Unpacking the Major League Soccer Business Model

The Investor-Operator

MLS teams don’t have owners in the classic sense: they have Investor-Operators. It’s actually an important distinction when considering the MLS business model. Unlike other American sports leagues, MLS isn’t structured as a legal cartel where a number of competing interests work together to facilitate healthy competition. Instead, MLS Investor-Operators are all financially invested in the same business entity — Major League Soccer, LLC — and succeed and fail together. They all made their initial investment in the LLC, and they all receive a pro-rata share of the profits if and when MLS generates a profit (or they can write off their share of the losses, should MLS lose cash in a given year.)

How does Major League Soccer make money?

They sell soccer.

Soccer United Marketing

Any discussion of the MLS business model is incomplete without considering Soccer United Marketing (SUM). SUM may be the key to the continued growth and success of Major League Soccer, and positions the league and its Investor-Operators to reap maximum benefits from the growth of soccer in America.

Expansion

There has been a glut of expansion talk lately as MLS has two clubs readying for their entry into the league (LAFC and David Beckham’s Miami team), and the league is currently evaluating bids for teams 25 and 26. The MLS Board of Governors — a subset of Investor-Operators — met earlier this year to set the expansion fee for teams 25 and 26 at $150 million each. This raised some eyebrows as just ten years ago Toronto FC entered the league for a much smaller $10 million payment. How can the league demand such a high payment? The answer lies in examining what exactly Investor-Operators get in return for their expansion fee.

Slip on your Investor-Operator Shoes

In order to understand why someone would want to lay out the cash to be a Major League Soccer Investor-Operator, let’s take a walk in their shoes.

Is MLS going to fail?

Some have suggested that MLS is a bubble, or a Ponzi-like financial scheme where income from new investors is keeping the league afloat instead of growing revenues and real value. MLS doesn’t help its case by being secretive of its revenues, and even cries poor whenever it’s time to negotiate a new collective bargaining agreement with players. MLS likely doesn’t care about being transparent as it doesn’t need to convince us that it’s financially stable, and it’s likely even better served by obfuscating the true financial state of the league. Given it’s a private company, there is no statutory transparency requirement, and so we’re forced to speculate as to the financial situation of the league.

Conclusion

The MLS business model is complex, but purposefully built. Incentives are aligned so Investor-Operators focus on building their teams locally while MLS promotes the league nationally. Centralized salary controls and tightly managed competitive rules ensure that more ambitious Investor-Operators can push the whole league forward, but not drive a spending spree that bankrupts the enterprise.

Sources

  1. Forbes, “Meet The Woman In Charge of Selling MLS”, March 9, 2012 https://www.forbes.com/sites/jennagoudreau/2012/03/09/meet-the-woman-in-charge-of-selling-mls/#5926ab27487f
  2. Sports Business Daily, “MLS seeks to buy back stake from Providence”, April 18, 2016 http://www.sportsbusinessdaily.com/Journal/Issues/2016/04/18/Finance/MLS-Providence.aspx
  3. Web Archive of www.sumworld.com from March 2012 https://web.archive.org/web/20120311151055/http://www.sumworld.com:80/company-overview/
  4. San Diego Tribune, “Guess The Attendance”, September 27, 2006 http://legacy.sandiegouniontribune.com/uniontrib/20060927/news_lz1s27goal.html
  5. Forbes, “Major League Soccer’s Most Valuable Teams 2016”, September 7, 2016 https://www.forbes.com/sites/chrissmith/2016/09/07/major-league-soccers-most-valuable-teams-2016-new-york-orlando-thrive-in-first-seasons/2/#2879568b4d6e
  6. LA Times, “Mexico’s national soccer team finds a great home venue — in the U.S.” March 28, 2015 http://www.latimes.com/sports/soccer/la-sp-mexico-soccer-20150328-story.html
  7. Brotherly Game, “Crowdsourcing the Philadelphia Union Financials”, December 3, 2013 http://www.brotherlygame.com/2013/12/3/5139634/crowdsourcing-the-philadelphia-union-financials
  8. Crain’s Detroit Business, “Is Major League Soccer a sound business investment for Dan Gilbert and Tom Gores?” April 26, 2016 http://www.crainsdetroit.com/article/20160426/BLOG003/160429866/is-major-league-soccer-a-sound-business-investment-for-dan-gilbert
  9. Sports Business Daily, “MLS adds franchise; are more on the way?”, July 23, 2007 http://m.sportsbusinessdaily.com/Journal/Issues/2007/07/20070723/This-Weeks-News/MLS-Adds-Franchise-Are-More-On-The-Way.aspx
  10. ESPN FC, “Seattle to get expansion MLS franchise for 2009”, November 9, 2007 http://www.espnfc.com/story/480678/seattle-to-get-expansion-mls-franchise-for-2009
  11. Vancouver Sun, “MLS expansion fee won’t scare away Whitecaps”, November 25, 2008 https://www.whitecapsfc.com/post/2008/11/25/mls-expansion-fee-wont-scare-away-whitecaps-vancouver-sun
  12. Soccer America, “MLS owner Paulson predicts franchise fees will rise”, October 18, 2012 https://www.socceramerica.com/article/48759/mls-owner-paulson-predicts-franchise-fees-will-ris.html
  13. The Province, “MLS expansion: What you need to know”, December 11, 2016 http://theprovince.com/sports/soccer/mls/vancouver-whitecaps/mls-expansion-what-you-need-to-know
  14. AJC.com, “Atlanta gets MLS franchise”, April 17, 2014 http://www.ajc.com/sports/pro-sports/atlanta-gets-mls-franchise/HvSPqVRFe47jyYxbmMAJTP/
  15. Denver Post, “MLS announces guidelines for hopeful expansion teams, including $150 million fee”, December 16, 2016 http://www.denverpost.com/2016/12/16/mls-expansion-guidelines-150-million-fee/
  16. Sports Business Daily, “New teams, products drive MLS sales”, July 11, 2016 http://m.sportsbusinessdaily.com/Journal/Issues/2016/07/11/Leagues-and-Governing-Bodies/MLS-merchandise.aspx?
  17. SportsDay, “FC Dallas rolls out 1% fan payment program”, https://sportsday.dallasnews.com/soccer/soccer/2017/03/08/fc-dallas-rolls-1-fan-payment-program
  18. Providence Equity Partners, http://www.provequity.com/portfolio/mls-media

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Isaac Krasny

Isaac Krasny

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I once hit the ball back into the pitching machine. I’m currently a problem solver for hire — isaackrasny.com