How much is your team worth?
Alex Olshansky with Part I of II on assessing franchise value in MLS
Real Salt Lake owner Dell Loy Hansen recently stated in a Salt Lake Tribune profile of him: “One thing that’s black and white: I will never make money running this.”
Mr. Hansen is right.
And he is also very wrong.
He is right in the sense that vast majority of MLS teams run on a net operating loss. Based on that comment, RSL is likely among that group. But here’s where Mr. Hansen is wrong: hardly anyone in world soccer makes their money on operations. It is not a cash-flowing business. It is an asset-appreciation business.
Below is the most recent financial table of EPL clubs compiled by The Guardian. QPR and Swansea were excluded as some information was missing for them. Also, The Guardian’s formula was slightly altered to make the numbers more uniform.
As is the case in MLS, most teams are not making money on an operating basis.
Champions Manchester City lost nearly 100 million pounds (~$150 million), on revenues of 230 million.
And yet, according to Forbes, they are currently worth approximately $690 million.
If MLS aspires to be one of the top leagues in the world, as Don Garber has stated, then the league has a long way to go to resemble the EPL, the current gold standard of global soccer. Manchester United—by itself—is worth approximately three times the entirety of MLS.
So how does MLS stack up? With information so opaque, estimating a team’s finances and overall value is—at best— educated guesswork. To date, the most comprehensive attempt to value each MLS team was done by Forbes back in 2008.
For whatever reason, Forbes has not put out anything since.
The league has changed dramatically since then. For example, this piece of info from the 2008 article on “struggling teams.”
“The Kansas City Wizards are playing in a minor league baseball stadium and had just $5 million in revenue.”
One factor that makes valuing MLS teams so challenging is inextricable business relationship between the teams and MLS/SUM.
Among the peculiarities of this relationship is that the league—not the team—owns each player’s contract.
Additionally, SUM negotiates the sale of World Cup broadcasting rights in the United States, organizes international friendlies, etc. and profits from these ventures may or may not be distributed to owners of MLS teams. Therefore, to simplify matters, this valuation only takes into account revenue earned by each team. It also allocates any revenue from league-wide sponsorship deals (Adidas) equally amongst everyone.
Match day revenues were calculated based on average ticket prices from tiqiq.com and a blend of average attendance from 2012 and the first games of 2013. This value was “grossed-up” to account for non-ticket match day revenue. This calculation is based on guidance from a 2009 document (login required) prepared when the Portland Timbers were pushing for public funding for a stadium. The gross-up factor is lower for teams without their own soccer-specific stadia.
Television, with the exception of the LA Galaxy Time Warner deal, was allocated evenly across each team.
Team-specific sponsorship was generally limited to jersey and or stadium deals. Local and smaller deals could not be tabulated as those specifics are not publicly available.
For example, from the profile of RSL owner Dell Loy Hansen, he mentions that he expects RSL to generate approximately $10 million in sponsorship revenue.
But a contradiction?
Yet, for this exercise they are shown at $4.1 million in order to maintain consistency across each team.
The New York Red Bulls are an interesting case as their ownership is both the team’s jersey and stadium sponsor. As such, a guess was made as to the fair market value of these deals ($4M for jersey and $4M for stadium per year) if a new sponsor had to be found.
Perhaps the trickiest part of the exercise was arriving at a revenue multiple for each team.
Operating multiples do not make sense for an industry in which there are few teams with positive operating margins. The 2008 Forbes study had an average MLS revenue multiple of 2.92. For their global soccer team rankings these are the average revenue multiples used (profit information not provided in ’11 and ’12).
There is a clear premium to being operationally profitable.
But it is hard to extrapolate too much from these figures as the sample size is relatively small.
Also, these clubs differ from MLS clubs in that they are all mature with relatively limited growth prospects.
For the sake of putting a stick in the ground, the assumption was made that an average unprofitable soccer club commands a revenue multiple of approximately 1.75x. By virtue of being in a developing league with room to grow, it is assumed that an average unprofitable MLS team is worth an additional 0.5x revenue for an average revenue multiple of 2.25x.
This baseline is lower than Forbes calculated in 2008, but the average team also collects more revenue now than it did five years ago and is slightly more mature as a result. Also, and this is completely subjective, an additional .25x was added to teams for each one of these factors:
- 1. Own soccer specific stadium
- 2. Profitable from operations (LA, SEA, HOU, POR, MTL, TOR) 3. Top three US market (NY, LA, CHI).
There are clearly a couple distinct tiers with the Galaxy and Sounders ahead of the pack. One big difference between this year’s values and the 2008 study is how there is a large “middle class” in MLS of teams with their own soccer specific stadia and multiple sponsors.
You can see the evolution of the league from 2008 to present. The consistent increase in value from year to year is primarily due to the addition of strong expansion teams (SEA, POR, etc.), new stadiums, new sponsorship deals, and the general macroeconomic rise in asset values in the past couple of years.
The trend-line is undoubtedly positive for MLS, but there is one area where the league lags far behind in its quest for global respect.
The league has done very well in the past 5-10 years to maximize their match day revenues.
It is now one of the best attended sports leagues in the country; on par with the NHL and NBA in terms of attendance. But getting people to watch the game on TV remains the greatest and final hurdle. The good news is the league has done well with the capital-intensive components of a team’s revenue. By contrast, any boost in broadcasting and commercial/sponsorship revenue goes straight to a team’s bottom line: this is the low hanging fruit for owners and league executives. Yet it remains painfully just out of reach. For now.