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

So, you want a cap that doesn't "prevent insolvency" (one of your stated goals) that doesn't really matter because they won't spend more anyway?

Kinda pointless, isn't it?

Alright, at last the candid truth. This isn't about caps or solvency or FFP, you want a handful of teams to be able to spend a lot more than the others.

Fair enough. But can we agree that's going to have a very negative impact on the teams that are now cannon fodder?

Are you prepared to risk and, if need be, sacrifice some of those teams?

Chivas USA? Okay, that's too easy.

Columbus? Are you willing to sacrifice Columbus?

How about RSL?

Because in the real world that's what league officials are concerned about.

Are you?

 

Of course its about solvency. You put financial controls in to prevent over-spending beyond a certain % of revenues.

Some clubs will have more revenues and thus have more money to put back into the club. That's how business works. That's life. That's capitalism. We don't live in the Soviet Union.

Now, you're saying if the top 10 revenue clubs in MLS can spend a lot more than the bottom 10 then the whole league would collapse. Except this is illogical for several reasons:

- the types of players available to MLS are not superstars and not great enough to create an EPL/La Liga type league that is dominated by just a few teams.
- MLS has playoffs which injects some randomness into the league and serves as a parity mechanism that insures some smaller clubs noT only have a chance to win the cup but will win it.
- If Columbus is consistently either making the playoffs or making a playoff push then why would they suddenly decide to close up shop? If the owners of Columbus were upset about being overspent and losing players there would be a line of investors waiting to buy the club from them.
- inequality in business leads to innovation. Case in point, the Oakland A's of MLB. A club that is near the bottom of league in spending every year and yet its a club that consistently wins their division. MLS clubs lack innovation because of central planning and over-regulation. It's not worth putting money into scouting when even once you scout a player you can lose him to another club because of allocation order or a draft lottery.
-clubs with the best academies will still have an advantage over those who don't.

What would really happen if we didn't have a salary cap? The quality would go way up league wide. Clubs would enter the South American market for players. We'd have more balanced rosters. The list of good things goes on and on.

The list of bad things(that the league would collapse) is purely theoretical and is based on faulty logic. How would a league collapse with FFP that prevented clubs from spending more than 65% of revenues? It's not possible. It wouldn't matter if Seattle spent $25 million and Chivas spent $5 mil. The league would not collapse. It is literally impossible.

There's dozens and dozens of soccer leagues on the planet. I can't think of one in the last 20 years that collapsed because they didn't have a salary cap. 99% of soccer leagues on the planet don't have salary caps and last I checked they aren't topping over like a row of dominoes.

 

I don't think you're anywhere near understanding where I'm coming from. Remember how we got to this point? The whole point was my original criticism of the Bradley/Dempsey signings and the absurdity of the growing wage gap.

I'm not sure how that gets construed into me being a Euro snob that just wants to spend spend spend. If anything I'm the one defending parity here. My whole point was that if certain elements of the league are so desperate to spend and others are not, the spenders need to find a way to motivate the cheap skates to keep up. That's what I meant with my post mentioning a hypothetical $6 million cap. IMO we either all go together or we don't go at all.

The DP rule shouldn't be looked at as a long term positive solution. It had and continues to have a role in the league's growth ... I admit that. But the goal should be to over time roll back the loop holes and get to a point where teams can assemble competitive teams within a commonly agreed upon salary cap. Like I said my whole point here is to encourage parity of clubs and more parity of salaries. And most importantly salaries that are within the reasonable limits of what the league's revenues can afford. And no war chests that feed the already wealthiest clubs so they can sign bigger and bigger names while other clubs sit by and watch.

 

The individual teams in MLS aren't individual businesses as defined by capitalism. The league as a whole has to play by those rules, not the individual teams.

So the league is primarily concerned with solvency of the league. That means parity and control of expenses. The individual teams do not have to worry about the world of capitalism. That's by design.

You've obliterated your own poorly thought out and poorly defended argument.

 

I can think of a whole hell of a lot of teams that have, largely due to overspending on players. In MLS's case, MLS (not the teams) spends on the players, so it would be the league (and not the teams) at risk.

I'm not sure why you quoted my post, as your response didn't address it at all.

 

My goodness. He uses the word illogical to list a bunch of reasons....and misses his own glaring lack of logic and common sense on so, so many of them.

Classic.

 

Sorry. Just quoted it since Zoidberg used it as a springboard to his rant which was at least partially directed at me.

 

Name one league. Just one. One league in the last 25 years that has collapsed because they didn't have a salary cap.

 

Sadly, Soccer isn't the top 1-2 most popular sports in this country, which helps out in those other countries

 

My whole argument supposes that single entity is dropped for a structure used by other American sports. Or, ideally, a structure used throughout the world of soccer. I've obliterated nothing. And you're snooty reply just makes you look bad.

 

If we drop single entity the league fails in the real world of capitalism. If that's what you want, OK. I'm not sure anyone else around here shares your sentiments though.

 

U know I'm talking about your reference to the small Scottish towns post and not u.

Then again, I have seen several posts of his in various threads now and it's clear he really just doesn't get it, and folks pretty much question him all of the time. Makes sense now.

 

Christ. I re-read my own post three times looking for the word illogical. Lol.

 

*sigh* It would be helpful if you read my post before replying to it:

 

No it doesn't. Show your work.

It's really hard to buy that argument with the transfer fees the league has been paying lately.

 

Really, are you being intentionally dim here?

Forbes says eight MLS teams ran an operational deficit in 2012, and not one of them spent anything close to 65% of their revenue on players.

Your test is no protection at all from teams running up huge operating deficits.

 

Yeah, but the Owners are billionaires, they can afford it.

 

Soooooo you're bitching about how they do the numbers ... and then propose a fuzzy slide rule number system.

Fantastic guy, simply fantastic.

Lern2reed

 

The league is paying these things because they have the money. There aren't 20+ cities and owners in this country that can play in the open market without our league becoming stratified like Scotland's league.

 

I'm pretty coldblooded about these things, but I think it's a long time off. Triplet's numbers are pretty dismal. Right now there are so many more teams at the bottom it's hard to see things shifting the other way, where most of the teams are in the top group and there are a few strugglers at the bottom.

What's interesting about the list are the anomalies. NY, LA and Toronto are large international cities and so you expect them to spend money and be at the top. The pacific northwest is the odd positive anomaly and without them things would look much worse. The big negative anomalies are Boston, Chicago and DC. These should be major teams but between bad stadium situations and unambitious owners they are just a drag on the league.

A long time ago, Triplet argued that MLS should just go in and pay for a stadium in DC. I don't know that I would go that far, but I can see the point. MLS needs to figure out how to reboot the big cities; maybe hunt out some new owners and try to broker a deal. If we are trying to shift clubs from being low-spending to high-spending, I'd much rather they try to fix Chicago rather than just hope a new team in a small city will decide to spend money.

 

Fixed

 

In some sense, KC is the upper-bound for the league. Midsize city, great ownership, good stadium, successful on the field. And all of this generates a potential wage bill of around $8m (not taking these numbers too literally and recognizing we're missing some costs of infrastructure and expanding youth programs). It would be a great success if we could get every team up to that level. But while there's certainly a difference between a $4m team and an $8m team, it doesn't change the league.

 

I didn't really get a chance to look at the mot recent Forbes numbers in detail until recently, and while people celebrated the jump in revenue and franchise values with good reason, I don't think it's as healthy a picture as I first thought. For those who plow through this to the end, I'll try and make it worth your while:

Let's start big picture:

Forbes is making estimates, but it's as reputable source as we're likely to get on league finances and I've used them as the best information available. As I noted a couple of posts above, remember Forbes is looking at: (1) gross revenue per team and (2) EBITDA, that is earnings before taxes, depreciation, interest and amortization. Simply put for our purposes, it's pre tax earnings and any debt payments owners have for stadiums aren't included, nor are amortized transfer fees. I'm just going to call it "earnings" from here on in.

Summary of 2012 Financials per Forbes:

-- Assuming I added all this up accurately, collectively, Forbes indicates total revenue for all of the teams was $471.2m in 2012.

-- While eight teams had an operating loss, collectively all of the teams showed earnings of $31.4m. Yes, I know Garber just said they're losing between $75m and $100m annually, but unless the teams have about $100m in stadium mortgage payments, that's not what Forbes is showing. Collectively, the teams are operating in the black.

-- Based on numbers from the Players, in May of 2012, total league guaranteed payroll was $90.1m. That number moved over the course of the year as players came and went, but I had May on hand.

http://www.sbnation.com/soccer/2012/5/30/3050995/mls-player-salary-analysis-2012

-- Put these numbers together, and player payroll was 19.1% of revenue. That's brutally low. As I've said, there is no fully professional league in Europe or the U.S. that is anywhere close to that.

Digest all of that for a second, and then let's do a . . .

Reality Check:

Hard truth number 1: It's easy to look at that low percentage of player salaries to revenue and think MLS simply is tight fisted. Heck, I thought so. But let's think about this, operationally MLS teams were in the black to the tune of $31.4 million. Even if every penny of those earnings were redirected to payroll -- in other words, if MLS operationally was break even -- that would only boost payroll to 25.8% of revenue. Still the lowest fully professional first division league I know of, and way below other major U.S. leagues, but not because the owners are tight fisted, but because they must have very high fixed costs just to turn on the lights and play the games.

Hard truth number 2: had every penny of that $31.4m in earnings been spent on payroll in 2012 so that no owner would have made a penny from team operations, it would have increased the salary budget only $1.65m per team. To spend even more than that creates an operating loss. So, had MLS doubled the salary budget from about $3m to $6m per team as many called for, the league would have suffered an operating loss of $(25.6m).

(Here's the math, $3m increase per team x 19 teams = $57m, less $31.4m in earnings.)

Hard truth number 3: A cap on player payroll of 65% of a teams revenue is no cap at all. Let's assume every team spent 65% of its revenue on players as they would be entitled to under this kind of cap. Take $471.2m x .65 = $306.3m. Whoa, so payroll would jump from $90.1m to $306.3m. Impressive. But remember, earnings cover only $31.4m of this huge jump in payroll, so the net result is a $(274.9m) operational loss in a single year. How can spending 65% of revenue possibly destroy a league? That's how.

Hard truth number 4: I agree with Baysider, the numbers out of the big markets in the east are especially troubling. I'll say this for the Krafts, over the six seasons that passed between the Forbes articles, they at least turned around an operating loss into an operating profit. The rest are just ugly. Collectively, RBNY, Chicago and DC had negative earnings of ($12.3m). RBNY had huge DP costs and DC has high stadium rent, but even so. Chicago might be the most futile of the bunch. The Fire boosted earnings $8.5m over that six year period, have a cheap lease for the stadium, lost the expensive Blanco from their payroll and they still posted a larger operating loss in 2012 then in 2007, $(3.2m) up from $(3.1m). How's that even possible? Ugh.

Hard truth number 5: Fan expectations are way, way out of whack for the new CBA. Garber's oversold the poverty point, but still look at these 2012 earnings:

New York Red Bulls -$6.3m
Chivas USA -$5.5m
San Jose Earthquakes -4.5m
Chicago Fire -$3.2m
Colorado Rapids -$2.9m
DC United -$2.8m
Columbus Crew -$1.6m
Real Salt Lake -$0.1m

I'm sure the new TV dollars will help, but even if it meant another $3.5m per team, there are a half dozen teams that need every penny of that bump for operations. There's no way they can give that much to the players.

Conclusion:

I'm not suggesting MLS is going to fail, but selling pro soccer in the United States is still hard.

 

^ Something about pasting this for everyone to see later when something something ...

... yeah.