Is Greed Good?, Part II: Hey MLS Corporate, Ante Up!

MLS Players: Taking it on the chin on the field, but much more so off.

MLS Players: Taking it on the chin on the field, but much more so off.

In Part II of II, Alex Olshansky (Twitter) explains how MLS corporate is shooting itself in the foot, but its the players feeling the pain. (Part I)

Fans of North American soccer, by and large, are an insecure group.

It makes sense.

Many of the older generation remember the NASL flameout.

The younger generation may be imbued with more confidence in the sport’s future, but they also understand that MLS still exists on the fringe of the mainstream American sports landscape.

It is why they obsessively tabulate MLS attendance, engage in constant comment-section debates on the usage of “soccer” vs. “football,” and tweet every MLS golazo at Sportscenter.  The league is in a constant competition for exposure and respect.

However, this competition is not with the American cultural mainstays NFL, NBA, and MLB.  MLS is competing against international soccer (EPL, Liga MX, UEFA CL).  And right now it is losing.  In the United States there are many more fans of international soccer than MLS.  This is indisputable.  Yet, this current state is not immutable.

The EPL "problem"

The EPL “problem”

MLS, 180-lbs league gorilla slayer? It’s possible.

As was pointed out in Part I of this analysis, the main problem facing MLS teams is the lack of TV money being generated.

The comparison to the EPL is stark.

There’s probably some sort of penalty jar in the MLS offices for anytime someone utters the phrase “TV ratings” in the presence of Don Garber.

You thought the Cosmos made his skin feel prickly.

But how can the league boost TV revenues (estimated at a paltry $36 million league-wide)?

TV revenues are low because people are not watching. The league has put up these numbers on ESPN2 so far this year:

No bueno...

No bueno…

Those numbers are not wanting; they’re simply not good.

By comparison, regular season college basketball averages 515k viewers and college football between 1.5 and 2.0 million viewers on ESPN2.  The EPL averages around 320k viewers during much poorer time slots than MLS. Without better ratings the league will never get the TV money that they crave. (Editor’s note: That is a … fact.)

The most obvious answer to boost ratings is to improve the product.  The most recent release of MLS salaries, nicely visualized by Steve Fenn, underscores just how little MLS pays their players vs. other leagues.

Here’s the EPL.  They spend lavishly on talent.

...

These are the Top 20 Global teams.

...

There is, of course, the MLS murmuring undercurrent to, “pursue the Bundesliga’s more restrained approach to spending.”

Compared to other leagues in Europe the Germans appear to be more prudent.  According to this report Bundesliga teams spend approximately 38% of their revenues on player wages, which is far under the approximately 64% the rest of the UEFA top flight spends.

If you are wondering, this is what MLS teams spend as a percent of their revenue.

Pretty certain this specific chart should be linked-to, reposted, RT'd just about anywhere where people have a dialogue, debate, commentary on MLS. Yup.

(Click to enlarge) Pretty certain this specific chart should be linked-to, reposted, RT’d just about anywhere where people have a dialogue, debate, commentary on MLS. Yup.

And the figures in red are what they would be spending if they operated like an EPL club, Global Top 20 club, or a Bundesliga club.

Being financially prudent is good, but the problem is the league is being financially prudent in the one area where they can’t afford to be. If MLS wants to be thought of as one of the premier soccer leagues in the world, then it probably should be the best league in North America. And right now that is not the case.  There are teams out there (New York, Los Angeles, Seattle) who want to spend more than they are able to under current MLS rules.

That is a problem.

These rules are potentially hindering a MLS team from participating in the Club World Cup, which would be massive for the league.

What is a potential solution?

MLS does not need to spend like the EPL to be successful.  If MLS teams spent like German teams their average wage expenses would be approximately $7.5M per team.  What would this “average” MLS team look like?  To test this hypothetical, a random number generator was used and a 30 person $7.5M team was constructed.  In fact, it came in under $7.5M.

...

Could this team win the CONCACAF Champions League?  Would more international soccer fans (not MLS fans) tune in to see this team play?  I think so.  It is up to MLS and its owners to decide what is best for their league, but perhaps it is time to ante up.

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23 responses to this post.

  1. Posted by jerichowhiskey on 2013/06/05 at 9:58 AM

    Where did you obtain the revenue figures for MLS? Also, wasn’t the league in the red for most of its existence? I’d bet any profit made were mostly turn to dividends.

    Reply

    • Revenue numbers are purely estimates. I revised my original number down for the second part of this analysis. My methodology is in Part I of this article and breaks out by tv, sponsor, match day revenue.

      You’re right about the history of the league and it is in part why I think owners/executives are being relatively stingy re player expenses now.

      Reply

  2. Perkins
    Farrell-Gonzalez-John-Pearce
    Kobayashi-Rosell-Clark
    Martins-Casey-Findley

    That would easily be a playoff XI in MLS right now, I think. And you could argue that I’ve made some poor decisions based on that roster.

    Reply

  3. Good stuff, but the question is how MLS can go about getting there. The current CBA expires after next season, so that’s the opportunity point. How much can the Players Union get 20 months from now?
    I doubt they will disband the salary cap or the league’s general single entity structure. So, IMO the main goals of MLSPU should be:
    1 – higher minimum salary. This improved greatly a few years ago (beforehand reserves pretty much had to have second jobs), but there are still kids making as little as $35k. Getting that up to 60-75k would be a huge improvement, and hopefully entice choose MLS over Europe.
    2 – higher cap. At the very least it appears a jump from roughly $3mm to $4mm could be cost-justified. I’d love to see at least that, and automatic annual adjustments based on league revenues.

    Reply

  4. Posted by Tom Patton on 2013/06/05 at 10:19 AM

    Fascinating stuff.
    I always get crap from my friends but I keep saying the secret to growing the MLS’s prestige is not shipping players off to Europe but winning the CONCACAF Champions League at least 3 years in a row and getting an invite to the Cup of Libertodores and having a respectable showing.
    Funny thing is I do not believe it is the players that are holding us back but in truth it is the level of coaching and technical management. The acumen is simply not their. Both Siggi and Arena were just simply out coached by their Mexican opposition in the semi’s of the last CONCACAF Champions League and they are two of the best we have.
    That is a sad commentary on the state of technical and tactical acumen of MLS management.
    Garber should put out a 5 million bounty for the first MLS club to bring home the CONCACAF CHAMPIONS CUP!!!!
    It is that important to building the league. The way to respect is to be one of the top three leagues IN THIS HEMISPHERE!!!!!

    Reply

  5. The critique is a bit unfair without showing the rest of the cost structure. For example, the wage bill is 26%, but the financing costs (start up investment) is 40% compared to 10%of the EPL….(these are just suppositions).
    If you are using percentages you have to show all the percentages as we know the wages are lower than other leagues as is the revenue.

    I’m still not convinced that MLS is any lower in ‘quality’ than the bottom half of the EPL. Every time I watch a Stoke City game, or a Norwich city even…I think that most MLS teams could compete on the field. Where they don’t compete is in the stands.

    How to make the teams more relevant is a tough call. Allow ‘super clubs’ ala the EPL and most leagues is one way….but that is not the American way.

    Reply

    • Posted by Tom Patton on 2013/06/05 at 11:33 AM

      I am sorry but they could not compete. Maybe for a game or 2 but over a 38 match season they would be lucky, very lucky, to accumulate 20 points.
      Please do not delude yourself. Especially if they had to play in three competitions at the same time stretching their seasons closer to 50 matches assuming they won a few early FA cup match ups.
      Seriously- think about it- by Christmas they would be completely out of gas and reserves.

      Reply

      • Right, the best in MLS might put up a fight against the worst team or two in the EPL, but beyond that they’d get destroyed. The biggest problem is depth.
        That’s why I want a much higher minimum salary to be a big priority. Raise the cap overall to boost high-end talent as well, and this league could take off. But for right now, no they can’t compete with Stoke or Norwich.

        Reply

        • Posted by GeorgeCross on 2013/06/06 at 6:09 AM

          And with the European TV deals getting bigger and bigger, and more and more globalised, it is going to be really hard to compete with their product. Stoke City and Swansea City might not be competing for the title, but the longer they can stay in PL, the more they are going to share that madsive pot of money to buy better and better players. Unfortunately, the gap is only going to get bigger and bigger.

          Reply

  6. Posted by Shawn on 2013/06/05 at 5:07 PM

    Great analysis on this very important part of the game! We can’t ignore the fact people are tuning into EPL and Champions League games at greater numbers every year. If we could get some of the players even on their last 2-3 years into the league, the TV numbers would pick up. I think MLS needs to look at converting the person that already follows soccer, Mexican League or Europe. The only way to do this at the beginning is to bring in recognized talent from those leagues + as already stated winning the area’s Champion’s league and being invited to Copa Lib. I believe the Beckham experiment worked, but it needs to be replaced by another Beckham or Henry every year by more than just LA and New York. Also the silly system we have in place to not allow returning USMNT players to pick their team is ridiculous. These players probably have been watched at the World Cup Level and/or a European team and would have some followers to boost the numbers. USMNT games viewership compared to MLS? USA-Mexico drew 2.39 million viewers for ESPN. 4.8 million viewers on UniMas. USA vs. Brazil (Friendly 2012) ESPN2 1.1 million. Also what are the ratings for MLS games on Spanish Television?

    Reply

    • Posted by Tom Patton on 2013/06/05 at 5:31 PM

      We will never match those TV numbers until we spend the kind of money on players,TECHNICAL DEVELOPMENT AND COACHING!!!!!!

      We have to be as good as Santos,Monterrey, Boca Juniors etc.

      FORGET EUROPE!- WE LIVE IN THE WESTERN HEMISPHERE AND MUST BE ABLE TO COMPETE ON LEVEL TERMS HERE 1ST!!!!!
      LOOK SOUTH FOOTBALL FANS NOT EAST.

      Reply

    • Posted by GeorgeCross on 2013/06/06 at 6:03 AM

      Do you honestly think an European DP, one who would generate the level of interest you’re talking about, move to for example Columbus or Kansas City? NYC and LA will always have a natural advantage.

      Reply

      • For the right amount of money combined with quality of league I don’t see why not. It’s not like all top quality players will want to be in a city like LA, New York, London, Paris, Madrid, Barcelona, Milan etc. If that were the case, then explain to me how cities like Paris have been pretty forgettable in the soccer world for most of this last decade.

        Reply

        • Posted by GeorgeCross on 2013/06/06 at 11:36 AM

          MLS is also competing with the other up-and-coming leagues, many of which do not have salary caps. In addition, I think with the exception of LA Galaxy, no team has the brand equity to attract that player who’s going to put bums on seats, get column inches in papers.

          I strongly feel that is the reason why Monaco and Paris were bought and not Toulouse or Rennes…

          I guess we shall see over the next few seasons which MLS attract the ‘sexy’ signings, won’t we?

          Reply

          • Posted by Shawn on 2013/06/06 at 12:30 PM

            The reason LA Galaxy has a brand to attract players is because of Beckham though. There are ways to attract local interest by some brand changes as well. I know that Sporting Kansas City has good local support by changing their name from the Wiz/Wizards to something more European. It’s not just the stadium, or the players – the name helps create a more attractive culture. I think the San Jose Earthquakes should change their name for this very reason when entering their new stadium.

            Reply

            • Posted by GeorgeCross on 2013/06/07 at 8:07 AM

              This is where the conversation gets a little circular! Obviously i cannot prove it, but I would say the Galaxy being in LA was a major reason they were able to get Beckham – i.e. he would never go to Columbus, OH.

            • George – I agree that Beckham went to LA partially because of the city and he wouldn’t have gone to Columbus, but I can say that confidently based on the other cities he’s played in. Madrid, LA, Milan, Paris, are obviously all major cities with plenty to offer beyond soccer. Do most MLS clubs have the brand power to sign names as big as Beckham? No, but the Galaxy didn’t have anywhere near enough brand power to sign Beckham if not for the fact that apparently Becks wanted to go to LA, yet they did too. The league has two, soon to be three clubs that can push for marquee players now, but as they sign players like that there will be more fringe EPL players coming to MLS for the quality. In turn, that will draw those big name players that are intrigued by the possibility of coming here because they see themselves as someone who can bring more credibility to a league with a good quality of play and definitely with good marketing potential, even if we’ve struggled to reach it. Bottom line is those three clubs can’t sign too many stars so there will be players who have heard good things about the league and will only be able to sign for other teams that are willing to sign them.

              It would be a farce to suggest that LA and NY don’t have an advantage in signing foreign players, but you’re selling the league short if you don’t think other clubs are capable.

  7. Posted by Jason Kuenle on 2013/06/05 at 5:38 PM

    Great analysis. As noted by others, there are some issues with the outlay analysis at the end. The fixed costs are not revenue dependent. Upkeep on an MLS field is not 100 times cheaper than in England, this leaves less for player salary. But that aside, you did the research that has allowed me to calculate something that I’ve wanted to do for a long time, the ratings increase necessary to offset raising the salary cap.

    Starting with the basic premise that an owner is not going to put into the club more than the valuation will rise from the investment. We’ll use your total value multiplier of 2.63. It is based in sound logic and produces a top level valuation similar to the NYCFC expansion fees and a median value at $50-60 million which seems like a likely expansion fee for Orlando.

    First, using your hypothetical salary cap increase to $7.5 million means an increase of about $4.5 million times about 20 teams or $90 million/year. You stated that the new driver would largely be TV revenue. So, we’ll take a three year cycle for TV revenue and recalculate the increase in total club valuation based on the final year revenue compared to the outlay of increased salary over those three years.

    So, three years of salary increase would total $270 million dollars. Divided by the value multiplier of 2.63 equals a necessary increase in revenue of about $100 million. Which is about 300% more than the TV revenue currently generated. Assuming MLS has a reasonably fair TV deal currently, this would mean that ratings would need to increase by 300% or about 500,000 viewers as well.

    The question is this, would four times as many people tune into to MLS (or put another way, twice as many as currently watch the EPL) if for three years MLS teams looked like your hypothetical one above?

    Doing the same analysis with a $1 million salary cap increase yields a necessary TV audience increase of about 60% or about 100,000 viewers at the end of three years. While the $1 million increase will probably not drive the 100,000 viewer increase, the combination of increase quality from the $1 million plus natural growth, probably about covers the cost outlay with the increase to franchise value.

    Reply

    • Good stuff! Your calculation (my variation of it) was actually the original intent of this article: “How does a team value increase with increased salary expenditures?” I found tv ratings to be too difficult to parse/project so I left it out of the analysis but I like what you’ve put together.

      Also, other revenue streams (beyond tv) that would increase would also be match day and sponsorship, though each of those less so than tv. Still, even just a 10% increase in match day and sponsor revenue would add another ~$35M in revenue (~$97M in value) to clubs. And I think that’s pretty realistic.

      Reply

    • Also, the revenue multiplier applied to TV money would probably be higher than 2.63 because it’s not capital intensive at all. It goes straight to the league/team’s bottom line and would make their overall revenue stream more desirable. You could make the argument that any tv revenue could get something north of 3. Manchester United got like a 5x multiple largely because they have great sponsor/tv revenue deals.

      Reply

  8. History? I was under the impression that many MLS teams are still in the red. It’s hard right now to ask for MLS teams to spend that much considering that in the EPL wage model the average payroll is twice San Jose’s revenue. Not to mention another three teams who’s revenue is below that $14 million mark. In the Bundesliga model, the most reasonable at the moment, the average payroll is still pretty close to San Jose’s total revenue.

    Reply

  9. […] owners simply don’t spend much on players. There’s a great graph in The Shin Guardian’s piece that lays it all out (and that […]

    Reply

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