If MLS adopt 25% revenue sharing & 0.35% revenue salary cap, how soon will top MLS teams surpass FMF

Andy Chapman actually played here for years, but I don't know if he counted as a foreign player or a domestic one.

/obscure

 

Ma & Pa Kent sound shady to me. They see a young prospect, "adopt" him and now expect to get the payoff when Superman is sold to some Super Club.

 

A better example would be to not compare MLS to a single company that wants to see certain sectors/divisions grow, but instead a government. Clubs are the state gov't and MLS LLC/SUM is the federal gov't. Now certainly the representatives from Iowa want to do what is best for the country but not if it directly harms their state. The same way shareholders in MLS want to see the league grow but not at the expense of their franchise.

And this convoluted revenue sharing and cap system is not going to happen. If you look at the current MLS salary structure it is clear what MLS is doing and how the league will grow their salary spending in the future. MLS already has 'budget players' and 'off budget' players. Right now they consist of GA/homegrown/bench guys (20-30 on the rosters) that do not count against the cap. So what I think you'll see is just relaxed rules on what players can be allowed into your 'off budget' spots. Eventually if all restrictions are removed, you could see 10 DP type players on rosters with the other 20 being squad players paid by the league's budget. This system is already in place now and doesn't need to have massive rule changes or incredibly difficult mechanisms in place. MLS pays for 20 guys and clubs (or sponsors) pay for the rest. Now right now we have rules saying what 10 players those can be, but if we begin to ease those rules it will allow aggressive clubs to spend much more freely and spread their money around much better than they can now. And we can still keep the same exact framework of salary caps.

 

Well that's a nice political talking point backed up by no facts...

 

The problem with comparing MLS to a single company with multiple divisions is that widget distributors have a P&L W-L record, but not an on-the-field W-L record, while MLS clubs have both.

MLS, LLC's Denver Division can be financially successful whether or not its soccer team wins a majority of its games or doesn't. We don't have those numbers, which are the ones a business would actually look at. Fanboys look at success on the field as a defining statistic of "success," while at the same time trying to compare MLS to any other business that has multiple divisions, some of which might need propping up or shuttering depending on the circumstances.

As was said once about baseball, it's too much a game to be a business and too much a business to be a game. Yet fanboys and their back-of-the-envelope attempts to understand what they cannot understand muddle the issues considerably.

 

I was making an analogy, I am not saying that MLS will literally have the same voting and political issues that our federal and state gov'ts have. What I'm saying is that just as politicians will have vested interest in seeing both the federal and state gov'ts succeed, so does MLS shareholders. It is unlike a business like Sony that could just see that the Playstation division is doing much better than the Walkman division and decide to just cut off the Walkman division and give the resources to Playstation. Because the owners of that company ONLY worry about money and stock prices. If they cut off one division to make more money it is fine for them. MLS isn't like that. If you put in a practice that will hurt most of the clubs in favor of a few clubs, then those stock holders will never allow it.

My point about spending models is that this suggestion is unnecessary and will never happen because MLS already has a model in place to grow their salary spending and its call 'off budget players'. Right now DPs are basically off budget players with only a fraction of their salary counting towards the cap, but MLS teams have plenty of players who play and don't count against the league cap, they are paid by clubs. MLS total club budgets was about 1.9M pre Beckham and now clubs spend 2X that on the low end and 8X that on the high end in only 6 years. And the path to that increased spending was allowing most players to be on the league cap and other players being payed beyond the cap by the clubs. This includes both star players and young players. It is highly likely that the league will just keep expanding this mechanism over the coming years.

Right now off budget players make 44k and GAs can make up to 200k. I think the path MLS will take is to first allow DPs to start to move to the off budget roster. Maybe 1 at a time over the coming years. Then MLS can start adding DP slots at a cost (like they did for 3rd DP) and allow those players to go on the off budget list and use the DP purchasing cost as a kind of tax (as they've done before). We might start to see higher off budget salary limits in the future too, allowing better players to fill those spots which will clear more room on the league salary budget. We also already leverage a sponsorship (Adidas) to pay off budget players. MLS might start to allow clubs to use shirt sponsorships to pay off budget players (Keane might be a Herbalife sponsored player or something). Maybe MLS could bring in 2nd shirt sponsors like they had original on the back/sleeve to allow clubs to have more sponsored players.

This to me is the path MLS will take to grow their spending budget. Why? Because it is what they've been doing for years. Noting I suggested is new, its just about expanding their current plan.

 

I thought the GA and 21-30 players whose compensation doesn't get factored into salary budget equations are still paid by MLS, LLC and not by individual clubs.

 

And you would be correct. Only DP's have salaries or fees paid by the individual clubs.

 

Well GA is paid in part by the Adidas deal, but I do think MLS LLC pays for 21-30 players as of now. But I did remember in one Q and A with Andrew Hauptman he made a statement about the investment numbers into reserve team and youth team. He made it seem like this was being paid directly by the club and didn't come from MLS. So I'm not totally sure when it comes to reserve players but I think this was before the relaunch of the new reserve division so that could have been changed.

The central point I was making is that we don't need to move to some kind of cap based on revenues since we have the mechanisms in place to go well over the cap. Years from now you'll just have smaller and smaller numbers of players being paid centrally and more players being paid by individual clubs. The majority will probably always be paid centrally to allow MLS to retain its single entity status, but the move to "salary budget players" and "Off budget players" seems to be what MLS has been using for years. Even Donovan/Ruiz/Johnson grandfathered contracts were basically "off budget players". So to me it seems obvious that this is the mechanism we are going with and I'm OK with it. Years from now ambitious clubs can fill their off budget roster with highly paid players and modest clubs will fill their roster with younger modestly paid players.

 

You're not understanding how the "budget" works.

Every (non-DP) player signs with MLS and is paid by MLS.

MLS then gives the teams a budget and a roster limit.

Players either count against the budget or they don't, depending on the roster rules. But whether they count against the budget or not, they're still paid by MLS and employed by MLS.

In other words, don't think of off-budget players as "independent" players that are the team's responsibility. They are just like all the other players, except the league lets the team have them for "free" with respect to the salary budget.

Bottom line: whether the player is on-budget or off-budget, unless it's a DP, every team pays 1/19th of that player's salary. You can't sign cheap players in spots 21-30 and save yourself real cash money.

 

I wonder if it's that simple. I don't know if "teams" (or "team-generated revenue") goes into the kitty from which MLS, LLC cuts individual checks/direct deposits for individual players or if it's "league-generated revenue" that goes into that kitty.

I realize these are distinctions that may not matter, and we don't know anyway, but is Robert Kraft really being assessed $1,776.32 toward each minimum-salary guy or does MLS, as a league, which generates revenue from TV, licensing, merchandise, player transfers, et al, pay that $33,750 out of "its own" pocket?

It's just accounting tricks, I understand. I just wonder if we're making assumptions. I know part of the money MLS, LCC generates is money it takes from the total revenue generated by each of its clubs over the course of a given year. So perhaps it doesn't matter. But perhaps we're making a complicated issue too simple.

 

I don't think anyone knows exactly how the league budget works, the allocation money seems to be the most obvious example of this. How much and where it comes from seems to be a bit of a mystery to anyone not in the boardroom. Gen Adidas contracts were part of the Adidas contract signed through SUM, so it is an even more interesting scenario that an independent marketing division is securing revenues that go directly into the player salary pool. It certainly is complex, but I think it is obvious that there is a movement to count some players as 'budget' guys and others as 'off budget' players. Right now all the reserve guys are probably coming from MLS central salary pool and DPs are being paid by the clubs, but the point I was making is that MLS seems to be building a mechanism to allow them to spend more money "off budget" while still keeping a central salary pool and small budgets. I suggested they will probably start moving DPs onto this off budget roster (creating more salary budget for squad players) and then start increasing the number of highly paid players on the off budget roster by either selling more DP slots or introducing more sponsor paid players similar to Gen Adidas. My point is that MLS doesn't need a mechanism that was suggested in this thread because the league seems to already be building a mechanism that will allow teams to spend more beyond the cap, the only question is how ambitious MLS gets with their "off budget" players in the future.

 

Yes, your point is completely valid. Was just thinking out loud about the mechanisms.

Too far in the weeds, I reckon.

 

I think both team and league generated revenue goes into the pot.

We don't know the specifics, but generally we know how a capital call usually works. First, a definition (emphasis mine):

"Capital Call: A call for additional equity investment by shareholders or partners in order to fund cash shortfalls in development or operations, or to compensate for the falling value of noncash assets and the need to increase cash so that liabilities do not exceed assets."

http://financial-dictionary.thefreedictionary.com/capital calls

Typically, like any company, MLS, LLC should seek to fund the salaries and its other expenses from its own financial resources first, making a capital call to investors to pony up more cash cover any expected shortfall.

Now, the Portland study has confused people -- it confused me -- because it projects a capital call in the same dollar amount year after year. My guess is that it's just that, a projection. Unable to really project what the league shortfall might be in two or three or five years time, they used the same $3.1M number for the capital call year after year. I strongly suspect, however, that the actual capital call number changes every year, and it changes to reflect the gap between what the costs are at MLS, LLC -- payroll being the biggest -- and the revenues at MLS, LLC.

So, to answer your question, I think both MLS, LLC cash and money from the capital call are used to fund salaries and other league expenses, with money from the capital call used to plug any shortfall.

The more difficult question, I think, is what cash does MLS, LLC generate?

We know the league gets a cut of the general admission gate receipts. (Personally, I do think its technically 30%, as CSL said in the KC study, not "a third" as HVS used in the Portland study). We know the league gets part of every transfer fee and a small part of every shirt deal. What we don't know is how the national TV money and the national sponsorship money is divided between MLS, LLC and SUM.

Fake Sigi got MLS to clarify the relationship between SUM and MLS not long ago, and the league told him this:

Major League Soccer and Soccer United Marketing are separately organized business entities. The owners of MLS are also the owners of SUM. All revenue from SUM is distributed evenly among the ownership groups.​

​

https://soccer.fakesigi.com/soccer_united_marketing_revenue_distributed_profit_mls.html

Fake Sigi also reported that SUM had about $100M in revenue in 2010, with $65M generated by MLS.

https://soccer.fakesigi.com/soccer_united_marketing_revenue.html

Now, if you do some back of the napkin guesstimating, it's pretty hard to see how MLS could generate $65M for SUM unless part of the $30M in national TV money and a good chunk of corporate sponsorship money was booked at SUM, not the league.

Why, you ask, would MLS do that?

Why, for example, wouldn't MLS book almost all of its $30M in national TV money at MLS, LLC? That would boost the revenue at MLS, LLC and reduce the capital call.

The answer, I think, is that while "the owners of MLS, LLC are the owners of SUM", they aren't exactly the same. In fact, since Providence bought 25% of the SUM, we know they aren't the same. But even before that, MLS, LLC has long had two classes of shareholders, the I/Os and the investors who don't operate a team. The I/Os have shares in both the league and SUM, but its not clear how the other shareholders overlap. And if some interests really are different, it probably matters a lot to some shareholders what revenue is booked at SUM (which makes it profitable and allows an annual distribution) and what revenue is booked at MLS, LLC (which might increase or decrease the shortfall, and the capital call).

Which makes pulling this apart wickedly complicated.

 

Yes; when I said "pays 1/19th of every player's salary," it was shorthand for "contributes an equal amount, as necessary, as the other 18 teams to MLS's general operating expenses, which include non-DP, non-GA player salaries."

 

Looks like my New Year's wish didn't come true.

 

In sports the issue is a bit different though, so I think any short term increase in growth would be short lived at best and negative in the long term at worst. In a widget business your business operations in LA and Seattle do not necessarily depend on having a branch in Columbus. Maybe you have a couple a small to medium clients in Columbus so you treat that branch accordingly and pay more attention to the bigger clients in bigger markets.

In sports, it really doesn't do LA or Seattle any good to play in a league where there either aren't many other teams to play. You could make it much easier for the bugger markets to build much better teams, but you do that at the expense of either a smaller or no league. The real value for leagues in the US is TV revenue. The bigger your league footprint, the larger that potential pool of money is. The more engaged your fans are, and you have to admit that Columbus spending significantly less money than a team in LA and being less competitive is going to reduce interest in that market, the better your chance of getting more value out of your TV deal.

This is a giant country and you just aren't going to have enough teams or interest without some system that ensures you have more than a two or three team league. You also have to keep in mind that in a given year, the spread of teams in the standings isn't much different than you see in an up-capped league. What you do see is a system where the placement of teams varies over time and I don't see anything wrong with that and it is probably the most attractive thing about US leagues.

Another thing to keep in mind is that teams with more revenue can differentiate themselves in other ways even if they can't spend extra money on players. It can invest more heavily in facilities, scouting, youth development, coaching. All of that spending can be used to make the team successful over the long haul. Look at an organization like the New England Patriots. In a capped league this organization has stayed successful over a dozen seasons because they stick to a plan and differentiate themselves by being smarter than most of the other teams. In soccer we had a star studded mega team. It was great for the Cosmos and in the short term that was good for the league, but less than 10 years later that league was done. A one or two or three team league just won't sell.

 

For starters, I want to make it clear that while another poster has accurately quoted me from another thread, I don't agree with the solution he proposes here and I've said so in one of the many other threads on this topic.

I don't think anyone would argue that a league dominated from one to three teams is a good idea. But I also don't think it's wise to cap spending based on what the weakest teams can afford -- or will agree to -- either, especially if the argument is that it's needed to boost TV revenues.

Indeed, the increased size of the league doesn't seem to have increased viewership. Well supported teams tend to have higher TV ratings, but there isn't much evidence those fans are tuning in to watch other teams where they are neutrals.

 

First, I know your posts and didn't think that's what you meant. I do have a good sense as to why the other poster used it to try and make his point. I think MLS is trying to find a happy medium. There are plenty of sustainable markets for MLS, but they aren't all equal. I think what it comes down to is MLS picking the right markets, and I don't get the sense that MLS is capping salaries at whet the weakest can afford. The pressure seems to be pushing the limits these days. From a practical point of view, I don't see how a league can make it difficult on the smaller markets without being willing to shed teams. This is part of what the NHL is arguing about. The salary floor seemed like a great idea, but it seemed to hurt the weaker teams and the cap and floor rose. I think MLS would be able to handle this better since its all family money so to speak, but if the league want's 19-24 teams then it needs some way of making sure the weaker markets are viable.

 

La Liga's TV distribution is probably close to being economically rational because the world is watching Messi and CRonaldo ... and then switches to the EPL.

Now, of course, the powers-that-be can rig the system any way they want but the Spanish TV exes know where their bread is buttered.

MLS doesn't have the same ratios. There are minor variations with Seattle and LA but only against certain opponents.

 

Local TV deals do not have to be shared in MLS.

LA and NYC clubs can get lots of money from Local TV, that would create a disparity with teams from other cities and would eventually end up with two cities with super clubs (if there is no CAP).

Obviously the best way to prevent this would be to have multiple teams in NYC and in LA (as many as the market would bear).

 

Here's all the proof you'll never need.