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Would you pay $40 million for a minor league 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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  3. Jonathan

    November 21, 2008 at 2:43 pm

    $40 million is sensible if there is “value” in the long term. If being the key word. As a person with hardly any capital, the question is whether I would be willing to devote my free time watching MLS games. Call me a Eurosnob, but unless the league changes a lot things, it won't be getting my share of free time.

  4. eplnfl

    November 19, 2008 at 7:13 pm

    Minor League baseball does not have a contract with ESPN. Soccer is booming in the US, plain and simple and MLS owns the market enough said. At some point soon the MLS will cross-over from a second division soccer league and live up to it's name and when that day comes the 40 million will look like peanuts.

  5. Enrique

    November 18, 2008 at 9:53 am

    I think that as hardcore soccer fans we see the things that are wrong with soccer in America, however, we have to remind ourselves that this league has actually done very well if you put into account the short history and the saturation of sports of this country. We know that there are plenty of things to be corrected, but is part of the growing process. If the NASL would have done what the MLS did structurally, i'm sure the league would have passed the NHL already and be considered as a major sport. MLS has a good foundation, we just have to be patient, we are barely in the developing stages of the league.
    Also, there is a lot of bias from journalists, for ex.: Jim Rome and many others that do not give soccer any respect; they bash it and do not acknowledge anything good. You do not see that much hate toward extreme sports, wnba, bowling, strongest man competition, etc.. These sports are truly minor league but they do not get the bias and negativity that some journalists have against soccer. This negative coverage influences the young viewers who discount the league just because of what they hear. For the exception of mma, soccer is the sport that is actually growing. We need quality players for a quality product, but it takes time to do it right. We have to look at the big picture.

  6. Peter C

    November 17, 2008 at 7:46 pm

    I'm surprised that no one mentioned that MLS 'ownership' means being a part of SUM. That means revenue from many sources, including SuperLiga, all Mexican National Team appearances in the US, all Chivas de Guadalaja US matches, and more.

    It raises the question as to whether a team must make money for the owner to get a return on investment.

  7. BishopvilleRed

    November 17, 2008 at 6:52 pm

    You can buy a AAA baseball team for about $15 million. The coverage is about the same coverage, media-wise, probably higher op costs, but more chances to earn it back and lower payroll. Not to mention a parent club that will agree to cover a number of costs.

    $40M? As it turns out, at least one group (Montreal) that was a slam dunk for MLS has reconsidered, thinking the fee a money grab.

    MLS needs to wake up and realise that the quality of a league is measured by the quality of the clubs involved, not the cost of a new franchise. Deepest pockets are not necessarily the people who are the best owners; in fact the more you pay for a franchise, the more they're going to want to look out for themselves instead of looking at the health of the collective.


  8. geekosaur

    November 17, 2008 at 6:06 pm

    There's a lot of truth in here, mixed in with a lot of muddy thinking.

    One point that's been forgotten here: look at the NHL. They've been trying to become “major league” (as meant by Kartik) for longer than MLS (much longer if you consider the predecessor leagues of both; I grew up in Cleveland which had the Barons and the Crusaders in various prior leagues) and is still not doing a whole lot better than MLS is: some markets, sure, but (for an example) this year my understanding is that the Crew have been at least par with the Blue Jackets as to coverage in Columbus.

    (As for the pro/rel comment: go look at England. The Premiership and Championship look to me like the first moves in the direction of killing pro/rel; I imagine it will start with the Championship closing the door on pro/rel with the First Division. I can also imagine an argument being made involving the UEFA Champions' League at some point.)

    That said, whether “major league” or not, if MLS teams are at minimum breaking even then investment in the league is somewhat independent of the league's quality.

    One more point: MLS needs to look at and learn from the USL. If the league can't afford to compete for players with the Premiership, Serie A, La Liga (either one), etc. then it should set its sights lower instead of trying to compete for viewership with those same leagues. This is not a cutdown, it's acknowledging that MLS is a young league and it takes time to become established in the US. Oh, and nuke some of those extracurricular activities — if the failure of the teams that got pulled into the CONCACAF Champions' League etc. proved anything, it's that MLS can't afford the bench depth needed to survive those and the regular season. I predict with some confidence that the Crew and the Red Bulls will crash next season just because they're stretched too thin.

  9. Chris

    November 17, 2008 at 5:58 pm

    I think the piece asks a legitimate question. Would I pay $40M for a minor league franchise? The answer for me is NO. Not unless I have a almost 100% tax payer or otherwise funded stadium that I DON'T have to pay for.

    And it will be interesting to see which expansion bid that doesn't have a stadium plan in place will actually go forth to buy one. Its not like all the cities have put up $40M. I believe it was a $100K fee only to bid.

    If a city or state is going to pay for one, then I could justify drawing 15K a game for 16 home dates where I get control of all revenues in the stadium. But minus that enticement, I woudln't do it.

    At the end of the day, as attendance for a conference playoff final last week showed, just because you call yourself “Major League” doesn't mean you are Major League. You think the Columbus Blue Jackets would have played to 7,000 empty seats in a one off game to go to the Stanley Cup, like the Crew did in their 21K stadium for a trip to LA and MLS Cup?

    MLS is a nice little domestic soccer league but there is very little they do in terms of operation that screams Major League. In the general American sporting public, minor league baseball at the AAA level, AHL hockey, and the NBADL have as much, if not more revalence in parts of the US.

    MLS is a minor league in terms of the US and World soccer.

  10. Mark

    November 17, 2008 at 4:24 pm

    MLS is minor league in New York, and Chicago for sure. But it is big time in DC, Houston, etc.

    It depends on the market and the bias of the local media for or against soccer.

    This piece may have worked me up the way it did some of you guys had I not seen that Eddie Gaven piece. So am I to simply assume this website is advocating a Columbus victory on Sunday and Red Bull fans need not visit? Surely turning away the largest metro areas fans cannot be good for business, can it?

  11. Jason

    November 17, 2008 at 4:20 pm

    The problem with this column and some of the comment is they're reflective of our instant gratification culture. Building a sports league takes time.

    The NFL was founded in 1920, but it really wasn't until the mid-50s that it passed college football as the face of the sport. The NBA was founded in the late '40s, but I'm old enough to recall when the NBA finals were on tape-delay broadcast at 11:30 pm in the East. It took 40 years before the NBA exploded into mainstream popularity.

    Yes, sometimes the league gets a little gun-shy and thinks too much about the NASL's flameout. But it's going about things in the right way. Build the stadiums first, get a stable revenue stream, and then you can start trying to line up pricey talent. I recall reading about the groundbreaking for Pizza Hut Park, and Lamar Hunt being quoted as saying that when the AFL began building its own stadiums people stopped asking how long it was going to be around.

  12. undrafted

    November 17, 2008 at 3:57 pm

    Pro/rel isn't the key to success. The big 4 here in the US aren't considering it. It's fascinating and I love it, but it's a quick way to slash franchise values. You'll see the end of pro/rel in Europe before you'd see the start of it here.

  13. Mark

    November 17, 2008 at 3:18 pm

    Quite frankly I don't think any of us can comment on whether $40mm is a fair price when we haven't studied the books on these franchises and what they could be worth in the future. With that being said, when you look a the values of other professional sports teams in the US, $40mm seems like a paltry sum. While the risk is that MLS doesn't really grow beyond the niche sport it is now, the chance that it takes over from hockey as the 4th major sport in North America is high. Soccer is already played by more youth in this country then any other sport (including basketball and baseball) so there is a familiarity there. It's nowhere near like the NFL trying to sell Europe on tackle football. Next, the league is ONLY 12 years old and has grown by leaps and bounds. Most soccer leagues are at least 100 years old and have been building history, tradition, and fan bases for generations. One could argue that what MLS has done has wildly exceeded expectations. The real key to the long term success of professional soccer in this country will be if they can internationalize the structure with promotion/relegation, looser salary caps, and a removal of the playoff structure. Once people become interested with their local teams and the chance to see them “climb the ladder” of the ranks, it will build popularity from the ground up, not the top down like they have been forced to do for the last decade. That is the tradition of professional soccer around the world, and I think it should be the tradition of it here in the US. The question of whether MLS is relevant or not is ridiculous. It's relevant to a lot of people and will become even more relevant into the future.

  14. undrafted

    November 17, 2008 at 12:58 pm

    MLS mattered to the development of Tim Howard, DaMarucs Beasley, Clint Dempsey, Carlos Bocanegra, Ryan Nelsen, Jozy Altidore, Brad Guzan, Michael Parkhurst, Mauric Edu, Pablo Mastroeni, and Sacha Kljestan. Arguments can be made that MLS has mattered to Landon Donovan, Kenny Cooper, Brian McBride, Stuart Holden, Marvell Wynne, Michael Bradley, and Chad Marshall. And I'll barely touch on the next tier of guys like Ricardo Clark, Frankie Hejduk, Jonathan Bornstein, etc.

    Maybe you can argue some of these guys have been “damaged” or “held back” by playing in MLS. But I'd argue that many of them would have gotten lost in the lower ranks of European clubs and not given a proper chance to play first team minutes at crucial stages in their careers.

    MLS may not matter to Harris, but it does to many American players and to most USMNT fans. Why not hop over and tell French, Turkish, Japanese, and Russian fans that their leagues don't matter.

  15. Cavan

    November 17, 2008 at 12:35 pm

    MLS matters. It's our league. It's not like you can just magically create another division 1 pro league if it goes under. It takes many years of planning and financing. After that, it takes decades and a generation to establish a hardcore fanbase that hooks in the casuals. This is very evident at DC United. More recently, the Eastern Conference Championship at Crew Stadium is futher evidence of the positive influence of hardcore supporters. There is nothing like it anywhere else in American professional sports.

    You need the league for player development. Even if many of your national team players end up playing in the Budesliga, you still need non-national team pros to provide the infrastructure. You need pros in order to have a competitive environment for those national team players to develop. You need pros to teach the next crop. Without a league, there is no professionalism. Without a league, you have something like in New Zealand. You're just hating on it to hate on it. I've never been to Gillette so I can't comment on what a Revs home game is like, but I go to every DC United game I can. It's fun. It's not Manchester United but it's definitely as good as Bolton or Charlton or any of those other have-nots in the EPL.

    The media coverage has varied quite a bit from market to market. We've always had good coverage here in Washington DC. Houston is coming along well. Even Columbus, which had always received luke-warm coverage at best in their local media, is now getting love since they're now a winner. Dallas is having issues. So is Denver. Salt Lake City seems to be going in the right direction. It is at various stages in different markets. While it's not the two ton gorilla of the NFL, I wouldn't call it minor league. I would call it “developing” or “emerging”.

  16. Joey Clams

    November 17, 2008 at 12:21 pm

    Harris, you're wrong. New England gets good coverage from the local papers and their highlights are shown on just about every local sports segment. That's a statement of fact.

  17. Harris

    November 17, 2008 at 12:18 pm

    Let me also state that I saw that 24,000 people watched an MLS playoff game. If those numbers are accurate, minor league is a compliment. That's semipro or worse rec league.

  18. Harris

    November 17, 2008 at 12:17 pm

    I think MLS was being called minor league here because of its lack of penetration in American sports TV. New England gets virtually no local TV or paper coverage so I'm not sure what you are talking about since I live in the area.

    Where I totally disagree with this story is the thought that MLS must succeed for soccer to work in the US. Many of us have checked out on the league after trying to support it. The product simply isn't good enough and more and more young American kids go abroad now at a young age so my feeling is if MLS fails it may be for the best. So no I wouldn't pay $40 million for an MLS team.

    This is certainly not a eurosnob post because the premise that MLS must succeed is not eurosnobish. It is just plain stupid to think MLS matters in any way.

  19. undrafted

    November 17, 2008 at 12:05 pm

    Somehow I don't think you or many of us reading this will ever have to worry about this q uestion. The fact is that faced with a 40-50 million dollar fee, 7 groups have applied, at least a couple with their checkbooks already open.

    Your selective portrayal of the facts leaves this column with little credibility. Salt Lake, Toronto, and Houston get great local coverage. Next year there will be 2 or 3 teams playing on football lines (New England, Houston, and maybe Seattle), at most for half their season. That's out of 15 teams.

    If you manage to get a SSS, you'll probably make money in a new market (Toronto, Salt Lake). At the least losses are minimal compared to the appreciation in team value (Toronto bought in for less than $15 million, Salt Lake & Chivas USA for $10 million, any of them could sell to Atlanta today for $40 million). Who knows if there'll be a big take off, but with soccer-ignorant generations passing on and huge latino immigration, there's reason to be optimistic. Not everyone can afford an NFL team.

    Watch the news about USL this week. $40 million into MLS is a much better investment than $750 thousand into USL.

  20. Mr Fish

    November 17, 2008 at 11:44 am

    Despite the intriguing title of your post, your screed against the league reeks of Eurosnobbery. No one's holding a gun to the cities who bid to join the league. If the market viewed MLS as unworthy of a $40MM investment, no one would have stepped up.

    As more and more MLS clubs move into the black (LA, FCD, CMB, RSL next year), the outlay to join the league will seem like a smarter and smarter investment.

    The $40MM fees, and the a new post-2009 CBA with the players union, will drive the league to increase team salary caps, allowing teams to bring in more quality players, therefore making MLS appear less “minor-league.”

    Remember, no one is talking about league solvency anymore, they're talking about relevancy in the soccer and US sports landscapes. That relevancy come with more teams and higher salary caps.

    Krishnaiyer, I guess you'd consider ALL national leagues save England, Germany, Italy, and Spain as minor. That's leaving a lot of soccer “minor-league” soccer wealth around the world.

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