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Forbes List Justifies High MLS Franchise Fees and Path of Lower Division Clubs to MLS

orlando city Forbes List Justifies High MLS Franchise Fees and Path of Lower Division Clubs to MLS

Forbes Magazine’s valuation of MLS teams justifies the large price tag Orlando City and Manchester City/New York Yankees have paid for admission to what is rapidly becoming one of the world’s most exclusive footballing leagues from an ownership perspective.

The recent surge in values of MLS clubs is good news for the long-term health of the sport in North America and gives the league a potential position of strength in what are sure to be difficult negotiations regarding the next TV deal(s).

The perception of MLS among elite soccer fans aside, the business is growing at a healthy pace and as franchise and stadium values increase, the stature of the league will grow. Competition from foreign football can help the league along if the Commissioner and leadership use it to build the business rather than make flippant remarks like this one about too much soccer being on television in the US.

Major League Soccer does have an advantage over the foreign leagues. With a growing footprint throughout the continent, the league offers live, meaningful matches for crazed supporters. Domestic competition is minimal if you are a soccer fan.

The minor league NASL has made a point in recent months of implying they can challenge MLS with a different business model. With franchise fees ranging between $1 million – $2 million, the league is attracting better owners to the minor league circuit than ever before, but talk of competing with MLS’ franchises whose values are in the $100-$175 million number is foolish. But NASL and other USL PRO (the other sanctioned minor professional leagues) can help hone and develop markets for MLS.

Orlando City, which will move to MLS in 2015 will be the fifth team to move from the lower divisions to MLS since 2009. The previous two American based teams to make this move, Seattle and Portland placed 1st and 3rd on the Forbes list.

The model today seems to be to start a successful lower division club and then develop the market, front office and supporters culture in second division before paying a large franchise fee to be “promoted” to MLS. It may be peculiar as far as world soccer goes, but it appears to be working from an investment standpoint.

Editor’s note: Read the latest news, opinion and analysis about MLS on our Major League Soccer page.

This entry was posted in Leagues: Major League Soccer, New York City FC, Orlando City. Bookmark the permalink.

About Kartik Krishnaiyer

A lifelong lover of soccer, the beautiful game, he served from January 2010 until May 2013 as the Director of Communications and Public Relations for the North American Soccer League (NASL). Raised on the Fort Lauderdale Strikers of the old NASL, Krishnaiyer previously hosted the American Soccer Show on the Champions Soccer Radio Network, the Major League Soccer Talk podcast and the EPL Talk Podcast. His soccer writing has been featured by several media outlets including The Guardian and The Telegraph. He is the author of the book Blue With Envy about Manchester City FC.
View all posts by Kartik Krishnaiyer →

21 Responses to Forbes List Justifies High MLS Franchise Fees and Path of Lower Division Clubs to MLS

  1. DZ says:

    …and ever thus, we move farther away from the traditional Promotion/Relegation system. Unfortunate in my view.

    Americanizing certain aspects to develop an American audience/business model is one thing, but the current playoffs/post-season and no true promo/releg seems to be American fans’ 2 deepest dislikes with the MLS/US soccer system.

    21 teams on the highest shelf of US soccer is too many and only further hinders the adoption of true promotion/relegation, which in my view would be most open of market systems rather than a managed (coddled) oligopoly.

    • DZ says:

      and further, it is also my view than the managed oligopolistic model the MLS is trying to employ seems doomed to fail in the long-term as it will rely more and more on TV revenues for which they are already trailing major US sports and losing ground to fan-favored (better) competition models such as the BPL, others around the world.

      • KapUSMC says:

        You know Man U brings in more revenue from broadcast rights than merchandise or ticket sales right? Broadcast rights have risen in value so much over the last decade that every league now counts on that as their main revenue stream now. The problem is however, is what you alluded to. The next TV deal for MLS probably isn’t destined for windfall due to the subpar ratings.

        • DZ says:

          Yes, that IS precisely my point. European leagues are already overtaking TV rights $$$ from a territory that, in theory, should support MLS first. Not good for the long-term health of a league that will rely more and more on TV rights fees.

          Why is that?

          I contend it is the level of play and that the MLS system lacks the intrigue of single-table/no-playoffs and pro/rel.

          That is my opinion only and I have no substantial research/data to support that opinion. Just an educated hunch that would be the case if American fans were surveyed.

          Lacking a playoff system, every match has greater importance and therefore greater drama attached. When MLS owners would realize this, I believe they would likely reconsider spending more to increase the quality/depth of the squads, which in turn would benefit the overall play of the MLS, benefit the fans, and increase the TV ratings, increase the TV $$$.

          On the flipside, It would likely also mean the end of some teams existence in the MLS that don’t have the financial wherewithall to compete, which is why I’d support a pro/rel system of some sort. Whether by having MLS1/MLS2 or using something like the existent NASL as the 2nd division.

    • Pakapala says:

      1- The majority of American MLS fans love the playoff and don’t want to see it gone. The only issue that they’re unhappy about is the proportion of teams that make it to the playoff at the present.
      2- The playoff is not about americanizing the league it’s about putting it in line with the rest of CONCACAF and CONMEBOL leagues, where many of them have playoff system despite having pro/rel.

  2. Total Relegation says:

    The total value of MLS franchises is $1,958M. EBITDA for MLS is $34M which gives it a Value/EBITDA multiple of 58. Meaning, it will take 58 years of EBITDA to buy MLS.

    The Median Value is $96M and median EBITDA is $0.6M giving a mighty 160x multiple.

    NYCFC comparable franchises: NYRB, DCU, Philly, NEREV.
    Total Value= $364M
    EBITDA = -5.4M

    NYCFC was sold for $100M almost a third of what its comparable regional franchises are worth. Not to mention a negative EBITDA.

    I’m sorry but at these valuations, MLS is extremely overvalued.

    • Total Relegation says:

      Here is another valuation metric.

      MLS Value/Sales = 3.97
      NYRB,DCU,Philly NeRev = 4.58
      NYCFC Value/Sales = 5.12 (using the comparable franchise median Value and Sales numbers).

      The top three most valuable franchise clubs have Value/Sales of: Sounders =3.65, LAG=3.86, Timbers 3.61.

      NYCFC asking price of $100M was far too much. MLS Bubble

    • Clampdown says:

      Nice stats. Overvalued compared to what?

  3. Dean Stell says:

    Kartik – There’s always discussion of pro/rel whenever this topic comes up. Do you think there is a possibility that MLS will become the equivalent of the Football League in England where eventually MLS will consume all of the remotely attractive clubs and then set up pro/rel within MLS. So, MLS would expand to ~40 teams and then go to MLS1/MLS2? And eventually expand to ~60 teams and add MLS3? It would allow for some revenue sharing within the pyramid and the centralized structure should prevent a breakaway like the Premier League or an imbalanced league like Spain.

    Thoughts?

  4. bennett311 says:

    “The model today seems to be to start a successful lower division club and then develop the market, front office and supporters culture in second division before paying a large franchise fee to be “promoted” to MLS.
    Read more at http://worldsoccertalk.com/2013/11/22/forbes-list-justifies-high-mls-franchise-fees-and-path-of-lower-division-clubs-to-mls/#hHSPbUQ16guTCqtX.99

    I think that’s why the MC/NYY franchise is going to be an interesting one. Outside being in a major metro environment, they are pretty much building a franchise from scratch. Who knows if it will be a profitable venture? (we can assume loads of $ will be poured into it)

    • Total Relegation says:

      The figures reported are EBITDA figures, not Net Income. For all we know, most if not all MLS franchise clubs are losing money. Until we get a glimpse of cash flow statement, income statemetn and balance sheet, these figures are simply what ifs.

  5. KapUSMC says:

    With the current franchise fees, I don’t think we will ever see pro/rel in MLS. Why would owners want it? It does nothing for them, except increase risk. But I know many here will never support MLS, and many will say because of pro/rel (although, even if pro/rel and a single table was instituted tomorrow, I SERIOUSLY doubt that camp would start watching).

    My question for those who are insistent on pro/rel… What club do you support? I’m guessing from responses to match day threads 90% at least are Chelsea / ManU / Everton / Man City/ Real Madrid / Barca / Bayern / Dortmund / AC Milan. And I’m guessing most Man City didn’t follow the team pre-oil money. With the amount of money in the game now, none of these clubs will probably ever be relegated again. Yet those that look down at the MLS hold on to they can’t follow the league because of pro / rel when it has absolutely no impact on the team they support.

    • R.O says:

      I’m a Dortmund fan and have been since 1975. I followed and supported the NASL SJ Earthquakes from start to end. Supported MLS and SJ Clash/Earthquakes from founding till about 2006.

      For me the reason I no longer follow MLS – it’s the that the game play has stagnated and not improved. In fact I feel the overall style and games has regressed back to the 1997.

      I compare MLS game play to video game soccer. It’s chaotic many times, unorganized and sloppy.

      I can’t watch more than 1/4 to 1/2 of a game.

      I see MLS not making any improvements to style (ball possession, passing, etc) any time soon.

      It’s been said that MLS is a “physical” style game. Yup but not in a positive manner. It’s a clumsy, awkward and at times plain nasty game.

      It’s not something I enjoy so I no longer watch or support it.

      If MLS never has rel/promo I can be ok with that, but sloppy, chaotic and clumsy play, no.

      That’s why I no longer follow MLS.

      I hope one day MLS improves. It is my opinion that will only happen when a top to bottom reorganization of League Management including a new MLS commissioner takes place.

      Cheers.

      • KapUSMC says:

        R.O., I don’t have any problems when people say they prefer other leagues because of quality of play. If MLS played on Saturday mornings I wouldn’t watch many games either. I watch MLS, but I prefer La Liga or the EPL.

        I disagree on the MLS not making improvements though. Watch the playoffs this weekend. The SKC / Houston game will be exactly as you described. But on the game Sunday Jason Kreis and Caleb Porter have Portland and RSL both playing fluid attractive soccer. It may get more hectic then normal, but that will be due to nature of two legged playoffs. Unfortunately RSL, Portland, Seattle, NYRB, and LA are the only teams that have the coach and the talent to play like that. Outside of those teams, I rarely watch MLS unless a couple of US international players are playing.

        But I speaking to those that rail on relentlessly about pro/rel specifically. I seriously doubt many in the states lobbying for pro/rel are Leicester, Millwall, or Leyton Orient supporters. And even if they claim they are, I doubt they are watching championship or league one games every weekend. That really is the beauty of pro / rel. It isn’t to make the EPL more relevant. Its to make the championship more relevant. And for their supporters to have hope of getting bumped up to the top flight.

        I live in a city that is getting a USL Pro and NASL team. I will go watch them, but I’m not worried about their relevance in the national landscape right now. MLS is still worrying about their relevance and building ratings. Soccer in the US just isn’t in the place and I don’t know when or IF it will be.

        • jtm371 says:

          KapUSMC
          I dislike the mls and i follow Forest every match watch EPL all the time.i grew up with the NASL followed went to matches.mls is flawed from top to bottom no direction and lagging ratings.they hope Miami will be their golden goose with james and beckham.Forest for promotion in 14.SIR!

      • Taylor says:

        I would say the style of MLS is related closely with the goals/vision of the MLS when it was founded. I don’t recall myself getting too enamored with the vision.

        I am not as “seasoned” as you (the first World Cup I watched was 86) but I can compare MLS vs J-League that was launched in 1993. Their goal was clear:To raise the level of play domestically, to attempt to garner more fans, and to strengthen the national team.
        So they studied different things, among others: they decided that the clubs would sign “experienced” or “old” players who would act as “teachers/mentors” to Japanese players. Hence, they signed Zico, Pierre Littbarski, Uwe Bein, Careca, Dunga etc and you can see the players learn from the experience. Plus the clubs decide what style they want to play (more South American style) and signed players accordingly.
        I didn’t see that happening so you could see that the playing style was disjointed, at least for me.

  6. Anthony says:

    First off, MLS needs to pay squad players more than they currently make to improve the quality of play (although the top teams in MLS are attractive enough to watch for me). As the league becomes successful, this will be possible.

    There is one thing I think some soccer fans in this country forget. American sports fans are not used to rooting for minor league teams in most sports. When there is a strong following, it is often because the top tier is inconvenient or unavailable.

    The most broadly supported lower “league” in this country isn’t even a minor league. It’s NCAA football. Of course there are NASL and USL Pro teams that have decent support, but have you seen how large some of the SEC football stadiums are? The University of Alabama’s holds more than 100,000 people. This is why gridiron football has such a strangle hold on our country. College football fills in the geographical gaps of the NFL. This despite NCAA football not being NEARLY the quality of NFL. The NFL picks the most talented players from the NCAA and produces a consistently entertaining product for its fans.

    For me the NCAA – NFL dynamic is similar to the EPL – Championship dynamic. Soccer that is played in this country by 17+ adults (whether MLS, college, USL Pro, NASL whatever) needs to have a much larger draw than it currently has before PRO/REL as it is done in Europe can be a reality.

    The only scenario that might keep ownership happy was basically described above. MLS would expand to around 28-36 teams and then split into MLS 1 and MLS 2. By letting MLS initially get rather large it would ensure high quality facilities and professional staff that would continue to draw fans. Ownership groups can’t see the profit in a team that never plays in a venue larger than a small college.

    Peace.

  7. CTBlues says:

    Well it looks like MLS is going to have a Friday night match on NBCSN June 27 and October 24. NBCSN will have 6 back to back games following EPL coverage.

  8. Kevin Villegas says:

    First division soccer is not Don Garber’s to buy and sell. It’s not US Soccer’s to buy or sell, either. To close the system to outsiders who would try to achieve it through merit instead of the pocketbook is the epitome of anti-Americanism.

    The NFL wants you to watch football, not soccer. Keeping the quality of MLS where it is, and hindering the free market are their aims. They are achieving it. And they have their guy at the top of MLS who will make sure that happens now, and for the next 50 years.

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