Modified UEFA Financial Fair Play + Revenue sharing

I would like to expand on Zxcv post. Maybe something like this will get the approval of 2/3 majority of owners. Though I have my doubt.

1/3 of revenue = maximum salary budget

$30 mil revenue: $10 mil salary budget (maximum)
$20 mil revenue: $6.67 mil salary budget (maximum)
$15 ml revenue: $5 mil salary budget (maximum)
$10 mil revenue: $3.33 mil salary budget (maximum)

In addition, there will be significant revenue sharing in which high-revenue MLS clubs helping the low-revenue MLS clubs financially.

I don't know how eager the owners of high-revenue clubs will be with this salary structure, considering that they will have to share more revenue with low-revenue clubs. (what's in it for them?)

Vice versa, I don't know how eager the owners of low-revenue clubs will be with this salary structure, considering that they will be a competitive disadvantage when it come to spending on players. (what's in it for them?)

The right compromise might be hard to find.

If you don't mind, perhaps we can start here, because there are different flavors of revenue sharing.

What seems accepted throughout U.S. professional sports leagues is that money earned collectively through national TV deals and national sponsorships should be shared equally. SUM is really the vechicle for that under the present structure -- it gives each Investor/Operator it's share of those proceeds. (It's also probable part of the TV and sponsorship money is shared indirectly, that is, part of this money goes to MLS and is used to pay players and run the league office).

So far, so good.

The "problem" is that MLS deals are relatively small, which means, if those Portland projections are correct, the money from SUM is less than 15% of a team's total revenue. Contrast that to relegated Blackburn that got nearly 75% of its revenue from the EPL TV deals in 2010.

It varies from country to country because not all leagues market TV deals collectively, but in England where TV revenue is broadly shared in the Premiership, small clubs get a much higher percentage of their revenue from "shared" sources then MLS teams do.

Now, gate receipts.

Sharing gate receipts is also common in U.S. leagues -- MLB and the NFL have done it for decades and MLS does too. England once did, but the EPL ushered in two changes: TV money wasn't shared throughout the four divisions of English football and clubs kept their gate receipts, as David Conn explained:

http://www.guardian.co.uk/football/...mier-league-relegation-financial-implications

Conn's a bit harsh in that the EPL does share significant TV money to this day as discussed above -- they just don't do it with the clubs outside the EPL -- but when clubs began to retain their own gate receipts, Manchester United got a big advantage over clubs like Blackburn because their gate receipts are so much higher. (In 2010, Man U made 100m pounds from match day revenue compared to 6m pounds in match day revenue for Blackburn).

http://www.scribd.com/fullscreen/55741334

Depending on the source, MLS keeps 30 to 33% of the general admission ticket revenue and effectively redistributes it to the other teams by applying some of those dollars to the cost of players and other dollars to league operations. (Note MLS does not share in club suites, boxes or the portion of ticket premium beyond general admission tickets). Beyond that, MLS I/Os keep most of the ticket money.

And MLS teams keep all other local revenue, including local TV money, stadium naming rights, and almost all of the shirt deal money.

So, when people talk about "more revenue sharing", you are really saying more of this local revenue should be turned over to the league. I've argued for that in the past.

But it's a tough call IMO.

We don't have the numbers, but I strongly suspect Portland or Salt Lake or Kansas City have higher revenues then New England and perhaps even Dallas, DC United and Chicago. Is it "fair" to have those small markets subsidize the Krafts? Is that a proper incentive for the league to have?

Or, would MLS rather let teams spend their local money on players to put pressure on everyone to sell more tickets?

What makes this issue so difficult IMO is that in MLS it isn't necessarily the big markets subsidizing the small, it may well be the small markets subsiding the early MLS teams that are comparatively in huge markets.

Personally, I'm not sure that's appropriate.

And while I don't see eye to eye with Jerry Jones on much, he put a fine point on this issue a couple years ago when the NFL ditched the special fund it had set up to provide additional revenue sharing for low revenue teams:

http://www.cbssports.com/mcc/blogs/entry/22475988/30389726

And the NFL did eliminate this form of revenue sharing BTW.

But it's the same question here for MLS -- aside from equal sharing of national TV and sponsorship money, how much help should Salt Lake City give to New England?

I think that question has to be resolved before we start talking about changing the salary budget or moving money around to do so.

Let's plug this in too as part of the discussion of how much revenue would have to be shared.

For starters, do we have a credible estimate of the high revenue MLS teams?

Here's the best I know of, which has been posted before:

http://www.bigsoccer.com/community/threads/revenue-of-la-galaxy.1803716/

Converting to dollars,

Seattle would be about $38m
LA would be about $32m
Portland (from their projections including SUM money) would be about $15.5m
And Forbes suggested many MLS teams around $10m

So, I suggest we consider a range of revenue from $10m to $38m, which is a bit higher then you have at the top, but otherwise tracks your chart (and I've added the specific numbers for LA and Portland too):

$38 mil revenue (Seattle): $12.5 mil salary budget (maximum)
$32 mil revenue (LA): $11.0 mil salary budget (maximum)
$30 mil revenue: $10 mil salary budget (maximum)
$20 mil revenue: $6.67 mil salary budget (maximum)
$15.5 mil revenue (Portland): $5.1 mil salary budget (maximum)
$15 mil revenue: $5 mil salary budget (maximum)
$10 mil revenue: $3.33 mil salary budget (maximum)

UEFA looks at the spending differential between the top four clubs in each first division and the others. At about 3.0x -- the top teams payroll being 3.0 x everyone else -- the league is reasonably competitive. Here, Seattle is 3.75x that of the bottom teams with revenue of only $10m before any additional revenue sharing.

That's not awful -- Ligue 1 in France is about 3.7x in the most recent UEFA benchmarking report, and it's a pretty competitive league top to bottom (with a small market team batteling PSG for the title today).

But to reduce that margin and equalize payroll, you have to move money from Seattle and LA and Portland to the others.

The gap between top La Liga club and bottom La Liga club in term of revenue is very significant.
Something like $600 mil to $60 mil. Real Madrid generated 479.5 million Euros for 2010/2011 season.

And unlike La Liga, MLS have playoff and player draft. This give the low-revenue MLS club a fighting chance.

if the goal is to prevent teams from accumulating debt (see Europe) then strong financial fair play rules could be the answer.

if the goal is parity then a salary cap is the answer.

Personally, I hate parity and thus i hate salary caps. But I also think the way Europe is going they are heading for a crisis. Not all of Europe btw , the French and German leagues are not in the same situation as Spain, Italy and England.

The numbers in the latest UEFA benchmarking report are sobering. Of the first division clubs in Europe, 37% have negative equity (that is, their liabilities are greater then their assets). They are, in effect, insolvent. Some are deep, deep in the red.

Of the major leagues, France is indeed the best (only 1 club in Ligue 1), Germany isn't bad (3) and, surprisingly, Italy wasn't bad either (3). Spain, Russia and England are troubled -- 11 clubs in the Premiership have negative equity. Outside of the top leagues, Holland is grim (half the Eredivisie) and Poland is shocking -- only 2 clubs don't have negative equity!

The premise is that teams that are successful in attracting fans are rewarded (they can spend more to improve if they want to).
And for the good of the league, the rich will help out the poor (significant revenue sharing)

Capitalist system (use your success to bring in more success)
Socialist system (rich help out the poor)
Financial sound system (teams can't overspend, go into debt because spending is cap at 1/3 of revenue)

With this structure, fans of teams with high attendance are rewarded. Take Toronto for example. They could have gone from strength to strength under this model. Maybe their waiting list would still be 15,000 strong and the stadium is packed for each game.


This structure would be good for Europe too if they want to adopt it. Football would be better off because of it.

So you mean to say that the leagues with parity are in better financial shape than the leagues that don't?

Hand outs don't help anybody.

Axiomatically false. If you were to give me some money right now, it would be helpful. Hand outs would help me

Shit the Pakers won a Superbowl thanks to revenue sharing.

He probably means short run vs long run.

But he should compare the NFL a league with hand outs or as we call it sharing with MLB and their not sharing. In the long run, sharing worked out more than not sharing, even now MLB is trying some income redistribution to help the poor teams.

Not exactly. I could give you 100$ right now, but what would it really do for you ? How is it going to change your situation or the variables that led to it ? After you use that 100$ are you anymore likely to actually be out of the situation ? Will it really change ? Will you actually be any better off once you use that 100$ ? Of course, we're talking actual measurable terms here, not "I was able to go take the family out for free on Friday because HttK gave me 100 smackers, so I didn't have to use the cable money on it" type of better (highly doubt that's your situation but you know what I mean). Of course, there are exceptions to every rule. However, the majority of people taking hand outs don't actually improve themselves, their situation, or anything like that.

Ceezmad has caught the drift of what I'm saying ... and speaking of exceptions:

The Packers are about as "exception" to the rule as you can get in every way possible. Unlike the vast majority of "small market" clubs in all sports, they're as popular as any team in not just their league but in all of American sports. Trying to tie their success directly to revenue sharing is false. Yes, it helped, but so did their insane success before all of that mattered. Their fan base is ridiculously faithful regardless of results.

Now, on the other hand look at the vast majority of the other small market teams across American sports.

I think we should test out this hypothesis...y'know, for science

I wouldn't go that far. Are you saying that MLS is the most financially stable league in the world?

You could centrally plan a league and hold down salaries with a cap and you would have a stable league. But its a league that is constantly pulling itself down to mediocrity. It's a very boring league, which MLS is.

Your opinion =/= fact.

As a shareholder, it almost makes me blush.

Two points. First, the definition of "revenue sharing" is important because the NFL's decision to market TV rights collectively and split the money in equal shares has been tremendously important to the Packers, who had one of the worst TV deals when each team was free to sell the rights themselves. Of course, the idea of collective marketing of TV rights is now so accepted in U.S. sports I'm not sure most even consider it revenue sharing, but however you classify that money Green Bay would be in trouble without the national TV money.

Second, despite all of our proud puffing, the Packers did fail as a small market team. Under league pressure, three of the six annual home games were moved to Milwaukee early on -- when Milwaukee was one of the 15 largest cities in the country -- and the Packers continued to have essentially two fan bases for decades. Now all the games are back in Green Bay, but those Milwaukee fans still have those tickets to those three regular season games and clog the freeways north to Green Bay each season. Still, until the schedule expanded, Green Bay was really asked to support the Packers for three regular season games a year, which it manged to do -- barely -- until the Lombardi era of the 1960s when the team really go its house in financial order.

Today, the Packers are really a state-wide team with a market of over 5m people, so while the town isn't huge the market isn't small.

There are only a small handful of teams in the NFL that weren't in "trouble" or in the same order of unrest as you described about the Packers.

Hell, it wasn't until '58 and "the greatest game ever played" took place that the NFL really shot out of a cannon. The Packers were on top for that first era of real popularity and public awareness. They haven't looked back since. I mean hell, there was a time in the 40's when the Giants looked dead in the water.

Anything before the late 50's for the NFL is like trying to use the NASL to prove the MLS.

Another important difference of the NFL compared to other sports is the lack of a local TV contracts. I know there are coaches' shows on local TV, but there is no distortion from market to market in the NFL like there is in the NBA, NHL, MLB, and MLS.

Your're right, it's huge. And with the Galaxy poised to get more from their new local deal then their share of the MLS national deal MLS seems to be headed the other way.

But there is a serious question not only of how helpful they are, but how "fair" they are. Again, I'm not talking about sharing national TV revenue or sponsorship money that is generated from collective marketing equally, I'm talking about transferring operating profit generated by one team to another.

Love him or hate him, I think Jerry Jones asked the right question, which, adjusted to MLS, is this: Is it fair for a small market team like Kansas City or Portland to subsidize New England?

When Kansas City, Portland, and New England are divisions of the same business entity, yes.

Its essentially the same as saying "Is it fair for a big network like NBC to subsidize NBC Sports Network"?

But they aren't. Not really. Not when the money comes out of the pocket of one Investor Operator and is given to another.

Again, I want to be very specific here -- SUM has done its deals and given every I/O its share, Portland has just sent its ticket money to MLS and it's capital call check to MLS and, when all is said and done, made $3m.

I have no problem with any of that.

But because the Krafts made less and Portland has marketed well and sold more tickets and local media and stadium naming rights, should Portland now have to give New England part of the $3m?

That's what expanded revenue sharing contemplates. That's what the NFL had as supplemental revenue sharing and dropped.

The single entity is not a single profit center, and I can see no good reason why a small market team should transfer any of its profit to a large market team that underperforms.

Is that any different than my current company? We're a small tech company where the founders also work for the company and draw a salary. We have other investors who don't work for the company. Essentially the other investors are paying the founders (who are also investors) their salary. This isn't a unique setup either.