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Is MLS Heading Toward a Bubble With Plans to Expand to 24 Teams?

MLS Expansion Debate Twellman Nicol 600x564 Is MLS Heading Toward a Bubble With Plans to Expand to 24 Teams?

There’s been a lot said lately about MLS expansion, but on a recent edition of ESPNFC, analysts Taylor Twellman and Steve Nicol had a fiery exchange that distilled the MLS expansion debate right down to its essence. Lincoln v. Douglas-esque in its gravity, the showdown also evoked Kennedy v. Nixon in its stark visual contrast between Twellman’s gleaming visage and Nicol’s gray grimace. But Twellman was the cold realist, all but chanting “C.R.E.A.M.,” while Nicol, belying his days as a hard-nosed Anfield Red, played the dreamy idealist.

Twellman and Nicol only went at it over Orlando for a minute or so, but in their battle they hit on what the expansion tension is all about, namely, art versus commerce. It’s a question we normally associate with music and movies, but in this case it’s also the essential question behind MLS’ growth strategy. Should MLS take the badly-needed cash being offered now? Or should MLS shun it in favor of beauty and with it, potentially greater riches down the road?

In beauty’s corner was Nicol, pleading with MLS to patiently work on improving the quality of play before spreading its talent thinner. In money’s corner was Twellman, countering that it’s unrealistic for MLS to resist the ridiculous expansion fees being thrown its way. They’re both right, but in this fight Nicol won by T.K.O.

Tellingly, Nicol and Twellman didn’t battle over Orlando specifically. Rather, refreshingly, they focused on the forest, not the trees. The big money pouring into MLS via expansion fees and soccer specific stadium building can be seen as an affirmation of the league’s bright future. After all, why would supposedly savvy businessmen invest in a product they thought would fail? On the other hand, just like basement-dwelling day traders pumping money into Wall Street while ignoring fundamentals like P/E ratio, we’ve seen out-of-whack valuations inflate bubbles before. Is MLS’ foundation strong enough to support adding additional clubs when the existing ones are still heavily reliant on attendance for revenue? There simply is no massive pie to split, for at NBC’s $10 million a year, MLS clubs are pecking at a Lil Debbie’s. And those scraps would be even more meager when split among 24.

Twellman insisted that expansion would stop at 24, but by his own logic, what would stop MLS from taking another cash-stuffed briefcase from a 25th suitor, and a 26th, and so on? Without robust revenue, expansion fees can only be seen as short money. For money infused now will demand its comeuppance in the future. Or as Three 6 Mafia succinctly put it, it’s “short cheese.” MLS, with the pressure of trying to feed an ever-increasing amount of clubs, could be forced to make rash or ruinous business decisions just like any distressed company trying to appease stockholders. Every dollar put in now must be repaid in kind. Or as Ted DiBiase warned, “Everybody’s got a price. Everybody’s gonna pay.

Nicol’s belief in slow growth through an ever-improving product is not sexy, but it’s the right way. The path to cash lies in more butts in seats and eyeballs on screens. That’s done by presenting a premium product, not by trotting out too many irrelevant clubs with too few stars playing matches with no relevance.

Look around at how expansion has bloated other leagues. How have the Jacksonville Jaguars, Carolina Panthers, Arizona Diamondbacks, Colorado Rockies, Tampa Bay Rays, Miami Marlins, Nashville Predators, Florida Panthers, Columbus Blue Jackets, Minnesota Timberwolves, Orlando Magic, Memphis Grizzlies, New Orleans Hornets, and Charlotte Bobcats improved their respective leagues? Sure, those leagues are gurgling with green compared to the pre-expansion era, but that’s in spite of the teams they’ve added. Few, if any, of the many franchises added since the early 90’s enjoy national appeal. Few circle the calendar when these teams come to town. Moreover, league and network executives cringe whenever any of these teams make it to a season’s latter stages. Tellingly, very few of the teams added have come close to tasting titles.

Nicol understands that 24 clubs is far too many for MLS’ current climate. Twellman alluded to the fact that other countries have dozens of professional clubs. But no country’s top flight boasts more than 20 clubs, and some soccer-mad countries such as Germany, Mexico, and Russia have even fewer. Moreover, soccer has almost no serious competition in most countries. Take England for example. The stifling shadow cast by the 20 Premier League clubs leaves little room for domestic cricket or rugby.

In America, MLS asks for attention when the common fan is already following the NFL, the NBA, the NHL, MLB, college football, and college basketball. Are we to believe that MLS can financially support 24 clubs when the mighty NFL has only eight more?

Stars, not breadth of regional coverage, are what sell. Going to 24 would put what few MLS stars has alone and adrift on a sea of anonymity. Limiting the amount of clubs would allow MLS, as Nicol argues, to develop talent so that each club has several good players worth watching. But turning down short-term money is a brave business decision, one routinely ignored by enterprises far larger than MLS.

When MLS began, its founders vociferously invoked Santayana in vowing to avoid the NASL’s fate. But they learned the wrong lesson. It’s a misconception that the NASL failed because the Cosmos, by hogging stars, ruined the league’s competitiveness. The NASL collapsed because the second the league started to taste success, they took the short cheese and expanded wildly. At its peak, the NASL had 24 clubs. Within four years, it was gone. Thirty years later, the stakes are far greater.

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20 Responses to Is MLS Heading Toward a Bubble With Plans to Expand to 24 Teams?

  1. Gary says:

    there are two things in it for a perspective owner.

    1) expansion fees from new owners

    2) getting publicly funded buildings that they own / control.

    you’re not going to earn back $40 mil+ or more strictly from running a team, no chance!

  2. Marc L says:

    The NHL, for example, might be a cautionary tale. Expanded like crazy and has ended up in a state where there was a serious plan afoot during the last labor strife for a private equity firm to buy the whole thing and fold something like half the clubs.

    • EPLNFL says:

      Well done piece. Very thoughtful exploring both sides of the issues. One note especially with the NHL being mentioned, the NHL just signed a large deal for the Canadian media rights. Many believe that Canada is looking towards MLS as it’s second sports and it can boom in Canada.

      In discussing MLS expansion we should not forget the Canadian market and why 24 teams over two countries is not necessarily too many. However bottom line the quality of play in the MLS needs to improve even at the present level of teams.

      I have mentioned here often of the need to look at the Midwest for further expansion which can only be done if we move beyond the 24 team number. St. Louis, Milwaukee, and Indianoplolis are all potential great soccer towns and will increase attendance and interest in existing teams in Chicago, KC, and Columbus.

      The final note is that 24 teams should not be the end of the story for MLS but then again quality must be improved along with quantity.

  3. Dean Stell says:

    MLS is kinda damned if they do, damned if they don’t I mean, they have no other big sources of revenue, so they SHOULD take the expansion money. But, they’re going to turn into a Ponzi scheme if expansion fees are how the league finances itself.

    They really need a whopper TV contract, but that is NOT going to happen. Even the EPL is only getting ~$80MM/year for US rights.

    I’m not too worried about talent dilution. Just import more players. Domestic professional leagues aren’t about growing the national team anyway (it’s nice if they are linked, but we all know they are not).

    MLS’s problem is that they’re not a normal sports league. Not only are they unlike other soccer leagues, they’re not even like the NFL. The NFL formed because there already were a bunch of locally-relevant football teams playing each other and the owners wanted to have consistent rules (and the ability to collude on player salaries). MLS is forming the league with all the consistency and collusion without making the clubs locally relevant first (especially when you consider an expansion team).

    Expansion works better in a league like MLB or the NFL where the people in the city already LOVE your product and want to join.

    • Taylor says:

      If MLS decide that they want to import players, they have to decide: what kind of players they want to import. This should be in line with MLS’ mission.

      I commented in another thread that J-League had the clearest vision when it was founded: to improve quality of Japanese players. As a result, the clubs signed retiring players who would act as mentors (Littbarski, Bein, Zico, Careca) while could still perform. Also they decided that the would like to play latin-style (Brasil).

      • Dean Stell says:

        I’m not saying that there is no connection between a domestic league and their national team pool, but I think it should be indirect. If it was just for the benefit of American-born players, then US Soccer should run the league.

        I don’t think we’d have to worry about drowning out the US players. The league will probably always have some rules about American-born players or international slots.

  4. CTBlues says:

    The real reason MLS is trying to expand so much is because it wants to be The League in North America screw USL Pro and NASL. What we really need is the USSF to be running soccer in this country not the 3 independed leagues. MLS wants all the soccer fans in NA to be watching MLS teams not the domestic competition. MLS is finally going back to the southeast where all the teams there are NASL and USL Pro. With this expansion into this region USL Pro is loosing a team in Orlando and NASL could possibly loose a team in the Strikers by either “promotion” or beceause the new expansion team draws the fans away. What do you think will happen to the Silverbacks if an expansion team goes into Atlanta that isn’t the Silverbacks?

    The best thing that could possible happen is that the MLS eats enough USL Pro and NASL teams to get to 32 teams and splits into MSL1 and MLS2 with a home and away fixture between teams that finish in the last 2 spots in MLS1 and the top 2 of MLS2.

  5. Total Relegation says:

    Expansion fees are up 400% since the first expansion round of Chicago Fire and Miami Fusion. 50% of that first round expansion has folded.

    TV Ratings are an embarrassment and the league’s showcase event captured a 0.7 share for MLS Cup 2012.

    A bubble ignores fundamentals and it seems Owners are doing just that.

    • Jeff says:

      To be fair, the ratings potential for the MLS Cup gets screwed over (to put it lightly) because of it’s scheduling. For example this weekend, why would you put it up against the SEC football championship!?

      • Christopher Harris says:

        But who’s fault is that? MLS keeps on shooting itself in the foot by having the final scheduled at this time of the year.

        • Jeff says:

          That’s exactly what I’m saying Christopher. The MLS needs to realize that it can’t/won’t draw most sports fans to watch a cup final when it’s up against the might of the SEC championship game.

          Either schedule the game on a day/night when you can have a chance of getting viewers or think about changing when the Playoffs are held

          • Aram Gyan says:

            Word! the MLS playoffs this year have been a disjointed mess.

          • CTBlues says:

            If they played the MLS Cup during the season and had the Cup Final a week after the season ends they could possibly have it before college football conference championship weekend or have to have huge gap because of the international break.

      • Total Relegation says:

        Please explain why the entire year of 2013′s ratings are horrible?

        People need to stop making excuses like these and try to figure out solutions on how to get people to watch MLS Cup and not SEC Championship. It’s time for a management change.

  6. CTBlues says:

    Well there seems to be someone just came in and down voted everyone. Probably because this is a MLS article.

  7. poktik says:

    NYCFC’s $100 000 000 expansion fee basically paid every MLS player’s salary this year.

    that’s not sustainable, but it is neet.

  8. KapUSMC says:

    Aram,

    Good article. I’m still on the fence on if the expansion is a good thing or not.

    You did however have a something glaringly missing from this piece. You listed expansion franchises that haven’t added a ton to their respective leagues, but failed to mention teams like the Miami Heat, Dallas Mavericks, Ottawa Senators, Anaheim Ducks, Houston Texans… Also, Tampa has been very good despite their lack of fan support. But most importantly and where you did the article a disservice is you fail to mention Portland, RSL, and the Seattle Sounders. By any metric you want to use, those teams have been a success in recent MLS expansions.

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