“We were down to 10 teams from 12 and seeds of doubt were planted in our minds”, reminisces Columbus Crew owner Clark Hunt when recollecting the state of MLS in the early 2000s.
While today at the conclusion of the MLS business summit in Columbus, the mood was very positive & upbeat. All the indicators showed positive growth and a majority of its 19 teams are profitable, said Commissioner Don Garber while patting his colleagues for their soccer team management skills. Junior soccer is also set to grow.
Hunt said that D.C. United recently sold for $55m, a signal that the valuation of the teams is on an upswing. At an expansion fee of $100m (up from $7.5m in 2005), the league wants to add a second New York team. Montreal shelled out $40m to join MLS this season. Optimism is filling the air.
The unique business model was inspired, in part by the NFL with the use of salary caps & revenue sharing and with the success of New York Cosmos at the cost of other teams. Cosmos’ success was driven by high-priced world-wide stars. The league self-destructed when other teams followed suit & were weighed down by exorbitant salaries & eventually went bankrupt.
One of the objectives of MLS is to provide an unbiased platform to all teams. David Carter, executive director of the University of Southern California’s Sports Business Institute states, “Based on greater quality of play, only-for-soccer stadium, and new market penetration, the new model is certainly working”. This will also encourage the growth of junior soccer.
The business model for soccer team management is unique, in that “The players are signed by the league & not the teams”, David said. MLS Team owners play the roles of the investor & operator and have the sole right to operate a team. The league’s salary cap is at ~$4m/ team, with an exception of a maximum of three players/ team. This flexibility was to ensure that the big-name international players entertain the crowd.
National TV & merchandizing revenue, expansion fees and 30% of home ticket sales are equally shared among MLS Teams. Garber says, “Local sponsorship money and jersey & stadium naming rights remain with the individual team”. Here’s where big-market teams make it really big.
Garber said, “L.A. ropes in $5.5 million annually for local TV rights while on the other hand Columbus draws zilch”. Crew president and general manager Mark McCullers, “We are amongst the smallest markets but wins against the larger ones are ever so sweet”.