MLS Stalemate: “We’re For Resolution”

As we mentioned way back in January, TSG didn’t want to give a lot of site space to the potential work stoppage by MLS, both from being a voice one way or the other and because we believed most of the information getting thrown around was just rhetoric.

Who doesn't want to see Frankie on the field next week?

We’ve been contacted via email and twitter by readers predominantly to endorse the players’ grievances. In good conscience and in offering our objective opinion, we can’t do this outright.

When someone asks us “who we’re for” in the skirmish, we say, “Resolution.”

Sadly, nothing much has changed from a concrete action standpoint since our last column. The players are threatening a strike, this time with a date looming right around the corner while the owners remained unified and stout in their belief that the status quo should be a plausible condition to begin work for all in 2010.

Just some short thoughts here from TSG–that again haven’t changed much–since our last commentary.

• Still believe that strike won’t happen by the way.

• What Have You Been Doing?!

TSG will take umbrage with the lack of timely resolution here. While every business negotiation has a factor or time sensitivity or immediacy, don’t you think that both sides should have agreed–or not agreed and just acted–to a hard-stop date for work stoppage weeks ago? MLS President Paul Abbott was quoted by the AP last week acknowledging that ticket sales haven’t been hurt…TSG has recently has asked for some qualifications of that statement.

Qualifications like: How is that being measured? Does that take into account (or remove from calculations) the Philly Union who weren’t in the league last year?

Less on the data side, have both the union and the players stopped to consider that they could be doing better on ticket sales if they were spending time marketing the product instead of marketing their issues?

• Money Talks

Leiweke, 1st from right...ha!

TSG linked to AEG Live’s Tim Leiweke’s staunch comments against a player’s strike early this week.

The most prescient quote: “We do this out of passion. If this were a business, we would have quit this 10 years ago.” (Strikethrough qualified in comments section)

…and he is nearly spot-on.

MLS is bad business at this juncture in time 2010. It is better business than it was a few years ago and will hopefully be better business in, say, 2012. In business, the goal is to turn a profit.

Now first, the caveat to Leiweke–who TSG has met in person–making these comments is that there is value beyond the profit dollars to MLS teams, for AEG specifically. As AEG is one of the largest venue owners in the nation, and the world, it is important they keep their venues operating for as many days of the year as possible.

By turning more volume, on concessions, parking, etc, it allows for more top-line revenue growth–making the broader company more valuable to shareholders. Top line revenue growth for large cap company is more valuable than profit dollars.

So while MLS club investors may be worse off, that is not entirely true for Leiweke’s AEG.

That being said, Leiweke is correct. Without the owner’s willingness to apply their capital in a risky market domain, there would be no MLS. Further, you need to make the league is attractive to other owners, even or especially potential advertising sponsors, by having it around for awhile, showing financial success and making those sponsors confident that it is a burgeoning entity worth getting behind.

What we’re not saying is that the players are wrong; but the question posed is, “All things being equal, would you rather play MLS soccer next season or not? Just how untenable is the situation? Would players, let’s say with the lowest of salaries, still say that they would not play outright?

• TSG’s Brass Tacks

Some of these we’ve spoken about already. Big caveat, TSG has spent little research time here…see opening of column for why if you missed it.

» MLS players, let your club rights be retained by that club in perpetuity.

Why? You can’t have a league without decent strength top to bottom. Your telling me someone might not jump at slightly less money to move from say Kansas City to Los Angeles. Players, let this one go.

If the league is going to draw on a night in and night out basis, there can’t be a Detroit Lions or Pittsburgh Pirates franchise.

Those respective teams in the NFL and the MLB can offset financial losses because of the popularity of the sport: the volume of gate receipts, extras, and television revenue.

MLS doesn’t have the attendance to do this (another reason MLS soccer parks work better than cavernous arenas and stadiums that take more upkeep….there’s more, but that’s one reason.)

Holding a player’s rights is not about a form of “slavery” as some somewhat ignorant opinions suggest, it’s about not losing the value of a player for nothing. That would cripple some of the smaller market teams.

MLS owners, again, are business people. They’re not going to hold on to a player they have the rights to just for spite; they look at the player as an asset to get value for.

As we mentioned last week, Kevin Hartman…well, he got dealt.

We understand players are fearful of losing their own personal leverage with only one club to negotiate with, but let’s stop for a second and ask again, how many teams are *making* money, one..maybe two?

Sorry Buddle, you had 5 goals in 19 games played in 2009 at a salary of $179K while many clubs are not profitable. Should that be guaranteed to the fullest?

» MLS owners, guarantee the some contracts

If a player is going to commit themselves to training, being in-form, and working for the “non-exciting” wages they do, it’s a disservice not make the reward the guarantee since it certainly isn’t the dollar level.

If your general manger and their staff cannot pick the players appropriately, well that’s where the fault lies.

That was our sentiments in January. After some deliberation, let’s caveat it as well and say, “Guarantee everyone’s salary under $88,000–the median salary. If  a player makes above this, guarantee it up to $88,000.”

It’s not the lower end of the spectrum contracts that kill you, it’s the upper spec ones.

Edson Buddle made $179,000 in 2009…that might not sting Los Angeles, but it could washout Colorado perhaps.

Seems like a reasonable compromise, no?

» Salaries

First, TSG will tread lightly here…again we haven’t researched. Read at your own peril.

Frankly, if there is no salary cap, then there should be no salary floor. Landon Donovan will make somewhere way above $900K this year. If a salary floor is authored, where does that put Donovan’s ability to command that high compensation?

That’s all we’re saying on this one before we are in over our heads.

—————

So I guess when it all boils down, TSG is for resolution and overall success of MLS….as a fan…so I can start growing as a fan with the game and the players without interruption or fear of closure.

Does that put us on the “side” of the owners? No. Does it put us on the side of the players? No.

It puts us on the side of the fan.

All this being said, still don’t see a strike happening.

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19 responses to this post.

  1. Posted by Matt Mathai on 2010/03/18 at 7:31 PM

    Sorry, I don’t buy Leiweke’s comment about it being a passion, not a sport. These are not rah-rah fans. They are businessmen. The business plan for the league built in many losing years up front, but I’d be willing to bet my house that if you had told any potential MLS investor that they’d lose money forever but they’d be richly rewarded in passion and the knowledge that they’d made the soccer gods smile, they’d have laughed and walked away to put their millions in some venture with a positive ROI.

    No, these people are in it for the money. Pure and simple. They see the growing support for the sport in the US. They see the changing demographics. They see the other major sports squander the goodwill of their fans. They see an opportunity to get in on the ground floor of a generational shift in sports consumption. They might be fans also, but that’s not what drives them.

    Reply

    • Posted by matthewsf on 2010/03/18 at 7:37 PM

      Matt.

      I should qualify that is was the second part of the statement I think was spot on.

      There is a story in the live entertainment business that explains a lot about it and isn’t far off from your thoughts.

      I was told this about Irving Azoff once who is essentially Leiweke’s counterpart at live nation tickertmaster.

      “Azoff would rather make 90 cents on an event. Then make 95 cents and give ‘you’ 5 cents on the dollar.”

      I’m going to revise above to take out the passion part because if it was say lacrosse it would be no different.

      That said too its been a losing proposition.

      Reply

      • Posted by Matt Mathai on 2010/03/18 at 8:01 PM

        Oh I know it’s been a losing proposition for most owners for most years. However, they knew that going in. Every founding investor who has stuck it out has seen the value of his franchise increase at least by a factor of 8. The initial minimum investment was $5M and it’s now $40M.

        I saw descriptions of early versions of business plans and payoff scenarios for ownership, and they all talked about losing boatloads of cash for about 6-8 years, and then about losing less and less every year until finally turning a profit. The expected profits down the road far outweigh the initial startup losses – and we’re just talking about the soccer part. The stadiums they’re building house other events and bring in other money that doesn’t get counted in the MLS equation.

        Yes, the sob story works in any one year early in the history of the league, but every one of the owners expects to be raking it in eventually. (And close control of player salaries is a big part of that, hence their reluctance to loosen the purse-strings.)

        MM

        Reply

        • Posted by matthewsf on 2010/03/18 at 8:05 PM

          True Matt

          But like any businessman that investment is comparative to where else they could have put their money. Will it outweigh the return they could have made on that money somewhere else overtime?

          And is not these investors then who?

          Reply

        • Posted by Matt Mathai on 2010/03/18 at 8:11 PM

          The gamble they’re making (and not a huge one) is that the opportunity cost of having invested in soccer and lost money for so many years will be totally overmatched by the profits they expect to make. This was never a short-term investment.

          Lamar Hunt did exactly the same thing for the Kansas City Chiefs as he did for the Columbus Crew. He got in early, knowing the speculative nature of the investment.

          To your last point, true, there weren’t many people who could afford to float this kind of cash. Anschutz owned something like six MLS teams at one point. However, as the stability and potential of the league became more apparent, other, more timid, investors have begun to show up. We’re soon going to be at a point where there are more hopeful ownership groups than there are franchise opportunities. We might already be there.

          Reply

  2. Posted by matthewsf on 2010/03/18 at 8:38 PM

    Matt:

    Great debate here…thanks for weighing in…just got on the laptop.

    1) First, you’re going to have to define/qualify “not a huge gamble.” It’s true that it is a measured gamble. If you’re going to grow companies like AEG, you have to make these gambles

    2) In terms of the early business models and payoff scenarios…did they have an increase for players in this year? Was there an expectation of the CBA?

    3) There is a realization that they are building these brands (RSL, Crew) from scratch…they are not buying into a losing proposition.

    4) How many players–if they could–would leave to go play in other perhaps more lucrative leagues overseas? Many….if they could. Do they have allegiance to building the MLS brand…some do…Kyle Beckerman comes to mind. Do most? Will Freddie Montero be in the league in 2 years? Omar Gonzalez?

    5) Let me make this a little personal for a moment if you don’t mind. I have a start-up technology company (I’m a cofounder); we have models that predict when we will be profitable. We’re a great bet for investors right now, but if you swiped out cash reserves…well we’d have to scramble and devalue the company.

    Let’s say I were to go to my board and ask for a personal raise. They are going to want to work with me…but at the end of the day what they say goes…if they tell me, “no raise.” I have two choices…I can leave or I can stay and ask again at another point.
    It’s obviously not in their best interest to “piss me off” so to speak if I’m building value for the company.
    Oh, and I also have a non-compete clause…can’t go to a similar company for over a year.

    Same here in MLS…I’m essentially Jimmy Conrad…I can ask…I can strike, but I’m also going up against the guy that writes my paycheck.

    I want to reinforce that I’m not “pro-owners” here, but I’m trying to rationalize this MLS stalemate unemotionally and in the manner of business review.

    Great feedback..thanks for writing Matt.

    Reply

    • Posted by Matt Mathai on 2010/03/18 at 9:03 PM

      OK, I’ll grant you that I probably shouldn’t have phrased it as ‘not a huge gamble’. That was a value judgment on my part. What I was trying to express was my (editorial) feeling that betting on the growth and success of soccer in this country over the next 50 years is a no-lose proposition – on average over the long haul. That doesn’t mean, of course, that individual soccer ventures can’t fail, just that overall, the climate will become more and more favorable for them to succeed.

      There was definitely an expectation of a CBA. To be honest, i forget the sequence of years in which it was supposed to be initiated and then renegotiated.

      The pioneer players of this league, particularly the big-name American players, definitely had the sense that they were part of something big. I have spoken to John Harkes about this myself, and he, Lalas, Ramos, Balboa, etc. all knew that they were making sacrifices to be here in the hopes that it would grow the way it has. You can hear the barely-disguised glee in Harkesie’s voice as he describes some scenes of soccer bedlam on TV. I don’t know if the modern players have that same degree of selflessness. I don’t think they do, and to be honest, I don’t know if it’s reasonable to expect them to.

      Listen, first and foremost, I’m a fan. Selfishly, I don’t want a strike to spoil my enjoyment of the game. However I realize that siding with the owners or the players is not some slam-dunk decision that’s blindingly obvious. It isn’t. As in any negotiation, there are truths on both sides. I will say that I hope that both sides realize that they would be better off to move a little bit off their entrenched positions and come to an agreement.

      My initial comment in this thread was just to give my perspective on Leiweke’s statement – it looks good upon first inspection, but it isn’t much more than a pretty cynical piece of negotiation through the press.

      Thanks for the responses.

      (Now I REALLY need to finish this presentation for work tomorrow!)

      Reply

    • FYI, non-compete clauses rarely hold up in court ;)

      As per the value of a franchise you don’t have many investment vehicles that offer the return of value that these franchises have, particularly those who got in at cheaper purchase prices. Toronto FC was bought for 10m and is now worth approximately 44m…do you know of many other investments that have returned 300% over the last few years during a recession? Granted most of them are still losing money at this point, but I’d imagine they expect a higher than normal increase in return in a World Cup year like this and quite possibly a higher sustained income with an increase in popularity for the sport overall.

      I have very mixed feelings on the idea of free agency. I can understand how the league might be against it and how it could potentially hurt smaller market teams. At the same time, the idea that a player is unable to move from a side who won’t give him a reasonable contract to one who will seems just asinine. With salary caps in place, however, I wouldn’t think this is as huge a problem as it’s made out to be. Similar to baseball, in theory we would simply see players under contract who are unlikely to re-sign with their club traded to other teams. Not a perfect system, but if salaries are limited to an agreed upon level I don’t see how this offers much of an advantage to one club over another.

      Reply

      • Posted by matthewsf on 2010/03/18 at 10:40 PM

        Ha…Cfig — I was going to add that into my post on the non compete…still there though :>

        A few things:
        1) Try to liquidate Toronto FC and see what someone gives you right now for it. — Not $44M.
        It’s not about what the value is unless it’s liquid.

        Also, how much loss is going out the door….they may be worth $44M, but how much are they losing annually?

        2) One interesting thing is that the owners appear united on the free agency front — showing me they have a league focus. I’m a New York Yankee fan, by birth and by pride, you know how often they fight baseball on talent restriction and payscale…all the time.

        Here you have the owner of the Galaxy toeing the league line…that doesn’t happen often.

        3) My point on salary restritions is that if you are going to have a floor, then you should have a ceiling. I would be a fan of sign-and-trade deals…just like I’m a fan of selling Donovan right now.

        Speaking of Donovan…if you’re the union…don’t you just tell him to try and avoid these question. The answer the other day where he first commented on the players needing rights and then immediately changed gears and complimented Leiweke and the Galaxy ownership just makes him look like a sellout…sorry had to throw that in there.

        Reply

        • Posted by matthewsf on 2010/03/18 at 10:48 PM

          Okay, just read a little, roughly 10 teams shared $30M in losses in 2009

          So you’ve got your $10M buyin and losses in 2009 of probably $3M for Toronto (just dividing the losses evenly amongst the teams that lost)

          For worst-case scenario let’s assume that they lost $3M the two years previously.

          Now you’re at a “known” cost of $20M…likely to lose again this year…let’s say $2…so you’re at a cost of $22M with a valuation put on it at $44M so that’s a 100% return on investment….assuming you could sell it for $44M…may be possible…but there is costs associated with selling the team as well.

          So 300% is not really a “true” figure.

          Reply

        • Posted by Matt Mathai on 2010/03/18 at 11:00 PM

          Well, assuming that you could get $44M, 300% represents strictly the difference between the buying and selling price. You don’t count operating profits and losses against those figures. (They do go into figuring the total cost of ownership.) The higher purchase price reflects the fact that a new owner would not expect to suffer the operating losses in subsequent years.

          we can argue about specific figures, but it’s pretty much speculation. Regardless, it’s been a pretty profitable investment, and there’s no reason to believe it won’t be even more so in the future.

          Reply

        • Posted by Bob on 2010/03/19 at 8:01 AM

          He, however, did not toe the line when he signed Beckham. In fact, he moved the line to benefit his team. This the problem that Grant Wahl pointed out in his book. You have Becks making $6 million a year, while guys like Holden were making $34,000. I think that is the essential argument here. Not whether the MLS teams are profitable or not, but what is fair to the players who have to share apartments, get part-time jobs, try to live in expensive cities like L.A., N.Y., etc. Can the MLS teams move the minimum salary to a fair wage without going broke? If they can pay Becks $6 million, I think so.

          Reply

        • Posted by Matt Mathai on 2010/03/19 at 10:03 AM

          However Beckham paid back his contract in the first year through jersey sales and sold-out stadia. As much as I like him, Stuart Holden just doesn’t move the needle the same way.

          I don’t know that this has ever been about fairness. Being all pure capitalist here, an economic offer is made, and is either accepted or is rejected. The lower-paid players are free to decline the (pathetically low) offers and go work for someone else.

          I certainly agree that there are problems with player movement a la Kevin Hartman, and I could see characterizing that as a fairness issue.

          Reply

  3. Posted by matthewsf on 2010/03/18 at 11:03 PM

    True Matt — thanks for adding that — accounting, not my strong suit.

    I’ll concede the good investment…let me see if it changes my thinking on this…right now, it does not.

    Reply

  4. Posted by matthewsf on 2010/03/19 at 7:40 AM

    Off topic: 2 people reached our publication by this search term today, “matt mathai david beckham”

    Mr. Mathai…had no idea your own brand equity.

    Reply

    • Posted by Matt Mathai on 2010/03/19 at 9:57 AM

      Bwahahahaha!!!
      :)

      Actually, I bet it’s in reference to a photo I took of David Beckham when he played his first game at RFK (that was his first match for the Galaxy.)

      It’s a pretty good one, even though I do say so myself.

      Reply

  5. Posted by matthewsf on 2010/03/19 at 8:07 AM

    @Bob — I completely agree with you on your point.

    In my January article I pointed that out exactly — you can’t have that wide a chasm in both salary and talent…

    That’s where MLS owners on the operating front ARE getting it wrong. They are not making it attractive to keep the slightly above average players or bring up the bottom half to make the league more attractive.

    Whether it gets solved through a new CBA or not, through the players efforts or not…it does have to happen

    Reply

    • @Matt – nice shot!

      Good points on all counts guys. And I’ll second Bob’s thoughts from The Beckham Experiment, I’d had the thought of “hmm, how do those guys live on that little money in LA” and then realize just how little it was after reading the book. Keep in mind though that a large percentage of Becks’ 6m was endorsements and not salary, I believe he was “only” making in the 1m range in salary from the league.

      For someone like Stu, while 34k isn’t much Houston isn’t an expensive city to live in (I say this as a resident of H-town). I’d also have to imagine that he had some sponsorship money coming in as well as USMNT pay, I wouldn’t be surprised if that income surpassed his salary actually.

      Reply

  6. Anyone see the CNN/SI soccer front page today (3/20)? Shows Donovan shaking Garber’s hand. Look at Garber’s notes. It’s clear they were working very hard on drawing stars. On the other side, I’m guessing they worked on some Led Zeppelin, Doors and Maiden logos.

    http://sportsillustrated.cnn.com/soccer/?eref=sinav

    Reply

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