New DCU Stadium

Discussion in 'MLS: General' started by Kings of Cascada, Aug 3, 2012.

  1. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    Okay, not to nitpick, but you are touching on the essence of what the "single entity" really is, and it's central to this conversation.

    First, an example. I own and operate a real estate management company. We lease buildings, collect the rent, pay the bills and make the repairs and modifications. Most tenants mistakenly believe we own the building because we are the public face of the property, but often we don't. We operate the property for a share of the revenue we generate and our expenses, but someone else owns it.

    MLS is no different.

    MLS owns the entire team -- 100% -- but it hires other companies to operate the team. Those companies are required to pay a fee to enter into the contract and provide various services out of their share of the proceeds, but they are operating a league asset for a percentage of the revenue they can generate, just like my company does.

    We know this because the Court clearly says so in Fraser (emphasis mine):

    "MLS owns all of the teams that play in the league (a total of 12 prior to the start of 2002), as well as all intellectual property rights, tickets, supplied equipment, and broadcast rights . . . However, MLS has also relinquished some control over team operations to certain investors.   MLS contracts with these investors to operate nine of the league's teams (the league runs the other three) ."

    http://caselaw.findlaw.com/us-1st-circuit/1441684.html

    Yes, we've imported a lot of terminology over the years from the NFL and other leagues, but on this one crucial point MLS is fundamentally different: the league owns the teams and it contracts with other companies to run the teams. (As we know, these days the league no longer operates three of the teams as it did at the time of Fraser). Just like my company receives a management fee from the owner of the real estate for our services, MLS pays a management fee to the companies like Kraft's that operate the teams. Fraser again:

    "In return for the services of the operator/investors, MLS pays each of them a “management fee” that corresponds (in large part) to the performance of their respective team. "

    Meaning the fee is highly incentivized in terms of what the management operators keep. But it's still a management fee. Kraft doesn't own the team any more than I own the real estate we manage.

    Why is all of this so important?

    Because if you are operating someone else's asset, every single management agreement I've ever seen in various industries can be terminated by the owner if some standard isn't met. Now, that might be very expensive for the owner to do, but I'd be stunned if MLS didn't already have a mechanism in its agreement with the I/Os to manage the team that would allow the league -- the owner -- to change an operator in some extraordinary circumstances.

    It certainly wouldn't be pleasant, and for other under-performing operators they may be reluctant to cast a stone from their glass house, but I think the mechanism exists.
     
  2. tab5g

    tab5g Member+

    May 17, 2002
    Good stuff. Thanks.
     
  3. tab5g

    tab5g Member+

    May 17, 2002
    If the “management fee” .. corresponds (in large part) to the performance of their respective team, I'd be interested in seeing how NE's "management fee" fits in (or doesn't) relative to the "fees" that are collected by the operators of franchises in Seattle or LA or Philly (or elsewhere within the league).

    I do wonder how "performance" is tracked/measured and how it actually corresponds to the "management fees" paid by the league to the team operators for their services.

    Not that we'd ever be able to learn of such precise details as to MLS's business.
     
  4. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    Remember it changed in 2002 when the league re-organized, but Fraser actually says how the fee was calculated prior to that:

    "The management fee equals the sum of one-half of local ticket receipts and concessions;  the first $1,125,000 of local broadcast revenues, increasing annually by a percentage rate, plus a 30% share (declining to 10% by 2006) of any amount above the base amount;  all revenues from overseas tours;  a share of one-half the net revenues from the MLS Championship Game and a share of revenues from other exhibition games."

    The chart in the KC study indicates how the fee was altered, as we've discussed before, but again I think people lose sight of the fact that it's fee that is payable for operating a team owned by MLS, LLC. Whatever Kraft Soccer, LP makes -- that's the Kraft partnership that operates the Revs -- is completely different from what the "team" owned by MLS, LLC makes.

    We know because Fraser says this too:

    "[After payment of the management fees], The remaining revenues of the league are distributed in equal portions to all investors [in MLS, LLC].   Thus, while the investors qua investors share equally in the league's profits and losses, the individual team operators qua operators fare differently depending at least in part on the financial performance of their respective teams [which they operate]."

    Now the critical point: When Garber says a team owned by MLS, LLC are losing money, that doesn't necessaily mean Kraft Soccer, LP -- Kraft's company that operates the Revs -- is losing money.

    For the die hards that have kept with me this far, let's add the final layer of complexity here.

    In addition to the management contract Kraft Soccer LP has to operate the Revs, Kraft owns shares in MLS, LLC. Yes, MLS, LLC owns the teams, but that doesn't mean Kraft himself owns a team. For example I own stock in our local utility company, but that doesn't mean I personally own a power plant. I own shares of stock in the company that owns the plant which entitles me to a distribution of profits, just like Kraft does in MLS, LLC. No profits, no distribution.

    And here's where an underperforming operator can shaft the others.

    Since the 2002 reorganization, as a condition of an operator getting this management agreement, he has to provide a place for the team owned by the league to play. He's incentivized to do that because he gets to keep a lot of the revenue the stadium generates as well as 70% of the ticket revenues. But even if a new soccer specific stadium might enable Kraft Soccer LP to sell more tickets and generate more money for itself and MLS, LLC which owns the team, all that extra stadium cost is Kraft's alone. When you already have a stadium, even if it's not particularly suitable, it is likely you can make just as much if not more money in your operating company by making do with what you have, even if it means selling fewer tickets.

    Yes, if the stadium donsn't work well Kraft Soccer LP sells fewer tickets, but it doesn't have the big stadium cost of a new SSS to cover either. So you can see why Kraft Soccer, LP might not be in huge hurry to get a new stadium.

    The league, however, is a flat out loser. In effect, it looks like the league's team, operated by Kraft Soccer LP, doesn't generate as much money for MLS, LLC as it should because their operator won't put them in a more marketable facility in order to boost his management company's bottom line. Sure, Kraft feels that unrealized revenue too, but he only owns 1/19th of the league (or less, as the league has shareholders in addition to the operators). As long as Kraft Soccer LP does well and the other teams are generating good revenue for MLS, LLC, he can coast.

    But MLS has a remedy -- I think it can insist that operators put its teams in suitable stadiums as a condition of operating the team.
     
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  5. holiday

    holiday Member+

    Oct 16, 2007
    mls doesn't really have an alternative to kraft in new england, unfortunately. and the fact he's also an early investor in mls itself, strengthens his position still more. basically new england is his fiefdom. the league only has nominal sovereignty over it.
     
  6. metroflip73

    metroflip73 Member

    Mar 3, 2000
    NYC
    Nat'l Team:
    United States
    Sad.
     
  7. Boloni86

    Boloni86 Member+

    Jun 7, 2000
    Baltimore
    Club:
    DC United
    Nat'l Team:
    Gibraltar
    I've seen several games this year in New England where the game atmosphere was better than some SSS atmospheres.

    As far as on the field, the Revs have a more exciting roster than several MLS clubs I'd rather not list so as not to start a pissing contest.

    Whining about New England is much ado about nothing. MLS will never take a confrontational stance against Kraft. If you do that you risk poisoning the well in any future investment in New England. You also set a bad precedent that other MLS investors will take note of. Once Kraft gets kicked out, who will be next? And where do you draw the line?

    And besides Kraft will most likely give his Revs a stadium one day. Just not at this particular time.
     
  8. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    Well, I think it's pretty easy to draw a line. How about the league draws the line at any operator averaging 12,922 -- dead least in the league -- in one of the largest metro areas in the country who hasn't made the necessary stadium investment to improve things?

    Besides, the won't just take his operating rights away, it's far more likely they would lean on him to orchestrate a sale of the operating rights to another party -- one who won't want to pay Krafts rent anyway.

    But let's not pretend this is good enough. Garber called out Chivas in his Sporting News interview, but objectively the Revs don't look any better. Chivas USA and the Revs need to get going or, like DC United, it's time to change the operators and inject some new energy into the process IMO.
     
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  9. holiday

    holiday Member+

    Oct 16, 2007
    but how exactly could another i/o operate in boston?
    as for calling out, garber even calls out nyrb as much as chivas. which is fairly absurd given his silence on the new england front.
    it looks like the bond garber/kraft is not to be plied apart.
     
  10. Boloni86

    Boloni86 Member+

    Jun 7, 2000
    Baltimore
    Club:
    DC United
    Nat'l Team:
    Gibraltar
    There will always be a team that's dead last in attendance. You're better off implementing relegation. I don't want to support a league where every few years a franchise is forced to shut down based on some arbitrary guidelines they happen not to meet.
     
  11. Indiscretion

    Indiscretion Member

    Aug 6, 2007
    Atlanta, GA
    Club:
    Toronto FC
    Nat'l Team:
    United States
    So is the DC stadium still happening or......

    I completely forgot about the stadium thread honestly...
     
  12. Spursfan1

    Spursfan1 Member+

    Sep 7, 2010
    Atlanta
    Club:
    Tottenham Hotspur FC
    Nat'l Team:
    United States
    2016 maybe?
     
  13. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    Sure, someone has to be last. But we're not talking about Columbus, Ohio, which is going to be limited by the size of the market no matter who is sellling tickets, we're talking about the 10th largest metro area in the country with teams in other sports that are among the most valuable in their respective leagues. Krafts seem like good people and all credit to them they stuck with MLS during the dark days, but honestly who can say on the merits what they are doing is maximizing the value of this market for MLS?

    Besides, who said anything about contracting the Revs? The Revs are owned by the league. They aren't going anywhere unless MLS wants them to. But whether Kraft Soccer has to operate them is a seperate issue.

    If the Krafts have no appetite to go further into their pockets, MLS can broker a deal to sell the operating rights to someone else. The Krafts can take a nice profit, heck, they can even stay in an a investor in the league if they wish. Remember, the league also has Class B stock that investors like Alan Rothenberg and Dentsu own. They don't have to be an operator to be an investor.

    Contrast DC United, the subject line here. They've failed to get an SSS too and, personally, I think the venue is one of the major reasons their attendance is starting to suffer, but at least they've shaken up the ownership of the operating group. This isn't stadium groundhog day.
     
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  14. holiday

    holiday Member+

    Oct 16, 2007
    in the present situation is that a real alternative? how could you operate a new england franchise other than at gillette? there is no attractive alternative to kraft, i'm afraid.
     
  15. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    We don't know that. Even if you assume the worst and everything the Kraft's supposedly have done hasn't come close to generating even the framework of a viable stadium deal another group could fund, there are other stadiums in greater Boston. The Breakers played at Harvard obviously, but how about Nickerson Field at BU? With a listed capacity of 10,412 it might even be expanded with some temporary seats. As a temporary venue for a few years it's no worse than what San Jose, KC, Dallas or Chicago had to work with.

    http://www.worldstadiums.com/stadiu...d_states/massachusetts/boston_nickerson.shtml

    Or something else. Really, it would be hard to do worse than the status quo and it would inject some urgency into finding a permanent solution.

    It's time to get the Revs, Chivas and, yes, DC United off the dime here.
     
  16. holiday

    holiday Member+

    Oct 16, 2007
    ok, if you find someone who really wants to buy the operating rights and build a stadium too. you'd need an 'on-goal' for boston. although stadium building in boston might be more complicated.
    moving to any facility other than gillette without a very clear commitment to a new sss, wouldn't improve anything imo. tbh nickerson looks like a non-option to me, and hs wouldn't suit mls very well either.
    on top of that, i truly think that neither garber nor anyone else has any intention of moving in on kraft.
    iow, i don't think the ducks are lined up properly at all for change, unfortunately.
     
  17. Boloni86

    Boloni86 Member+

    Jun 7, 2000
    Baltimore
    Club:
    DC United
    Nat'l Team:
    Gibraltar
    I think this sense of urgency for a NE stadium exists solely in BigSoccer and not at MLS HQ and certainly not in Kraft's office.

    People better get used to Gillette and learn to like it because that situation ain't changing anytime soon.
     
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  18. Potowmack

    Potowmack Member+

    Apr 2, 2010
    Washington, DC
    Club:
    DC United
    Nat'l Team:
    United States
    I guaranty that Kraft is fully in compliance with the terms of his operating agreement with the league. The Revs might not be tearing up the league in attendance, but that is not, in of itself, a legal reason for the league to try and push Kraft out of the league.

    Realistically, MLS is not going to go to war with a billionaire without a very good reason.
     
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  19. holiday

    holiday Member+

    Oct 16, 2007
    that's a good point. kraft wasn't just 'hired' to run the new england property for mls. he owns the operating rights.
    unfortunately, garber's/the league's silence about the state of the revolution seems simply hypocritical compared to, for example, the recurring comments about nyrb. garber was at the recent rbny wednesday afternoon game and commented in real time that 'we're not happy with the attendance today.' not to mention comments that 'we haven't been able to make the ny market work like we'd like.' on kraft, not even a peep. if i were heck's successor, i might have a thing or two to say about all this.
     
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  20. triplet1

    triplet1 BigSoccer Supporter

    Jul 25, 2006
    While many stories talk about the I/Os "ownership" of operating rights, technically Kraft Soccer has a contract to operate the team and his rights under that contract are transferable in certain circumstances for money. Yes, the contract has value, and yes, he's paid something for the benefits that flow from that contract, but that's all a management agreement is, a contract. (Remember too, we really don't know how the expansion fees are allocated, and while it is likely some of the cash is for the purchase of shares in MLS, LLC and some is for the contractual operating rights, I've never seen how the money is allocated between them.)

    And while we don't know what these management agreements require of the operators, for a league to present itself as a single corporate entity, I would think that there have to be some standards of financial performance in those agreements -- what owner would contract with someone to operate its assets without them? -- or they would risk undermining the legal construct of the single entity that owns all the teams.

    We also know MLS does send its staff in to work with the operators in markets they think are problematic -- Garber just said as much in his Sporting News interview:

    "We have, like all leagues, markets that we’d like to see perform better. Chivas (USA) is an example of that. We have MLS staff in those offices working closely with them to try to improve that situation, just as an example. But there are a handful of markets we’d like to see do better."

    http://aol.sportingnews.com/soccer/story/2012-07-21/sporting-news-conversation-don-garber-part-ii

    So the league does take action in markets that are under-performing.

    Where I agree is that MLS probably isn't going to get into an expensive battle to just kick the Krafts out. If they can't get them to act voluntarily, I think they'll simply marginalize them until one day, like in DC and New York and KC, you'll see some new faces.

    You will recall that interesting Grant Wahl interview with Garber in 2010 when Wahl asked the Commissioner whether the Krafts and Hunts and other conservatives were at odds with Roth and AEG and the advocates of more spending. Garber replied, in part, "There are a number of camps that exist within any league structure, and my role is to ensure that we can reach consensus on a plan going forward that makes sense for everybody. "

    Wahl pressed him, and Garber responded with a spirited defense of the Krafts and Hunts (and something of a dig at the new guys):

    http://sportsillustrated.cnn.com/2009/writers/grant_wahl/11/19/garber.qa/2.html#ixzz233Nagbsv

    That was 2010. It would be interesting to know if people in the board room still listen when Bob Kraft speaks with the same deference, or if his influence is starting to wane. Kraft remains one of the NFL's most respected and influential owners, but he also has one of the most successful teams, both financially and on the field. Dead last in attendance, does the league hold up the Revs for an example of best practices? I suspect less and less.

    On the playing field or in the board room, its hard for the weakest performers to exhibit leadership because they don't command the requisite respect from their peers. Which means, over time, on decisions big and small, the Krafts will find it hard to be as persuasive to shape decisions to their liking.

    So, I agree, I don't think MLS is going to kick the Krafts out, but I do think they will eventually just get tired of this. NFL kingpins don't perceive themselves as weak operators, even though its hard to argue otherwise with the Revs. They won't like seeing their financial performance at the bottom of the league when they meet at the BofG. They won't like the gradual erosion of respect for their views because they can't get their own ship righted. And, I'm guessing, still nursing Patriot Place along, they won't want to invest the time and money to reverse the Revs performance.

    Eventually this ends with handshakes, a lifetime achievement award, and a check. They'll move on IMO.
     
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  21. Potowmack

    Potowmack Member+

    Apr 2, 2010
    Washington, DC
    Club:
    DC United
    Nat'l Team:
    United States
    But, doesn't it go beyond just being an operator of an individual club? As I understand it, each MLS team operator is also a part owner of the league as a whole (though most likely through a different entity than the one that entered into the club operating agreement). Don Garber isn't Kraft's boss- he's actually his employee.

    Any move t0 pressure Kraft to do something about the Rev's attendance and stadium situation isn't going to originate from Garber. It would have to initiate from the other owners of MLS. Even if the Revs are a net financial loss for the league as a whole (and we don't know if that's the case), that loss is spread out over the 18 or so other owners of MLS. Spread out like that, the effect of any financial loss the Revs cause to the other MLS owners is probably pretty small ($50K? $100K?)

    Taking all of that into account, there isn't a huge motivation for the other owners to rock the boat and pick a fight with a billionaire who has been with the league since the start. Eventually, Kraft will do something with the Revs by either investing money in a new stadium or selling part or all of his interest in the team to someone who will be more focused on the team's financial success.
     
  22. holiday

    holiday Member+

    Oct 16, 2007
    my gut feeling is that:
    kraft's 'influence' outside his own new england fiefdom is pretty low at this point;
    however, an mls employee would have trouble setting his foot in the door to monitor the rev's operations;
    garber will defend kraft much like, as a loose analogy, selig defends wilpon;
    we'll keep hearing a lot about nyrb not getting it right (they're 'new owners,' btw), more about chivas, and nothing about new england.
    and at the moment no major changes in the mls business model are in sight that would put kraft on the hot seat.
     
  23. Boloni86

    Boloni86 Member+

    Jun 7, 2000
    Baltimore
    Club:
    DC United
    Nat'l Team:
    Gibraltar
    Don't forget that Garber is an NFL guy ... at the end of the day he probably sees eye to eye with Kraft on more than what we think.
     
  24. holiday

    holiday Member+

    Oct 16, 2007
    good point. there also may be a desire not to burn that bridge...
     
  25. Yoshou

    Yoshou Fan of the CCL Champ

    May 12, 2009
    Seattle
    Club:
    Seattle Sounders
    Nat'l Team:
    United States
    Ask the Yankees what they think about the owners of certain small market teams using their "luxury tax" to line their pockets instead of using it to improve their team. There actually is a pretty large motivation for the rest of the teams to "force" Kraft to put up his team and it is one that drives a lot of billionaires.. Greed. The reality is that if Kraft (or any other owner) doesn't pay attention to their team and let's the attendance drop significantly, then they are cutting into the bottom line for the league as a whole and, therefore, the size of the check each of the investors in MLS will get. Even if it is a small amount, if one of the owners isn't pulling their weight and they aren't doing things to improve things, then, in all likelihood, the other investors will do something about it.

    Another thing to consider is that even if they do take the team away from Kraft, they don't necessarily have to take away his investment in MLS/SUM. They could just pull his license and leave him as an investor. Isn't the guy that owned the Fusion still an investor in the league?
     
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