To me, the topics are interwoven, but let's see if we can circle back. I made the comment earlier that I really believe rich owners are much more focused on franchise value than anything else, and I suggest we work backward from that value to try and get a handle on what type of increase MLS is looking for from TV deals in 2014. Valuing assets is as much an art as a science and there are lots of methods to do it, including market value (that is, what teams are selling for on the open market or via expansion) and ratios. We simply don't have access to enough financial data to go into too much depth, but if you look at the middle tier of teams the NFL, Forbes seems to value an NFL franchise like Green Bay at roughly four times gross earnings, while an NHL franchise is closer to two times gross earnings. http://www.forbes.com/lists/2010/30/football-valuations-10_Green-Bay-Packers_302814.html http://www.forbes.com/lists/2010/31/hockey-valuations-10_Minnesota-Wild_318976.html The NHL example is probably more appropriate for MLS -- Portland's $35 million expansion fee was just over two times their projected gross earnings (if you include the SUM distribution, as I do). Given that, what are MLS owners looking for in terms of franchise value in the near term -- that is, during this next TV deal? It was widely dismissed as puffery at the time, but I think Garber tipped their hand when he suggested MLS would want $75m - $100m for the next expansion fee. Remember, sales (and expansion fees) impact the appraised values of existing teams, so unlike many BS posters I don't think that number was tossed out there arbitrarily -- it reflected the ambitions of the current owners as to where they'd like to see the valuations of their own teams climb to in the near future. (Here's the thread) https://www.bigsoccer.com/forum/showthread.php?t=1741149 But if even a $75 million valuation for a mid range team (that is, the low end of the fee range Garber suggested) is going to have any prayer of being realized in the next five years, it would seem to me a team is going to need roughly $37.5 million in annual gross revenues to justify that type of price -- that is, a valuation of two times gross revenues. And if you believe the smart guys at Deloitte (as Uefa apparently does), best practices suggest that revenue should come in roughly equal thirds from match day income, commercial sponsorships and television rights. Let's pause here. So, I'm an MLS owner and I'm trying to drive my team valuation to about $75 million over the next five years. To do that, it isn't rocket science to figure out that ideally I need about $12.5m from match day revenue, $12.5 million from commercial sponsors and $12.5m from television to generate the necessary revenue to get that kind of price for my team. FWIW, Portland projected it would do about $9.5 million in match day and other stadium revenues, $4.5 in sponsorships and $1.6 million from SUM (which includes TV). But the match day revenues and sponsorship revenues are probably conservative given their attendance is a third higher than projected, two games have been added to the regular season and the recent shirt deals have become even more lucrative around the league. In other words, while it's not a gimme by any means, it's possible to see a team like Portland -- that is, a team averaging about 18,000 a game -- generating $12.5m in match day revenue and $12.5m in corporate sponsorship revenue (if it's pro rata share of league deals is included). Which brings us back to television. Even if it could generate over $2m from its local television package, a team like Portland would still need about $10 million from the national TV deals to get that total to $12.5m. Or, to make the matter even more basic, MLS would need a TV deal that pays about $200m annually -- $10m per team. That's up $170m from the $30m on offer for 2012 - 2014. That's the challenge for those of you who understand the television sports industry: what kind of league does MLS have to be to generate sufficient ratings to justify a $200m TV deal? That's what the NHL is getting from NBC/Comcast if I'm not mistaken -- $200 million a year. http://hockeyindependent.com/blog/gordon/33973/ Is that even possible for MLS? And what kind of investment to up the quality of the league would be required?
Hard to say. We obviously know that MLS would need higher (significantly higher) ratings than the NHL to get a $200m a year deal due to advertising time per game. I know people have mentioned the DVR affect but studies have shown the sports are way less affected by dvr's than any other form of tv, so advertising time is still very important. I am not sure we should be thinking about 200m a year deal for 2014, the league can't grow that fast. My pie in the sky is hoping that the deal(s) work out in the $50-$60 million a year range for 2014-2022(assuming an 8 year deal). That would be good money in the early years of the deal and just ok come the end of the deal. MLS might be able to garner more if they can pull off the exclusive deal with one of the groups.
This is somewhat of an aside, but I'd love to see some of those studies. Personally, I use my DVR a ton for sports, but perhaps I'm in the minority.
I looked for a link but could not find it. I remember reading an article last year some time about how they have tracked the sports were less likely to be recorded than other types of shows. They linked it to the fact that the general nature of sports having the chance to be ruined led people to want to watch it live if they had a choice. I too use DVR to record a lot of sports but if I have a choice I prefer it live. For other shows I actually prefer DVR as they are much less likely to be ruined.
This is not the article I read but it touches on some of the same theories about sports and DVR's http://www.deepintosports.com/2010/01/12/sports-television-revenue-tv/
The pragmatic side of me thinks you're right, but my guess is that MLS is thinking a lot bigger than that. It seems like a huge bump, but the NHL package jumped $120m annually. Of course, there are some important differences as you note. Still, MLS has some distinct advantages too. I'm no expert, but to me MLS delivers a terrific demographic -- that explains in part why it's done so well on the commercial sponsorships. And it's that debate that will be joined over the next three years. I will say this much though, absent extraordinary improvement on already good commercial and match day revenues, there's no way to get franchise values to $75m anytime soon if TV revenue is $2m - $3m per team IMO.
I also agree MLS is thinking bigger, especially with the idea of the exclusive deal. The demo's for English language along with the hook of the Spanish language demo gives MLS an interesting story to show the networks. It would certainly help if MLS ratings go up a touch before the deal. That will really be the only thing we can track. Although since the deal may be wrapped up in the WC deal, we can certainly hope that a strong WC (ratings wise) will help. Two things should be on our side. Mexico may have a very strong team by that time, and the time zones will be in our relative favor.
I agree I know the league is thinking bigger take that 50 to 60 mil you suggested and say double that and I bet that is what Garber and company will want. In the past you would say their probably overpricing themselves and hoping they will get somewhere in between, which is a smart strategy. But they may end up trying to keep a straight face and containing themselves by what they get offered. Would love to be a fly on the wall in that meeting lol.
Every BS poster wet dream. Imagine ESPN in Bristol is like we were thinking 200 mil over 8 yrs. with exlcusive playoff rights, and Garber clears his throat adjust his tie and says yes exactly.
Was wondering from a moderator if we could get this thread pinned if we changed the title to include MLS TV Deals and Sponsorships Just saw this http://worldfootballinsider.com/Story.aspx?id=34629
and yet another item that is lining up to expire in 2014....... I hate this type of eggs in one basket risk but it might be worth the gamble if MLS wants to launch 3.0 in 2015.
You may be right. And while I'd be pleased for the owners if they could really drive this revenue (and with it the value of their operating rights) to these higher levels, as a fan my real interest is the suspicion that in order to get the money I think MLS wants from television, their are going to be some strings. They'll have to plow a good chunk of that money back into payrolls IMO. Specifically, if the median gross income for an MLS team is around $30m and even $5m of that is coming from TV, the league is going to have to get payrolls up significantly in order to generate the star power and quality to generate that kind of revenue IMO -- somewhere in the $10m - $15m range per team. In that sense, I don't really think it's the players who are going to drive the next jump in payroll -- again, why pay the same people more than they currently command in the market? -- I think the pressure will come from the TV deals. It can't be lost on the TV brass that while the DP rule may yield spotty on field success, teams like NY, LA and Seattle have consistently drawn substantially bigger audiences. I'd be surprised if any network would risk over $100m per year if they think MLS owners will simply pocket much of the additional money; You would think they would demand assurances that MLS will up its star power. It will be fascinating to see what happens.
That is almost a given I would like to see a 10 mil salary floor with each team allowed to sign five players over the cap regardless of cost. The total cost of those players salaries would have to be 20% luxury taxed to be spread evenly among the other teams. So if the Red Bulls sign 5 players to a total of 20mil over the salary floor of 10mil they pay a 20% luxury tax to the leagues coffer in the form of a cool 2mil. Keep all the other leagues rules like generation adiddas in allocation space.
There are risks and calculated risks... ...at this point in MLS, and from what I see, it is a good one. If the league wants to take a step up these types of chances have to be taken. Don Garber has barely put a foot wrong business wise. He has earned some trust IMO.
Think you will see the status quo maybe something DP related where they allow 1 more like we've seen just about every off season. The big changes wont come til these deals run out in 2014, then its game on.
Of course the larger changes will come in 14, but given MLS will be on netork television next year, and NBC will be marketing MLS to a much wider audience, I'm expect a change or two this winter.
I would agree that appreciation of franchise value is important, however, from a strict business perspective, economists like Forbes directly calculate value based on revenues. So from a strict business perspective, revenues and value of a franchise are the same. There are three exceptions to that strict revenue * x = value: A) Glamor purchases / over ambition - where you get a mega rich oligarch who wants to get in or over ambitious investors who take a risk. B) Value of franchise + stadium + stadium equity - For example: take Kraft and NE. His only overhead is staff and salary expenses. Any other owner in the NE area would have to build a stadium and therefore take on other risks and overhead - lowering the value of the franchise. So while NE Revolution have one value on a strict revenue * x model, it is actually of lower value to anyone besides Kraft. Which really complicates any valuation of a franchise, because every purchase of a Franchise includes some sort of stadium arrangement, which complicates every valuation. C) Potential increase in revenue - which there also isn't really a way to forecast that because revenues don't ever go up in a linear way in equal proportions. IMO Garber wants teams to be playing in their own SSS or NE situations where the overhead is minimized and where the owners can gain equity on their stadiums that they build and use their stadiums for other events to subsidize MLS season ticket revenue. So when every team is in SSS I don't see how the cap can't go up to at least 8-10 million. NE could break even on 8-10 million right now and they are a lower earning franchise in MLS. 17 games * 10,000 fans per game * $30 per person = $5.1 million. An extra 1.2 from league capital call like TV and jersey sales + sponsorship = about 7 million. So if they spend about 8 million on salary + 1 million on staff they lose about 2 million. However, their friendly against Man United probably netted them 4 million. Ta da - they would make a net of 2 million. And that is with very conservative numbers ($30 per person 10,000 actual fans at game not tickets sold) Not too mention playoffs Avg. attendance for NE last year was 12,183 - if you do the math with that (* $30) = about 6.2 million. The reason the cap has probably not gone up is that Kraft wants to obviously take in more than 2 million net. This way he gets to take in about 6-7 million in profit and franchises like SJ at about 9,000 fans per game and till recently KC would probably collapse. Dallas and Colorado wouldn't do to well either. Maybe Colorado could manage with Kroenke's situation. Not sure about Chivas's rental expenses. DC would definitely struggle. Columbus as well. So basically I think it is about 6-7 of what is going to be 19 franchises who need the national TV money. The other 11 would be fine.
Your revenue logic might be fine but when you start talking costs I think you go awry. Staff costs are closer to three million and up when you have coaching staff, medical, training, president etc. You also leave out the 3±million capital call each owner pays to MLS. Finally most friendlies do not make much if any money. Take Man U and make sure you subtract their two million dollar appearance fee. I think more need the money than you assume to justify long term cap increases.
Keep in mind that was a hypothetical and right now 8 mil isn't sustainable for a long term cap sure we could do it but we would be a 13 team league in a 3 yrs , however something like 5 mil is. If we get those fat contracts were banking on then we can look at something like I suggested 10 mil floor and a 5 over rule with the luxury tax on the fives total salary given to the league.
True enough -- but that added value is in addition to the franchise fee and it would be in addition to what I'm describing. In other words, start with $75m - $100m as the base value and add in (or in some markets subtract) the stadium value and other intangibles (market potential, etc.) So while the distinction is noted, if MLS is really selling operating rights for $75m - $100m, I still think that's predicated on 2x projected gross revenues. Now, in real life a valuation expect would also look at earnings when valuing a specific team, but that's almost impossible for us (or Forbes for that matter) to do without a better understanding of their financial statements. Like Forbes, I'm doing a quick and dirty analysis based on gross revenue. I agree that when you are looking at the economic health of a league (and new policies that contracts that impact it) you shouldn't focus on the top third or bottom third, but the middle third of the league. In other words, I wouldn't set spending rules based on the needs of the top teams or the bottom teams. Even so, I think most teams "need" more TV money to establish the base valuation (before your stadium and other adjustments) we're talking about. That's not to say many couldn't or wouldn't set higher payrolls now -- we've had that discussion in another thread. But I don't think you can underestimate the importance of TV revenue to MLS as it prepares to take this next step. Other older, more established leagues have huge advantages over MLS in infrastructure, coaching, player development and match day revenue. What the United States does have is the single most lucrative domestic TV market in the world for sports. It is, potentially, the great equalizer for MLS, and as long as FIFA is stubborn enough to cabin leagues to domestic boundaries, MLS might as well try to take full advantage of its huge, lucrative domestic market. However, in order to access those dollars, I think MLS needs to present itself differently. I don't think it's just about running more promotional spots on Comcast featuring the little niche league that could, it's got to have a product that excites casual fans to watch these games in greater numbers. That isn't going to happen with the current product on the field IMO. And to create that type of product, it's going to have to take some chances and push spending beyond what the dollars in hand otherwise justify.
That was my point in the beginning of this thread some network is gonna have to take that leap of faith and invest in MLS and demand in return they build a better product not to say the current product sucks, it just doesn't justify this sort of money. These old addages apply "you get what you paid for", "you get out what you put out."
This is one advantage MLS does have in contracts versus other US leagues. They actually can sell the idea of "we can improve league". All other US leagues already have the best players in the world in them, so improving the league for them is nothing but cosmetic. For MLS it is a reality that it does not have any where near the best players in the world, and as such has the ability to realistically improve the league from a fans perspective.
This is a very interesting conversation. I am having two problems with some of the calculations being made and maybe you guys can erase them for me 1) The most recent CBA was signed last year. The books were completely opened. The players had financial experts combing through the data. If things were as good as some calculations show here, why would the players sign a 5 year deal with such a small salary cap? 2) I feel certain that the papering of the house attendance as described in detail by the San Diego paper years ago no longer happens to that degree. However, I am equally certain that there are still remnants of that policy. Remember that it is MLS that still uses the term "tickets distributed", not "tickets sold". I think it can lead to faulty data where people are just taking the attendance average and assuming every ticket was paid for at full average ticket price.