shirt logos has been a boon to those clubs that forge strong relationships with corporate sponsors. This example of financial autonomy being granted to the individual teams is another step in the right direction for the league.

    • YES, the league does have those powers, dictatorial or whatever.

  13. Jack(Las Vegas) says:

    The MLS relies on a semi-ponzi scheme to stay afloat(50 million expansion fee). I don’t think the MLS model of a hard salary cap will ever be instituted outside the US. The MLS telling the rest the world how to run their leagues would be like a high school telling a college how it should be run.

  14. Fred says:

    MLS is in an unique position compared to other leagues. Americans like to see competitive parity, they have a knowledge of how salary caps work from the NFL, and there’s no relegation system. Can you imagine ManU waiving players to meet the salary cap? What if a few key players get hurt and they’re fighting to stay up at the end of the season? Lastly, we see how the salary cap adversely affects MLS clubs from competing well in the CONCACAF Champions League = MLS clubs don’t have the depth to win.

    Most leagues will look at forcing clubs to break-even or better, rather than enforce a salary cap. It seems they’re more concerned about clubs going bankrupt (aka receivership or administration).

    It seems the biggest issue with MLS is TV ratings. Attendance has been okay considering the economy. Most clubs have a new stadium or a stadium plan in place.

    I’m not an expert at how to get people to watch the sport on TV, but I attended a SJ Earthquakes match last week. Many parents and children attend, but there are only 2 sections that have the rowdy and loud fans. I imagine these hardcore fans are more likely to watch soccer on TV than families… I know MLS doesn’t want hooliganism, but maybe it’s gone to the extreme…

  15. O'Brien says:

    Jack:

    Do you even know what a ponzi scheme is? And which team paid a $50m expansion fee?

  16. Jack(from Vegas) says:

    Yes, I do know what a Ponzi scheme is. If you would like for me to spell it out for you I can. Sorry for some reason 50 million popped in my head. It is actually 40 million.
    http://www.cbc.ca/sports/soccer/story/2009/03/17/sp-whitecaps-expansion.html

  17. O'Brien says:

    Jack:

    Portland and Vancouver paid $35m.

    If you know what a ponzi scheme then explain how MLS is like it.

  18. Jason says:

    Ponzi Scheme?!! Come on Jack – are we back to this again. Yes MLS is the only ponzi scheme in history where the people who get in at the end (Seattle, Toronto, Vancouver etc) make the money and the people who have been there since the beginning (DC United, KC, New England) are losing millions.

  19. Tom says:

    For TV and atmosphere purposes, the Rapids (and other MLS teams? – not DC United) make a mistake placing their most vocal fan group in a corner. If they put their most loyal and vocal fans on the side, the atmosphere both in the ground and on TV would be more apparent; thus creating a “I want to be there” image.

    European leagues remind me of our college sports, football and basketball in structure. There is a natural hiearchy that shifts incrementally season to season. This is not bad, I enjoy college football and I love the way a result or two one year has implications (in recruiting and booster support) for years to come. It is just different.

    I stick to my conclusion, however; that the MLS structure has been good, but needs to loosen up as the league matures. This is a world game, not a closed shop like the NFL.

  20. Rex says:

    It’s not a ponzi scheme but the MLS is ironically the most socialist soccer league in the world.

  21. Joey Clams says:

    It’ s not socialist if it’s intent is to, well, collectivize effort to best compete for discretionary dollars. Most socialist, perhaps. Socialist, no.

  22. Jack(from Vegas) says:

    Investors in other franchises that lose money every year are being held up by these expansion fees. I believe only 2-4 teams in MLS turn a profit. All of this expansion may be to help out these struggling franchises with the exorbitant expansion fees new teams are paying.

    • Jason says:

      Jack:
      So are the clubs like Toronto and Seattle not supposed to pay anything to join the league? MLS pays all the player salaries – they pay for alot of league wide marketing – they pay for all the teams travel. Seattle revenue will be $30m this year – money the Sounders would have never made in USL-1. They paid $35m to join. It is a good deal for Seattle, MLS, and every other club in MLS. Which is nothing like a Ponzi!!

      Also how were the “other franchises that lose money” surviving when MLS was contracting teams or not expanding for that 6 year period? Could it be that Kraft, Anchutz, Kroenke etc were writing cheques to keep the league affloat? Just because Madoff is in the news doesn’t mean that everything in business that you don’t understand is a ponzi scheme.

  23. huricano says:

    I think the parity model is the one good thing about MLS. If they would just have the guts to go single-table (they could by the Lamar Hunt Cup for an elimination tv situation) and have promotion and relegation. I know people think its a pipe dream, but a two tired league could be a unique contribution to US sports, and I think it could catch on. What MLS enjoys in management acumen, it lacks in personality. Trading on soccer’s history, not just in Europe but South America as well, could help enliven the sport in America/Canada.

  24. Flanagan says:

    listen up fellas- i am up right now tryin to research the mls financial situation for a college term paper, and i realize i am looking at blogs, but you all know a lot about what is going on, and I am just wondering where the heck yall found this stuff! websites?

    i play baseball at school, and most people would think I want to get a job with some MLB team, and that may happen, but I also love soccer and believe in the MLS. I don’t know why, I just think there is so much potential for growth, but listening to you guys i’m not so sure.

    but for real, i need some website to get the facts. Thanks y’all

  25. What works for domestic sports and dominant leagues does not, will not, and cannot work for soccer. No matter how many frequent flier miles Garber and the boys rack up, and no matter how many billionaires instinctively crave the risk abatements that USSF shamelessly grants on MLS, supporters around the world would never let a league manage the futures of their clubs.

  26. Galindo says:

    Tom wrote “This is a world game, not a closed shop like the NFL. ” – very good point! I think Roger Goodell is brilliant with managing the NFL, but we need to look at pro soccer in the U.S. with the world of soccer in mind. I coach youth soccer, I play adult over-30 league soccer, but I watch European matches only, with the exception of a good Latin American match or, of course, the USMNT. Flame me if you will, but the only reason I would watch MLS is to see Landon play, because he proved himself in top division football with Everton and is still in his prime. Rare to see that in MLS. Usually we get someone like Denilson, ignoring clear indications that he has not been in form since his World Cup victory, yet because of our obsession with Brazil they make him a DP.
    What about closer ties or even partial ownership by European clubs? Make the MLS a de-facto second division development academy for the Chelseas, Internazionales, and Barcelonas of the world? I grew up going to watch AAA baseball in my town, because sometimes one of those guys I was watching was called up to the big leagues and I had his autograph and knew how he played. That’s my one idea for the day, but MLS will fail if it is an island not connected to the world of soccer that so many of us now feel connected to through Fox Soccer, ESPN Deportes, or GOLTV.

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