MLS Single entity (and all other league structure talk) Part II

It depends what you mean by "better". If you are talking about wins, it's irrelevant for the league - one team's win is another team's loss (and international play just doesn't matter that much now).

MLS's question is this: How can we incentivize the rich teams to spend money in ways that benefit the league as a whole without destroying competitive balance?

And their answer is:

1) You subsidize teams that intend to spend rather than give money to everyone.
2) You emphasize attacking players since attacking players generate more attention than defending players.
3) You force them to spend the money inefficiently (in terms of winning), but effectively in terms of PR, by the DP system.

Is your criticism of MLS that you have a better way of answering their question? Or is it that the league should change its goals and give up on the idea of parity?

 

On the contrary ... I'm all for a salary capped parity league that has revenue sharing. That's precisely why I don't see the need of a small handful of mega signings. I think the league would be just as strong if all teams spent like Portland or Kansas City. Continue the slow growth. Buy the players that are relative to the revenue the league makes within a commonly agreed upon salary cap.

The problem with MLS is that there is a wide gap between the cheapest owners and the spendiest owners. Personally I'd like the league to face down the cheap owners and say "we're doubling the cap tomorrow. you're either in this or you can sell your club. This is "major" league soccer after all".

 

Not from a footballing point of view. Boloni86's argument is valid. To the hypothetical: You're given $20 million for your wage budget to put together a team. What manager would want $18 milion of it to go to three players?

From a marketing point of view you could make the argument that spending big on well known players will generate interest in the league. And thus, is justifies the wages. Certainly Beckham's contract was worth it for the league and for LA Galaxy. But its not going to lead to higher quality. And how many Beckham's are there? Not many.

Then there is an argument that spreading your wages around will equal a better quality side and that rise in quality will get the league more respect and generate more interest.

With the first scenario its all about image. MLS wants to sign big names because they think a)it will show the footballing world they are a serious player and b) it will generate interest and increase TV ratings. Except, neither of those things happen. When MLS signs a 30 year old former Euro star they are called a retirement league (fairy or unfairly). And when Beckham, Henry, Keane etc came to MLS it didn't move the needle ratings wise.

 

Fair enough. You point isn't so much that MLS should spend more on the "average" players and less on the stars, it's just that they should spend less on the stars period. If I was Seattle I'm not sure I would have went after Dempsey. But Toronto screwed themselves over so much that they really had no choice but a major reboot.

 

Yes

When you purposely weaken your product just in the name of fairness you are hurting your product. There is already the playoff system which guarantees that weaker teams will sometimes win the cup. There's no need to weaken the league in the name of parity.

 

Let's assume MLS did that -- put the cap at $6m per team on the 20 man roster and eliminated DPs.

This is last year's list, but it's a good bet that any player who individually takes more than 10% of the cap -- say $600,000, would either need to take a pay cut or would be gone, which includes:

1. Clint Dempsey, Seattle Sounders, $ 5,038,566.50
2. Thierry Henry, New York Red Bulls $ 4,350,000.00
3. Robbie Keane, LA Galaxy, $4,333,333.33
4. Tim Cahill, New York Red Bulls, $3,625,000.00
5. Landon Donovan, LA Galaxy, $2,500,000.00 (pre-raise)
6. Marco Di Vaio, Montreal Impact, $1,937,508.00
7. Obafemi Martins, Seattle Sounders, $1,725,000.00
8. Danny Koevermans, Toronto FC, $1,663,323.33
9. Kenny Miller, Vancouver Whitecaps $1,124,992.00
10. David Ferreira, FC Dallas, $730,000.00

To which you could add the new crop of DPs, both from outside of MLS as well as Omar Gonzalez, perhaps Graham Zusi and maybe some others. (Zusi's deal might actually fit under a $6m cap without soaking up too much of the cap space.)

I'm not sure MLS would miss every guy on that list, but it would certainly miss some of them quite a bit IMO.

To me, that's not a better league.

 

6m cap? Of course it wouldn't. Adapt FFP or even a 18m cap. Have a cap that's compatible with soccer if you're going to have one. If you're going to have a cap it should be there to prevent insolvency. Not to weaken the league to create parity.

Not every team will hit the cap. Look at the NFL. The Seattle Seahawks are right at the cap. But many teams are not. KC played this season 17$ mil under the cap. Same for the Bengals. Colts were $15 under. Jags? $25 mil under.

 

The cap is where it is for a reason .... and who is it that set this cap again, and the subsequent small bumps ?

Oh yeah.

But please, let's just all pretend this is monopoly money and that this is utopia.

The way things are right now, the numbers aren't going to look pretty. They also aren't going to change over night.

 

Or, you could have an opinion that's compatible with the realities of American soccer if you're going to have one.

 

You act as if several teams don't already spend 200% more than other clubs.

 

Well, what the heck.

I was curious what FFP might mean for MLS payrolls, but before I get to the numbers, a couple reminders. Whatever it started as, as implemented FFP compliance isn't a guarantee of solvency. It's a "break-even" test that, once fully phased in, allows clubs to spend every nickel they have on salaries provided they don't go into the red. Most organizations have to generate some degree of profit, either to satisfy investors or to set aside money in a rainy day fund to have some cash for leaner times. What's more, the FFP rules don't even require a club to really break even. There are some huge exceptions, most notably, "all expenses for talent development and for stadium building & development are exempt from the break-even calculations."

http://bundesligafanatic.com/financial-fair-play-the-implications-for-the-teams-in-the-bundesliga/

Because of the exceptions, it's entirely possible for a club to show a break even number, even though it's sinking under a sea of red ink from stadium debt.

So let's remember: FFP "break even" is not real world "break even."

I basically lived with those flaws in the test.

In order to look at what MLS payrolls could be and still reach FFP break even, I took the most recent Forbes numbers. Forbes published MLS team revenues based on EBITDA -- that's earning before interest, taxes, depreciation and amortization. Debt service isn't included in EBITDA, but since MLS teams can only have debt against their stadiums, that debt service would be exempted from FFP anyway. Taxes likewise aren't included, but if a team spends to break even it's not going to have income, so again I didn't see any need to adjust it. Transfer fees are usually amortized -- the total value of the fee is divided over the contract term, so those costs aren't included either.

So for my purposes, I concluded the Forbes EBITDA calcs weren't too far off from FFP break even. If I really wanted to be accurate, I'd have to include expense the transfer fees and exclude the player development costs, but I basically let those wash.

With all of that as background, I wondered how much each team's maximum 2012 payroll could be before it's 2012 EBITDA went negative. To get that number, I added each team's 2012 payroll number to it's 2012 EBITDA. For example, LA's 2012 payroll was $12.63m and its EBITDA was $7.8m, so if every nickel of EBITDA was added to the payroll, LA could spend up to $20.43m and have an EBITDA of $0, that is, break even.

One last note, the Forbes calculations should reflect any player expenses paid by the teams (for DPs or whatever), but , of course, MLS pays the base payroll, so Forbes wouldn't have included that, either as revenue or expense. I've essentially collapsed the transaction, as I think you would have to under FFP, assuming instead of handing teams players paid for by the league, MLS gave that money to the teams instead, who, in turn, had to bear the off-setting expense of the player contracts.

Here are the results:

2012 Maximum Payroll Spend Maintaining Positive EBITDA

Seattle Sounders -- $22.18m
LA Galaxy -- $20.43m
Portland Timbers -- $13.56m
Toronto FC -- $12.75m
Houston Dynamo -- $11.2m

Sporting Kansas City -- $8.22m
New York Red Bulls -- $6.66m
Montreal Impact -- $6.43m

New England Revolution -- $4.76m
Philadelphia Union -- $4.72m
Vancouver Whitecaps -- $4.37m
FC Dallas -- $4.05m
Real Salt Lake -- $3.51m

Columbus Crew -- $1.73m
DC United -- $1.39m

Colorado Rapids -- $.53m
Chicago Fire -- $0.3m
San Jose Earthquakes -- $(1.29m)
Chivas USA -- $(2.27m)

Okay, so what are the results?

No surprise, Seattle and LA sit at the top of the pack, and both could in theory reach FFP break even with $20m plus payrolls. Portland, TFC and Houston all have numbers over $10m, but remember stadium debt service isn't included here and that may impact both Portland and Houston.

Beneath the top five, SKC, RBNY and Montreal the next group of three teams could all spend double the current cap amount (or more) and still hit a positive EBITDA. Red Bull New York has the largest negative EBITDA in the Forbes report, but essentially cutting its payroll in half gets RBNY's EBITDA to $0 and still leaves them with over $6m to spend.

The third tier is essentially the status quo. Five teams hover above the current cap, but again some of these teams have stadium debts so they couldn't really spend up to these amounts.

It looks pretty ugly after that.

Chivas USA and San Jose have negative numbers, meaning even if they didn't spend any money on payroll they couldn't get a positive EBITDA. Chicago and Colorado are above water, but barely, and would have to limit themselves to $300k and $530k payrolls respectively in order to hit break even. Hard to field teams for that amount. Things are somewhat better for Columbus and DC, but not a whole lot.

Honestly, I think the bottom four teams simply aren't viable under the FFP test, and with stadium debts factored in, even teams as far up the list as Philly, RSL and Dallas might be closer to the edge then they appear.


Links:

(Don Garber in 2012, “Today, teams can put debt on their stadiums. We have no debt on our clubs.”)

http://www.sportingnews.com/soccer/...r-mls-commissioner-sporting-news-conversation

2012 payrolls:

http://www.thegoatparade.com/2012/5/30/3053589/comparing-2012-mls-payrolls

Forbes numbers:

http://www.forbes.com/fdc/welcome_mjx.shtml

 

Nice fuzzy math

I didn't say what kind of FFP. I certainly wouldn't copy the FFP used by the EPL. I'd use something closer to League 2 where it's 65% of revenues. You could even have a two-tiered FFP where the top half of clubs(revenue wise) could only spend 50% of revenues and the bottom half could spend 80% of revenues.

So, Seattle with 48m in revenues would be capped at $24 million.

DC United with 17.7m in revenues would be capped at 14.16

Then you have an intentional player cap of 6 that is static (not tradeable).

That doesn't mean either of these clubs would be forced to spend that. They just wouldn't be allowed to go over it.
http://www.forbes.com/sites/chrissmith/2013/11/20/major-league-soccers-most-valuable-teams/

 

This is where I chime in with the obligatory "if we don't take care of the business, there won't be any soccer at all" comment.

 

And what happens when the league discovers that there aren't enough owners to satisfy your demands? Maybe this spring to fall, salary capped league simply isn't for you.

 

OK, let's try another one.

So how does DC United spend anything close to it's cap of $14.16 million on payroll you've allowed them when Forbes says it's EBITDA is negative?

Forbes indicates DC United doesn't have sufficient earnings to operate in the black now. And there are seven more teams in that fix.

With a cap of 65% of revenue, the only way DC United can spend anything more in payroll is to deficit spend.

I thought you said earlier, " If you're going to have a cap it should be there to prevent insolvency."

 

You're assuming "the league" (which, BTW, is the same owners you want them to face down) is bigger than the cheap owners. If that were the case , why hasn't it already happened?

 

....because it is better for me to believe it the way I want to.

Of course, over the last few years some teams have clearly been given the green light to spend more on players if they want to....with the cheap owners consent obviously, but it sounds better the other way. Conspiracy theories are cool and allow me to make up what I want, seem smart and progressive, instead of paying attention to what is actually there and happening.

More money is being spent....it's just not at the rate I want, the way I want and at the speed I want.....so I don't like it.

That sentence really sums it all up in a nutshell. Sigh.

 

It might be a bit higher than that, but not much. Particularly with playoffs, I think leagues can maintain some semblance of competitive balance if the payroll ratio high to low is no more than 3;1 -- that is, the top payrolls aren't more than three times the lowest payrolls. Again, if you look at the "break even" numbers I posted above, that's maybe eight teams, depending on how the Impact and NYCFC fall.

Eight.

This argument always has a groundhog day feeling to it. Posters, feeling MLS is failing to reach its potential, want to adopt some European spending limits that aren't equalized, but when you look at the numbers in even a cursory way, it's pretty clear that, yes, MLS is holding teams back, but it is doing so to keep a large number of teams competitive and viable.

At which point the Euro wanabees lose their nerve. I've never seen anyone say, "OK, I'd be prepared to sacrifice half of the teams in MLS to have a league with much higher team payroll spending."

Because we can dance around it all we want to, but that's what we're talking about.

I'll be honest, I think that's at least an intellectually honest discussion. The NFL sent more teams then that to the slaughter to push itself into the big time. MLS sent the Florida teams to the sword to save itself. It's not unprecedented.

But instead we talk about sporting integrity and more money for the journeymen and everything but the freakin' obvious point that MLS can't let some teams spend a lot more than others roster-wide without a lot of teams, fans, communities and players getting hurt.

And eliminated.

So until someone is willing to take a tough position, there's not much more to talk about here IMO.

 

And I'll say, as I have in the past, that I'm willing to take a "lesser" MLS in order to keep all teams viable.

 

Well FN said.

It gets frustrating when people talk, and talk, and talk....and just blatantly FN avoid the realistic situation and the pragmatic reasons things are done no matter how may times they are pointed out, and it's been done well here.

Hard to keep respect for posters who just decide to ignore well presented issues simply because they don't like it.

 

...and is it even lesser? The tide slowly keeps rising. It hasn't stopped and is moving more quickly than ever. When there is a legit slowdown in progress across the board then we can talk about where the league is.

Hell, Europe is simply an indentured serf/social cast system. There are centuries of psychology at work teaching folks to simply accept their fate....doesn't work like that here. (Subtle dig)

 

You act like that's an MLS-centric issue.

 

I'm willing to take a lesser MLS that I can afford to attend in person! Already do and will continue to, in fact.

Not sure a cold-hearted non-fan investor would necessarily agree with either of us though.

And, once MLS becomes large and stable enough to get over the legacy of failure the NASL and predecessor leagues left, the standard North American professional team sports practice of moving franchises to more strategic markets with higher upside or a better stadium deal might become, sadly, more common.

I'm not one of those Toronto fans who want to see the Crew leave Columbus. I like that MLS can be successful with markets like that and still provide every team with some chance of winning. I wish Precourt luck.

But in ten years, if more of the league is pulling ahead and wants to increase spending and a few legacy markets can't keep up, what's the best business play? Particularly if MLS franchises come to be more sought after and another municipality in a candidate city is offering a bigger, newer, and better publicly subsidized stadium? Is that scenario unlikely? Hopefully, but none of us can predict the future.

That's the terrible irony of the position that every MLS team should, optimally, have an equal chance at success independent of the size of their market, that @triplet1 has taken pains to point out: in the end, that could mean some smaller cities not having MLS teams at all.

If it becomes a choice between no team and a perennially less successful team, which would you choose?

 

I didn't say they would have a wage budget of $14.6. I said, they wouldn't be allowed to go over that.

The truth is with DC United's revenues and expenses their wage budget wouldn't be much different than it is now. There are about 5 teams in MLS who wouldn't have much different of a wage budget if you got rid of the salary cap. But most of the teams would be fielding more balanced higher quality sides.