Discussion in 'MLS: News & Analysis' started by revsrock, Sep 12, 2011.
A potential game changer -- just in time for the new TV deals in 2014.
I don't know what this means. But I want some money used to help dcu find a home and buy back chives. They need a committed owner. It's in the best interests of the league that these teams recover
150 Million For 25% that is 600 Million valuations for SUM.
Now SUM owns 50 or 51 % of all clubs I believe. I will use 50%.
That means that the clubs value is about 1,200 Million.
Or 63 Million per team.
What it sounds like is that they will sell 25% of SUM for $125m - $150m. From this pot of money, they'll distribute part of this to the I/Os (who each own a share of SUM) and they are considering taking the rest to establish a fund to subsidize a new round of big name DPs -- have this fund pay the cost instead of the I/Os funding them.
In effect, more big name players on more teams.
I suspect that's squarely aimed at improving TV ratings prior to the new TV deals.
SUM does not own the clubs, the I/Os, who each own their own management entities that run their club, own SUM.
Yeah, I was getting tired of the plain schmear, too.
You can't build a stadium on a mom-and-pop business , which's what's exactly DCU owner is.
Actually a minority stake in a business entity is worth less than the percentage ownership. Owning 25% means you're not a controlling interest and therefor do not hold as much power so, if it was sold at $150M then the total value is probably more than 4x that figure. Not significantly but probably somewhere in the 5-10% range (so $630M-$660M as opposed to $600M)
But let's remember, the I/Os own: (a) the operating rights to their teams, which for expansion teams are worth about $40m and may vary team by team, and (b) a share of SUM. You can't really use the value of SUM to calculate the value of the operating rights (although there is some connection, since the shareholders of SUM had to buy the operating rights in order to be allowed to buy into SUM). They are two distinct investments of the I/O.
That said, the real story here isn't the value of SUM, however, it's what they may do with that money IMO. I'm not sure if the new guys will get the same amount, but we may be talking about over $7.8m per I/O here. Even if they pocket a third of that, each team would have over $5m to subsidize them acquiring some big name players.
Think of it as a $100 million shopping spree.
Correct, I some times confuse SUM with MLS LLC.
"MLS LLC is a limited liability company with single taxation and partners that own it who are a mixture of corporations, partnerships and individuals. MLS owns all of the teams that play in the league, as well as all intellectual property rights, tickets, supplied equipment, and broadcast rights. At the same time, MLS contracts with owners to operate the teams it owns. These contractors retain a portion of ticket sales and other revenue, and must pay a portion of operation expenses. Contractors have a right to operate the teams they contract for and can sell a percentage of that right to other investors who may not be investors in MLS LLC. MLS "recruits the players, negotiates their salaries, pays them from league funds, and, to a large extent, determines where each of them will play". Soccer United Marketing doesn't appear to be a separate company, but is mere an activity owned by MLS, LLC, and the revenues from SUM flow to MLS LLC owners, but not necessarily to those who own a percent of an interest of the right to operate an MLS team and are not "owner-investors"."
So is SUM a different company from MLS LLC or not?
Are the investors buying a part of the marketing arm of MLS or are they buying a portion of MLS?
Since they're buying equity in SUM, could their purchase be on the condition that MLS pumps the majority (or all) of the money into improving the fees paid for MLS broadcast rights by buying big-name players? Is that sort of thing done in a private equity transaction?
A significant board presence is what PEP will want.
This isn't just a one-time deal that lets owners get back cash they put in, this is about PEP taking on a role in SUM. From what I can tell, they aren't passive investors.
With any luck, Kraft will cash out and let Jonathan Nelson run the Revs and get a stadium built.
Keep dreaming pal, and sometimes they come true.
Yes--I offered two paragraphs of analysis and one paragraph of wishful thinking.
Right. That makes sense.
Then my other question, for you or anyone else who might have an idea, does PEP expect to sell on their portion of SUM eventually after the value increases, or are they happy to live with the revenue?
I ask because with their valuation of the 25% share, couldn't you step backwards to determine SUM's total revenue (even if the sale price includes some expectation of growth)? I'd be interested in what SUM was making every year.
when i saw the title i thought 'bad idea, SUM's the best cash cow the league has' but the actual reasoning makes a lot of sense to me. good call mls, assuming most of the money is going to the 'marquee players for increased tv money awesome' fund. that could definitely pay off financially.
I see this a little differently from most of you. If this is a one time cash infusion, then spending it on players is like spending expansion fees to stay afloat.
I hope there's more to it than cash dispersed to the clubs to spend on players.
There is -- cash disbursed to clubs to (help) recoup earlier losses.
Also, valuations of SUM should indicate the potential worth of the marketing business, not the entire enterprise.
"SUM holds the exclusive rights to the most important soccer properties in the region, including: all commercial rights to Major League Soccer; the United States Soccer Federation; promotional and marketing rights to Mexican National Team games played in the United States; and the marketing and promotion of the CONCACAF Gold Cup™. Since 2008 SUM oversees a long-term partnership with La Liga’s historic club FC Barcelona, which includes tours of the legendary Spanish club. SUM also manages promotional and marketing rights in the United States for Mexico’s most popular sports team, Club Deportivo Guadalajara (Chivas)."
Except from what they say, simply paying for larger salaries is not the end of the analysis - it is really an "investment" in the league. Buying better players should provide a bigger return on this "investment" - more butts in seats, more eyes on television, more rights fees and, ultimately, advertising fees, more merchandise revenue. I would hope that they would have a rudimentary understanding and belief that such a huge infusion of cash would provide significant returns for them (I would hope). In other words, this isn't to keep the league afloat - it's about bringing the league to next level (or 2).
The interesting part will be how they decide to allow teams to use that $5m. Is it good for transfer fees? Does the DP rule get expanded? Can you buy as many players outside of MLS roster rules as you want with this money?
I agree with your general point, but I think it would be a useful investment if it is used to give a boost to a new MLS TV era. If that player spending can help increase TV numbers significantly, especially as a stopgap while the academy generation is still in its infancy, it is money well spent.
Increasing the overall level is important, but if MLS wishes to make itself a media driven league, it would also be very wise to invest that money in the best players from countries that are underserved by domestic leagues. Long Tan and Sunil Chetri haven't gotten the job done, but players like them could be the entree to huge media markets. Getting very good Korean and Japanese players as well as the best players from India, China, the Middle East, Africa, and the Caribbean should be a priority.
I'm with SD. It's the reporter who is saying that they could spend the money on more players.
I've never seen MLS as a cash constrained league. If they thought that spending an extra $5 million would provide a sufficient boost to make it worthwhile then they already have the means to do it. And if they didn't have enough cash before, then they're likely just to stick the additional cash in their pockets.
People are making some leaps in logic based on a reporter's editorial. Bottom line it is a one time cash infusion in return for equity. The money can just as easily be split among the owners of SUM as it can be reinvested in the league. Quite frankly, even if it was put directly into salaries it would have almost no impact as it is NOT recurring revenue but a one time payment.
In my opinion, the most likely scenario is the owners taking some profit. A second option is for them to put the money into development (think subsidized youth academy expansion). I don't think it is likely to have an impact on salary budgets.
We are focusing on the profit - but the more important aspect of this deal is if Providence can recreate the magic they pulled forth with the YES network and help negotiate a record breaking deal for MLS in 2014. THAT is where the impact lies.
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