MLS & Money

Major League Soccer was on life support at the beginning of this decade. It was mired in a bitter lawsuit with its players, games were mostly played in football stadiums before sparse crowds, two teams had to fold and the league was hemorrhaging money. It looked like MLS might join an alphabet soup of failed soccer leagues including the NASL, USL and WISL.
It is a much different game today. Seven of the league’s 14 teams play in soccer-specific stadiums, five of which have been built since 2002. Expansion franchises in Seattle and Philadelphia recently agreed to pay $30 million each to join the league, three times what Toronto FC paid to join MLS three years ago. Commissioner Don Garber says the next two expansion teams, to be announced in 2009, will cost $40 million. Some team owners are even floating a $50 million price tag.
This is not a pipe dream. Our first independent study on the finances of Major League Soccer--using past transactions as a guide--shows that three teams are already worth at least $40 million, and the average franchise is worth $37 million (we excluded the San Jose Earthquakes from our study because they were not part of the league last season, and we therefore did not have revenue and expense figures for them). Most recent deal: Philip Anschutz sold a 50% stake in the Houston Dynamo this spring to Golden Boy Promotions and Brenner International in a transaction that valued the team at $45 million.
Our estimates indicate the league is not yet profitable, with its 13 teams posting an operating loss (in the sense of earnings before interest, taxes and depreciation) of $20 million on revenue of $165 million. But there are signs of hope. In 2007, the three teams that were in the black--Los Angeles Galaxy, Toronto FC and FC Dallas--had a combined operating profit of $6.7 million.
Soccer United Marketing, a separate business owned by investors in the league, runs the league’s national television deals ($23 million last season from ESPN, Fox, HDNet and Univision), as well as the commercial rights to a bevy of soccer properties (such as the U.S. rights to the FIFA World Cup). Yet SUM distributed less than $1 million to each team last season. That means that to be successful in MLS, a team has to generate a lot of cash from its stadium and local television and sponsorship deals.
At the top sits the Los Angeles Galaxy, worth $100 million. The team creates excitement in the stands and with the media wherever they go, thanks to the import of midfielder David Beckham in 2007. His New York-area debut drew 66,000 people to Giants Stadium, five times the typical crowd. Two months after his arrival, weight loss firm Herbalife (nyse: HLF - news - people ) agreed to a $4 million-a-year jersey sponsorship deal, twice what any other team commands. The payoff for Herbalife: Fans snapped up 300,000 of Beckham’s number 23 jersey last year.
The team’s stadium, Home Depot Center, has 48 suites that lease for as much as $150,000 a season. The 1,500 club seats cost an average of $4,500 per season. Sponsors like American Express (nyse: AXP - news - people ), Delta Air Lines (nyse: DAL - news - people ) and Valero Energy (nyse: VLO - news - people ) bring in another $6 million annually for the team.
The Toronto FC, which commissioner Garber holds up as the blueprint for the coming expansion teams, is worth $44 million, up four-fold in just three years. The team turned a profit of $2.1 million in its inaugural season last year, when it sold every ticket at 20,500-seat BMO Field.
A cosmopolitan city with a passionate soccer fan base translated into a sea of supporters donning the red and white team colors at home games. Toronto FC spectators topped the league in spending, averaging $15 a game on food, beverages and souvenirs at concession stands. Toronto also rakes in $4 million in local television and sponsorship revenue.
“Toronto FC was one of the most successful launches in pro sports history,” Garber says after reflecting on how Toronto reporters scoffed during the initial press conference, predicting that MLS would never succeed in a city with a history of failed soccer teams.
Two more teams, Real Salt Lake and the New York Red Bulls, will move into new homes over the next year. Real Salt Lake forecasts that revenues will increase from $7.6 million to $20.3 million in 2009, its first full year in a new soccer-specific stadium. The team will control the stadium and get more money from sponsorships, concessions and non-soccer events. The Red Bulls will have similar benefits at their new stadium. We expect both teams to become profitable and increase in value after they move into their new stadiums.
Struggling teams? The Kansas City Wizards are playing in a minor league baseball stadium and had just $5 million in revenue, less than half the league average of $13 million. The Columbus Crew, despite playing in a soccer-specific stadium, can’t find sponsors and thus generated just $6 million in revenue. Chivas USA only had $10 million in revenue because they are tenants of the Galaxy at Home Depot Center. The New England Revolution, who play in Gillette Stadium, home of the NFL’s Patriots (both teams are owned by Robert Kraft), drew only 10,000 fans to each of their two playoff games last season. All four of these teams get only a fraction of the local television and sponsorship money that the Galaxy and Toronto FC take in.
Richard Schaefer, president of Golden Boy Promotions says, “I expect soccer franchises to trade in the $80 to $100 million range within the next three years.” That might happen. But only those teams with great stadiums and rich sponsorship deals.
Forbes, 2009