Major League Soccer is no longer a retirement home for European players
and no longer willing to offer vast contracts to former stars,
it’s now quick and entertaining, it’s largely played in purpose-built stadiums and it’s known
as a destination for young talent rather than a final stop for those already over the hill.
It makes MLS increasingly popular.
But it doesn’t necessarily explain why its franchises are surprisingly valuable.
So, how valuable are we talking?
Well, according to Sports Business website Sportico, the MLS’s top three most valuable
franchises as of 2021 are Los Angeles FC, Atlanta United and LA Galaxy, valued at $860m,
$845m and $835m respectively. Even at the other end of that list, down in 27th place,
the Colorado Rapids are estimated to be worth somewhere in the region of $370m.
In the overall context of North American sport, that’s not much – In August 2021,
Forbes estimated the average NFL franchise to be worth $2.48bn –
but for a league in which the average attendance is just over 21,000 and the
competition’s broadcasting contract pays just $90m per season (until 2022), these are eyebrow
raising figures – particularly compared with other, football-specific examples.
Less than two years ago, Mike Ashley was reportedly willing to sell Newcastle United
for $415m and West Ham United, who are currently subject to takeover interest,
are estimated to be worth $508m, good enough for 17th place on Sportico’s list.
Can that be right? And if so, why and how?
These numbers are just theory, of course, but such value is described by the actual
sums paid for stakes in MLS franchises in recent years. In February 2020,
Cardiff City owner Vincent Tan sold just 10% of LAFC for $70m. The previous year, In July 2019,
NBA star James Harden purchased a minority stake in the Houston Dynamo for $15m. A month before,
in June of 2019, Morningstar founder Joe Mansueto paid $322m for ownership of the Chicago Fire,
a team just three years removed from back-to-back Wooden Spoon seasons.
So, it’s clearly an attractive investing environment and the level of demand is best
described by the inflation in expansion fees that MLS has been able to collect,
as the competition grows towards becoming a 29-team league in 2023.
In 2007, Toronto joined MLS having paid $10m. The same year, as part of his playing contract,
David Beckham was assured the right to purchase a future franchise for $25m. Quaint fees: in 2013,
New York City FC paid an expansion fee of $150m, as did Cincinnati (2019), Nashville
(2020) and Austin (2021). In 2022 Charlotte FC will take their place in the league, and
it will be after David Tepper - who also owns the NFL’s Carolina Panthers - paid a staggering $325m.
It’s a trend which makes MLS an outlier, even in the hyper-capitalist world of US sport.
According to a March 2021 article written by The Athletic’s Sam Stejskal,
“The average percentage increase MLS saw in its teams’ Forbes valuations from 2018 to 2019
was nearly triple that of the NBA and NFL,
and roughly four times the increases seen in MLB and the NHL in the same period.”
It’s an amazing figure. Especially so given that very few of the franchises are profitable
and that, as of pre-pandemic figures, only three clubs had revenue in excess of
$50m (Atalanta, LA Galaxy, Los Angeles). In fact,
in 2018, the 23 teams that took part made a collective loss of $100m.
But the revenues earned by the individual franchises are only one part of the investor
equation. With ownership comes stakes in Soccer United Marketing, a subsidiary
which has near total control over soccer’s commercial interests in the United States.
In addition to negotiating MLS’s television and marketing interests,
it also handles the commercial rights of the USSF and CONCACAF.
It’s lucrative. According to a 2019 estimate from Forbes, SUM – which is
wholly owned by league investors – is worth around $2bn, with annual revenues of $350m.
It’s estimated that some clubs derive more than 40% of their value from those holdings alone.
It creates a distinction between the variety of ownership found in European football,
which is a more traditional kind of stakeholding, tied to a team’s rise and fall, and ownership
within the MLS model, where the franchises are really commodities and the investment
is in not only the league, but the game itself. The gamble seems to be that both remain within
a growth phase – and that’s a key advantage MLS has over more traditional North American sports.
Unlike the NFL, NBA, NHL and MLB, soccer is nowhere near reaching its potential,
and yet there’s every reason to believe that it will continue to push towards it,
and for reasons beyond just the big, boisterous crowds in Atlanta and Seattle.
Soccer theoretically appeals to a broader range of American society
and obviously to its vast Hispanic population, but it’s also favoured by a younger demographic too.
A 2019 survey carried out among US watchers of the English Premier League
discovered that over 55% were 45 years old or younger. Last season, broadcaster NBC reported
an average total viewership across their various platforms of 879,000 per Premier League game,
which was both a 2% rise on the year before and double that of the average NHL broadcast.
In July 2021, 9.4m viewers also watched the European Championship final between England
and Italy, a 59% rise on the 2016 final between Portugal and France. Italy’s win at Wembley was
also seen by more viewers than – on average – watched the first three games of the NBA finals.
The Premier League and European Championship are not MLS,
but their audiences provide evidence of appetite, and the US isn’t far away from
hosting its second World Cup, alongside Canada and Mexico in 2026. In 1994, the momentum
generated led to MLS’ original launch and the expectation this time is for a much bigger jolt
and – presumably – an even bigger boost to a now developed footballing environment.
There are caveats. Expansion and the revenues associated with it cannot carry on forever, not
without damaging the quality of the league. And, more importantly, while US eyes will doubtless
be drawn to the World Cup, MLS franchises won’t hold that attention if its product is inferior.
Clearly, though, investors and owners understand that, and the vast sums of money they continue to
pour into the league would indicate that it’s a risk that they’re willing to take.