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

The DP Rule is designed with parity in mind. You think it is a HUGE advantage when it is really not. A $15 mil team with MLS parity/3DP is about on par with a $3 mil team. San Jose vs. New York is an example of this.


I don't get where you got that LA can only spend $3.2 million from.

Hypothetical #:

$40 mil revenue team - $6 mil loss due to revenue sharing = $34 million total x 35% = maximum $11.9 mil salary budget

$35 mil revenue team - $4.5 mil loss due to revenue sharing = $30.5 million total x 35% = maximum $10.6 mil salary budget

$30 mil revenue team - $3 mil loss due to revenue sharing = $27 mil total x 35% = maximum $9.45 mil salary budget

$14 mil revenue team + no gain/loss due to revenue sharing = $14 mil total x 35% = maximum $4.9 mil salary budget

$9 mil revenue team + $2.5 mil gain due to revenue sharing = $11.5 mil total x 35% =maximum $3.45 mil salary budget


As you can see, the higher a club revenue, the better off they will be. Revenue generation will be the goal of each MLS club. And by getting rid of the DP Rule, each club can spread their salary budget more evenly throughout the roster. MLS top clubs will surpass the Mexican top clubs in a very short time.

And once again, you won't answer the question. I get that you believe a revenue salary cap (35% of each club total revenue) is retarded. But that shouldn't stop you from answering the question no? especially with $500,000 in consultant fee on the line.

 

I guess you are so low now as to result in name calling. I won't degrade myself to your level.

I guess you don't understand the word "SHARING" in revenue sharing.

Example using hypothetical # in a league with 3 teams:

$40 mil team = $37 mil local + $3 mil national
$20 mil team = $17 mil local + $3 mil national
$12 mil team = $9 mil local + $3 mil national

Revenue sharing would be

25% of $37 mil = $9.25 mil
25% of $17 mil = $4.25 mil
25% of $9 mil = $2.25 mil
Total revenue SHARING pool: $16.00 million

Revenue SHARING mean these three teams will split the "revenue SHARING pool." Each team will get $5.333 mil.

Putting in $9.25 mil, getting back $5.33 mil = net loss of $3.92 mil
Putting in $4.25 mil, getting back $5.33 mil = net gain of $1.08 mil
Putting in $2.25 mil, getting back $5.33 mil = net gain of $3.08 mil

To reiterate, you forgot the SHARING in "revenue sharing."

 

where did you get the impression that

Revenue Sharing (local):
25% of ticket revenue
25% of shirt sponsorship
25% of local sponsorship
25% of club merchandise
25% of local tv/radio revenue

is "net" revenue? Just for the record, 25% of ticket, shirt sponsorship, local sponsorship, merchandise, tv/radio revenue is based on "gross" not "net."

Example:

$12 million ticket revenue
$3 mil shirt revenue
$4 mil local sponsorship
$0.5 mil merchandise
$1 mil local tv revenue

= $20.5 million local revenue. Per the 25% local revenue sharing agreement, this team would share out 25% of its local revenue and get back an equal split of the total revenue sharing pool.


And your example of a team with $40 million revenue would lose $10 million from revenue sharing is WAY WAY off base.

 

copy and paste from a post by triplet1


I agree that the value of the league is, in effect, the value of the parts -- the teams. If MLS really is what it purports to be -- a "single entity" -- that's especially true here.

Now, ask yourself, how would any single company with operations in cities all over the United States and Canada, from LA to New York to Columbus to Portland, divide it's payroll. Would it require that payroll to be the same in every location, or would it allocate it to places where it could generate the greatest overall return for the entire organization?

Without question, the resources would be allocated where they could generate the highest return. As long as the overall payroll was affordable, I submit no single entity would care much if it was higher in New York than it was in Salt Lake City.

And the single entity wouldn't take just a piece certain revenue streams in return for these payroll dollars, it would take a percentage of all of the revenue generated throughout the company, reinvest some of it and divide the rest among the shareholders.

So if we are really looking at the value of the league, the contention, by MLS and many fans, is -- has to be really -- that the value of the single entity is maximized if every team is competitive and, therefore, to insure they are competitive the league sets salaries at the lowest common denominator. In short, it's better a league to have a lot of equally bad teams than a handful of really good ones.

But, really, where's the evidence for this?

I can see where two dominant teams would be a problem, but to simply assert that MLS couldn't, with better quality, make more money in it's six or seven of largest markets to more than offset what might be lost in the smaller ones assumes facts not in evidence IMO. If anything, the experience in LA and Seattle suggests that the revenue potential from market to market varies greatly, and plowing the same amount of money into certain markets won't equal that return no matter how good those teams are. Forbes values LA at about five times more than Columbus, an no equalized cap is going to change that.

We've talked so of this before, and the "international" rights portion of this discussion is something of a herring here IMO. I agree, MLS isn't going to get a lot of TV dollars from foreign markets no matter what system it adopts. But, outside of MLS cities, I think the domestic TV audience responds much the same way in that they are drawn to teams with a certain caché. Look at the ESPN TV ratings I posted earlier again -- well supported teams in big markets that spend money, LA, NY and Seattle, are generating the highest ratings. They interest casual fans.

So, I ask, why not at least think about whether MLS be worth more "as a league" if it allowed teams to spend what they wish to spend on players to maximize revenue on the condition that (1) each team must make an operating profit and (2) 30% of all team revenue comes back to the league to be redistributed so the small market teams can afford some better players too? Why peg payrolls to what the smallest or most frugal teams can afford when it's pretty clear that they don't all have the same revenue generating opportunities?

And why assume a high parity, low payroll league is worth more than a higher payroll league with less parity?

 

To make it easier for you to understand.

Each team salary budget is based on 35% of their total GROSS revenue after the revenue sharing. So if a team make $17 mil local revenue + $3 mil national revenue. After revenue sharing with a loss of $1 mil, the team new total revenue is $19 million. It will be able to spend up to 35% of this $19 million on player budget.



Gross revenue is the income generated by a company, through sale of goods, after adjusting for cost of goods sold (production costs), without any other kind of deductions taken into consideration. On the other hand, net revenue or net income is calculated by deducting taxes and all other expenses, from the gross revenue or gross income.

I never once used the word net revenue, so why are you bringing "net revenue" into the conversation? For the purpose of the 35% of revenue = player budget, gross revenue is used.







I already answered your question. 25% revenue sharing of $40 million is not a loss of $10 million because in revenue sharing, you get an equal split of the "revenue sharing pool."

Example using hypothetical # in a league with 3 teams:

$40 mil team = $37 mil local + $3 mil national
$20 mil team = $17 mil local + $3 mil national
$12 mil team = $9 mil local + $3 mil national

Revenue sharing would be

25% of $37 mil = $9.25 mil
25% of $17 mil = $4.25 mil
25% of $9 mil = $2.25 mil
Total revenue SHARING pool: $16.00 million

Revenue SHARING mean these three teams will split the "revenue SHARING pool." Each team will get $5.333 mil.

Putting in $9.25 mil, getting back $5.33 mil = net loss of $3.92 mil
Putting in $4.25 mil, getting back $5.33 mil = net gain of $1.08 mil
Putting in $2.25 mil, getting back $5.33 mil = net gain of $3.08 mil

 

Why should I base it on net revenue? Gross revenue is the correct revenue to base it on. Let's use LA as an example and assume make $30 mil a year in gross revenue, of which $27 million is local.

Due to revenue sharing, LA will send 25% of the $27 mil or $6.75 mil to the revenue sharing pool.
In return, it get back $3.75 mil. This is a loss of $3 mil.

Total Revenue - Total Expense = Profits/Loss

LA total revenue (before revenue sharing): $30 million
LA total revenue (after revenue sharing): $27 million
LA player expenses: $9.45 million (this is 35% of $27 million)
LA front office expense: $X mil
LA general selling and administrative expense: $X mil
LA coach expense: $X mil
LA marketing expense: $X mil
LA travel expense: $X mil
LA rent expense: $X mil
LA tax expense: $X mil
LA league capital call expense: $X mil
LA other expense: $X mil
-----------------------------------
profit/loss: ?

If LA can keep all these expenses below $27 million (of which player expense will be $9.45 mil), it will make a profit.






Tell me again, why I should use NET REVENUE when it comes to 25% local revenue sharing and 35% salary budget?

 

I disagree. Let's use Toronto as an example. If they were allowed to GROW to their potential instead of having their wings clipped, they would be a force to be reckon with today. And they would generate plenty of revenue and able to pay the "luxury tax" with ease.

Toronto at one point had 15,000+ on the waiting list and 17,000 season tickets holder.
The stadium could have been expanded to 30,000+

Too bad for Toronto, MLS is based of NFL and not MLB. Toronto could have been the Yankees/Dodgers/Redsox/Philles of MLS. The like of Toronto/Seattle/NY/LA could surpasses the Mexican top clubs with ease. MLS would be better off if its top clubs are perceived as better than the top Mexican clubs. But at the current rate and status quo, MLS top clubs won't surpass Mexican top clubs in the next 10 years or so.


Here's something to ponder:

NFL-enforced parity would be a HUGE DISASTER for the #1 soccer league in the world (EPL). If so, why is it a good idea for MLS?

With the status quo, I wouldn't be surprised if Seattle will become like Toronto in a few years (aka fans losing interest).

 

Revenue Sharing

Revenue Sharing (local):
25% of ticket revenue
25% of shirt sponsorship
25% of local sponsorship
25% of club merchandise
25% of local tv/radio revenue

Revenue Sharing (national):
100% of national tv/radio revenue
100% of national sponsorship
100% of league-related merchandise

Revenue Salary Cap:

After the revenue sharing is taken into account, each team can spend at most 35% of the "NEW" total revenue on players.


The revenue sharing is the compromise to get more owners on board. Turkeys don't vote for Thanksgiving. Likewise, small clubs owners won't vote a system that take away their "level playing field" without something in return.

Hypothetical Example: Team X generates $40 mil in revenue. It loses $7 mil due to the revenue sharing. Its "new" total revenue is $33 mil. It can spend at most 35% of this $33 mil or $11.55 mil on players. It can spread this $11.55 million over its roster anyway it likes like most soccer clubs around the world.