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Leagues: MLS

Would You Pay $40 Million for A Minor Franchise?

This may seem like a stark critical question but in these tough economic times this is exactly what investors must ask themselves. We’ve discussed in recent weeks the poor television ratings MLS has been receiving and the general lack of interest even among the football supporting public in the United States.

Major League Soccer must succeed for the game to grow in the US, and for player development to continue to fuel the US National Team’s international hopes. However as we approach an MLS Cup final which actually has people like me moderately excited (because some of us were sick of seeing the same teams in the final every year) questions must be asked about MLS’ viability on the American sporting landscape.

With a low payroll, unattractive football for the European or Latino tastes and a very poor record in international competition, the league has plenty of detractors. Without question and irrespective of the league’s clever propaganda, MLS is decidedly minor league on the American sporting landscape. Several indicators of this are readily apparent. Airport shops in most MLS cities don’t have any team merchandise and many MLS teams are relegated to second tier cable networks or low signal stations for their local TV coverage. Local newspapers in MLS markets cover their teams but bury the stories deep in paper even after important matches. Coverage of the league in non MLS markets is minimal and recognition of the league is almost non existent outside its core markets. Almost always DC United is an exception to these rules so please don’t tell me “United is on Comcast Sports Net, gets lots of ink in the Washington Post, and has its merchandise for sale all over the place.” I know this, and would also state Houston is developing into an exception also.

So MLS is asking the potential investors from seven cities for $40 million in order to secure an expansion franchise. Five of these cities already have teams in the lower tier USL, a league which places less restrictions on its owners and whose success in the CONCACAF Champions League has opened eyes across the region as to its quality. Despite it’s on the field success, USL remains clear minor league whose pyramid has stratified into haves and have nots. Because the league does not have the rules to ensure competitive balance that MLS does, some teams are wild successes and others are complete failures and go out of business quickly. Investing in a USL franchise is somewhat like buying a penny Wall Street stock, while MLS resembles a socialist structure with certain financial results pre-ordained.

The question those who are willing to pay the league’s $40 million price tag must answer, is whether investing in a league with limited appeal and restrictive rules in a time of economic chaos is really worthwhile? MLS is not going to be the next big thing as many of us had hoped and thought in 1996 and again upon the arrival of David Beckham. However,  it is still a nice little league whose rules make it easier to win championships and qualify for potential money making international events such as Superliga and the World Club Championship. So with all of this in mind, would you pay $40 million for an MLS franchise?

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  1. Phillip

    December 3, 2008 at 11:32 pm

    So, Kartik, is the podcast done? I think there’s been 1 in the last month or so. Just curious.

  2. adambchildress

    December 3, 2008 at 8:24 pm

    I would love to have a team in Detroit. Maybe called Detroit F.C., With our once beautiful train station converted into a soccer specific stadium. I would like to see a schedual that would offer up deals with the other sports teams so if the Tigers were playing a Saturday Day game they could get in to the MLS game for half off or even give MLS tickets away at the Tiger game to people walking into the door which would allow them to go to the MLS game at night spending a greta night out in the D. I would like to see a open door type policy where fans could mingle with players at a begining and ending of the season pitch party….hold open tryouts for local talent. Today it is a dream but would love for it to be a reality.

  3. Jack

    November 19, 2008 at 6:00 pm

    Several groups that put in expansion bids are now balking at the $40 million price tag per the NY Times. Does that shock anyone?

  4. Stanley Villa

    November 19, 2008 at 12:58 pm

    I know it’s “only” a USL side, but this is not good news for US profesional soccer:

    Atlanta has, according to Ives, “Atlanta Silverbacks to shut down in 2009.”

    As far as 400 million being a steep estimate, I know that the number for the Philly SSS is somewhere in that vicinity. Please post a link to the actual figure, if that is wrong, somebody.

  5. Brian

    November 19, 2008 at 9:15 am

    In this sporting landscape (U.S.) and in this economy, $40 million is a steal for a franchise. And not sure what kind of stadium you had in mind, but $400 million is very steep for a SSS – most are in the $100 million range or less for the actual structure. To put in perspective, Reliant Stadium with its retractable roof and NFL amenities was $352 million.

    After 12 years of existence, the MLS is in a much better spot then either the NBA or NFL were after their first 12 years. Yes, part of that is due to the different media landscape, but still, patience is needed and growth will come. I’m not saying the MLS will ever be as big as the NFL, but it could be bigger then the NHL.

    I’d like to see more characters in the MLS, especially on the ownership end. Imagine a Mark Cuban type as an owner, that would garner the MLS more attention. Pujols in on the St. Louis bid is an interesting development. And the MLS should hold Beckham accountable for his lack of effort in promoting the sport here in the U.S. Instead of eyeing the Laker Girls (and getting in trouble with his wife), he should be doing interviews on every sports talk station around the country.

  6. Ric

    November 17, 2008 at 11:49 pm

    Each of these expansion bids have either very wealthy or very smart men (or, in most cases, both) behind them, so I think your question already has its answer. If it wasn’t an investment that they think will pay off, either financially or personally, then they wouldn’t be doing it.

    I don’t know if owners would see a low payroll as a bad thing, nor lack of success in international competitions (true, it’s nice to win, but the common sports fan, and maybe the casual MLS fan, doesn’t really get international club competitions past UEFA).

    Also, your mention of lack of newspaper and tv reporting goes towards the thought that soccer, both MLS and international, is truly a fan and internet based sport, which doesn’t necessarily need the “old media” to survive.

  7. NJ

    November 17, 2008 at 4:00 pm

    I think you have to look at the long term viability of the product and the league. Granted some of the TV results have been less then stellar, and to be frank disappointing. However, there are positive signs. I will be honest and your comments on sports coverage local teams, namely my local Chicago Fire has historically been subpar, but recently the Tribune has upped the ante a bit with some features (good work Luis), and you’ve even heard a Brian McBride on a local sports radio station. Though not glowing it is improvement.

    The other positives, 1) soccer in general is a growing sport in the US. The youth numbers are still robust, and as these kids see their hero’s in soccer and see a path to get there, interest will continue to grow. 2) League expansion, new markets allow more people to see their local teams, giving more people an avenue for their soccer love, and I doubt anyone will disagree that the best way to get someone interested is a live game!!! (assuming its not in the Meadowlands with 20people present) 3) The US in the next 10+yrs will host another World Cup and that could give you the final push needed to get the sport where you want to be. 4) The teams that have soccer specific stadiums in general are profitable or very close.

    Now there are negatives, the rules are restrictive, but in a tight economy that may be a blessing as some of these teams won’t be forced to chase a high priced talent just b/c everyone else is spending. However, the rules need a tweaking. Namely, development of players. You can’t expect to churn out great talent paying below the poverty line, unless the team subsidizes the players housing, transport, food, etc. Teams in other cup competitions need to be able to call up some of their developmental players if needed, or just expand the roster size a bit.

    In conclusion I’ll stop rambling, I would pony up the cash. Partly because I see a future, and partly because it would be great to own your own team and in the long run 40mm may seem like a better deal then the 20mm they were paying a few years ago.

  8. Ryan

    November 17, 2008 at 2:32 pm

    It’s important to remember that owning an MLS franchise puts you in the enviable position of joining SUM, which is who gets paid (with a capital “P”) whenever the US hosts an international event like the Gold Cup, Superliga, CCL, and the super payday World Cup.

  9. Stanley Villa

    November 17, 2008 at 2:05 pm

    would you pay $40 million for an MLS franchise?

    No, nor would I pony up 400 million for a SSS, when plenty of minor league baseball parks are sitting in prime locations, unused for 8-9 months per year.

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