CBA Thread III: The sneakers don't seem that much cheaper

Re: CBA Negotiations, Part II

But how accurate are the Forbes numbers, really? They're like TV ratings. The numbers in MLS are so small as to be near the margin for error.

I mean, riddle me this: Lamar Hunt (or Lamar Hunt family) never has appeared on the Forbes list of American billionaires. Yet, the Lamar Hunt owned (and pretty much wholly owned) Kansas City Chiefs were valued at $750MM in the last Forbes ranking of NFL teams while Lamar was alive. Given his investments in Unity Hunt, the Chicago Bulls, MLS, and god knows what else, it's all but incomprehensible that he (or the family) didn't have enough assets to span that gap.

At a certain point, even Forbes admits it's really just guessing. Granted, they're pretty good guessers, but my educated guess is that 1) 2010 is a lot different than 2007 in MLS-land, and as good as Forbes is, the amounts of money at play in MLS aren't really high enough for Forbes' guesses to be particularly reliable.

-----
Former MLB President Paul Beeston famously boasted when he was a Toronto Blue Jays executive, "I can turn a $4 million profit into a $2 million loss and get every national accounting firm to agree with me."

 

Re: CBA Negotiations, Part II

Forbes might have missed on some of the details, but, really now, do you think half the MLS teams (or more) are profitable?

I've go all the links in the other thread I noted earlier, but having just looked at many of these article again from the last three years, here's a quick synopsis of what can be pieced together on a timeline:

-- In 2006, Garber told the Washington media that unless an MLS team controlled its stadium (soccer specific or otherwise), it literally couldn't make a profit. For last year, that would include DC United, Kansas City, Houston, San Jose, NYRB, and Chivas USA.

-- During 2007, Garber said Dallas and LA were profitable, and he expected TFC, Chicago and Colorado to be. Forbes flatly said in 2008 that Chicago and Colorado weren't for 2007. If Garber ever took issue with that, I missed it. Garber did not indicate that Columbus or New England were profitable, even in stadiums controlled by their owners, nor did he inculde them on his list of clubs which he expected to be profitable.

-- Since Forbes compiled its 2007, announced attendance was down in 2009, significantly so in many markets.

-- Garber told Grant Wahl in the fall of 2009 that because of the economic downturn MLS sponsorships had taken it "on the chin", suggesting that revenue is down too.

-- Garber also told Wahl in that 2009 interview that a "handful" of teams were doing well, and a "handful" were "really struggling." He didn't quantify beyond that.

Good things have happened too since 2007:

-- RSL looks to successful in their new stadium.

-- Seattle has had great numbers.

-- Jersey sponsorships have grown nicely.

Again, if you want all the numbers and quotes I will direct you to the other thread where I compiled it, but if Forbes missed on some details -- and since they are estimates I don't dispute that they certainly could have -- I think they got the big picture right. That is, MLS performance isn't good or bad, it's uneven, with some teams doing well and making money as others aren't and haven't. The league isn't going to fail, Garber has said as much, but MLS teams are universally rolling in cash either, and they've got a handful of teams with real problems.

Which, honestly, sounds a lot like other leagues to me.

It also makes this CBA tricky, because there is probably good evidence that can be used to make an optimistic or pessimistic case about the leagues finances -- depending on what side of the table you are sitting on.

 

Re: CBA Negotiations, Part II

I'm not sure I agree with "significantly in many markets."

Especially when you're looking at announced attendance. I do talk with folks in MLS (as do many posters here), and my read is that paid attendance is actually been on the increase in MLS over the last five years. Obviously, the recession hasn't helped.

Most of the older teams are trying to transition from the league startup phase where papering the house was more common than even the biggest nay-sayers probably believe to being in line with the most recent expansion teams. It takes time and effort to wean crowds off of the freebies while resisting temptation to "pad" the announced figures.

Needless to say, attendance revenue has not declined league-wide, despite the announced numbers in certain markets.

 

Re: CBA Negotiations, Part II

I don't dispute any of that Andy, but in these conversations do these representatives claim the teams are profitable? From Garber's fall interview, it looks like a handful are, a handful are not even close, and the rest, presumably, are slogging along somewhere in the middle.

I apologize for repeating myself from the other thread, but even with the limited data we have, there has been some good reporting over the last three years, particularly with respect to the Crew by the Columbus Dispatch. Yes, paid attendance for the Crew was up nicely in the first half of 2008 over the numbers leaked to the San Diego Union Tribune for 2005, but it wasn't yet 10,000 a game, which, at the prices they were charging, wasn't enough to make the Crew profitable -- that, and the lack of a naming rights sponsor for Crew Stadium.

Two of the three stadium feasibility studies which were made public -- Kansas City and Portland -- are really pretty good IMO. They indicate the cost of running an MLS team in a SSS is somewhere between $9 - $10 million annually, which includes stadium costs, but not players. To make about a seven figure profit, teams have to sell about $4 million of tickets, which works out to be about 12,000 a game at just over $22 per ticket. Throw in a million bucks for stadium naming rights a year and the ancillary revenue from concessions, etc., and teams can -- and apparently do -- make money.

But again, we do have some real numbers for the Crew, including their per game revenues from ticket sales, and at least for half a season they were going to be over $900,000 off on the ticket sales side, which would have reduced ancillary revenue too. The Crew data also doesn't indicate that freebies do much to at least prop up ancillary income by getting more people into the stadium to buy concessions -- actual turnstile counts were lower than paid attendance.

Put it all together, and your comment, at least with respect to the Crew where we have some data, suggests what you say is correct -- they are improving paid attendance since 2005. But that doesn't make Forbes (or Garber for that matter) wrong when they said the Crew weren't profitable. For all their work, it doesn't appear they are. I'm not picking on the Crew here, they just are the lone example where there has been some good information released. I don't think they are unique.

(Again, I've used a pretty broad brush here, but if anyone is interested in the numbers and links, I have them in the other thread.)

In the other thread, where I conclude that financial performance team by team is probably uneven right now, someone remarked that they couldn't tell if I was optimistic or pessimistic, and honestly I'm neither. It is what it is, and there's grist for the pessimists' and optimists' mills alike. Circling back to the CBA and payroll spending though, having sifted through all of this again I think it's a hard question -- much harder than I thought even a month ago.

In my opinion, there is an honest case to be made that MLS' prospects have improved dramatically under Garber and that a handful of teams easily could support more payroll spending (if that's what they want to do). OTOH, I don't think Garber's lying when he said at the end of the 2009 season that they've got a handful of teams that really aren't doing well, in part, I suspect, because they haven't made the transition you speak of. (At some point, it's also fair to ask if some ever will be able to do so.) The rest are somewhat in the middle and, I suspect, conflicted as to what to do here. Those that are modestly profitable could easily tip into the red if expenses surge, while those with more modest losses could move into the "really struggling" category. But many of them need to sell more tickets.

So as the debate rages in this and other threads, I'm less convinced then ever that there is a good, easy answer to this. They probably have to figure out how to allow for some spending to satisfy owners pushing for it trying to grow, but for markets where revenues still haven't caught up to expenses, jumping those costs only puts them further behind and negates the revenue they have picked up thanks to gains in paid attendance they may have made in the last five years.

It's not easy.

 

I look at the growth in sponsorships and TV $$. No one will convince me the league is now losing money. There's probably no doubt that some teams aren't doing well, but when looked at in the whole, the MLS is doing fine.

 

It might not be losing money in a yearly snapshot, but have original investors made back their money and turn an overall profit?

But since the players didn't ask for a king's ransom, I think this entire line of discussion in relation to the CBA is moot. Finances aren't the big issue. Freedom is.

 

I have no idea about the answers to that. I was merely replying to a somewhat functional retard who wanted to throw misinformation into what has been a pretty relevant discussion of the current situation.

 

Re: CBA Negotiations, Part II

The Forbes Richest Americans list measures personal wealth, not corporate holdings. While Lamar Hunt and his family's businesses may be worth over $1 billion, those businesses are incorporated and, as such, are not included in Hunt's personal wealth measurement. You're also looking at the Hunts' family wealth being spread across the entire family, not just focused in a single person. As an example, the Walton family (Wal-Mart) isn't listed as a single entity on the Richest American's list, instead all four of Sam Walton's kids are listed separately (4-7).

 

I think "doing fine" doesn't necessarily mean the league isn't losing money. MLS has always been sold as a long-term investment, and even with the recent growth that hasn't likely changed.

Here's a relevant article:

http://footiebusiness.com/2010/02/16/sports-sponsorships-do-they-matter/

 

Survey say "NO".

The players get it. They're the ones out there in front of a half full stadiums in the first month of so of the season and playing in front of near empty USOC games. Sad that the Internet Accountants don't

And I think if they get the vets on board with guaranteed contracts and some limited free agency after 4-5 years as both a reward for the long servers and a carrot to everyone but the rookies, I think everyone will be happy enough to sign a CBA

 

Re: CBA Negotiations, Part II

So true, this is a big struggle with some of the original clubs.

 

MLS is making money that is what is important. All this talk about is team X making a profit (putting aside nobody can even say for sure if they are or are not ebcause we don't know the accounting) is irrelevant.

I/O's are owners of the league itself and also owners of SUM. What people need to look at is not whether a team is making money, but is the owner making money and/or seeing his invetsment appreciate in value.


I have said for a while now that MLS is making money every year, in fact MLS makes more money today than it ever has. This is because MLS has secured not just their marketing arm SUM but also TV contracts and bigger advertizing contracts...and have many many more stadiums they control raising the revenue streams for the league and its franchises as well ass reduing many of the league's costs.


Another big tell that MLS has been making money is the recent boom in expansion and expansion fees and the owner diversity of the league. People are investing because what they see in MLS's books and the benefits of being an owner are good.

If the league was bleeding money like it was in 2001/02 with 3 owners and contraction then its a different story. The leagues coffers have expanded exponentially it seems and that is what is important...because the I/O's own MLS.

 

Yes, in the short run, doing fine and being out of the red are not necessarily the same thing, but given a 15 year old league (an 18 year old business venture), one has to ask how long the long-term is. One also has to ask where all this new investorship has come from, and where it was when the league was obviously losing money. Major League Soccer is not a prestige sport, and it would be difficult for me to imagine the league being able to get away with dramatically overpricing (relative to earnings) the way a prestige sport might.

So I have to believe fact that the league has expanded from three I/Os to seventeen, even as the price to get in the door (that is, to assume control of the least expensive team in the league) went from essentially 'name your own price' to probably somewhere over $30 million in less than a decade, these guys must see profitability as being 'at hand' if not here already. (And by at hand, I mean quite soon and with a high degree of reliability.)

 

What I suspect has changed things is SUM revenues; that is, I suspect they make "being an MLS investor-operator" a profitable or near-profitable thing, even as MLS in the absence of SUM revenues loses money.

But I don't think the pool of MLS investor-operators will ever consider that SUM revenues should be part of the calculus for whether MLS is profitable when arguing compensation with the Player's Union. To me, it feels like GM auto workers telling the owners of GM that they deserve a raise even though the company is losing money because those owners are making money on other investments separate from GM. It's hard to imagine MLS going along with that.

 

Define "teams."

 

Respectfully, I think you have to look at individual teams, that is, individual I/Os. I noted in another thread that a number of people, including some in the media, continually re-iterate the proposition that because MLS is a single entity, it doesn’t necessarily have to make money everywhere, suggesting if MLS loses money in say, DC, it can always make that up in Seattle. The problem with that analysis is that is isn’t strictly true.

Yes, a lot of MLS revenue is shared equally by the owners, and yes, the cost of most of the payroll for the players is likewise shared, but important revenue streams and expenses are not. Most (that is, 70%) of the ticket revenue and all of the local TV and sponsorship revenue is kept by the individual owners operating a team, and they likewise bear the entire cost of stadium rent and all of their employees who aren’t players. Thus, Investor-Operators in LA and Seattle can make millions of dollars, even as Investor-Operators in DC and Chicago lose millions of dollars. And according to Forbes, that’s exactly what they do.

Even in a single entity like MLS, for the Investor - Operators, the difference between them making a profit or registering a loss is largely determined by the actions they take in their own market. Forbes is absolutely correct when they say “to be successful in MLS, a team has to generate a lot of cash from its stadium and local television and sponsorship deals.” That is, they have to make money in areas where they can keep the cash they generate, as opposed to sharing it with the other owners. The I/Os eat much of what they kill.

And SUM doesn't wash huge amounts of red ink away. Forbes says the distribution was under $1 million in 2007, and I believe the Portland study projects it at up to $1.6 million (I would have to double check), but either way those distributions are typically included when an I/Os, that is to say, a team's profit or loss is projected.

Again, it may be Big Soccer sacrilege, but I believe Garber and, at least for their general conclusions, Forbes. I think some I/Os are losing money on annual operations, and no matter how successful some of the expansion teams are or who is waving a check to buy a team, that has to be taken into account when they figure out what they are going to pay the players.

 

That's not what I was getting at. If the Crew lose $500K, but they pay $1M in rent to whatever corporation runs Crew Stadium, then yeah, the Crew lost money, if by "team" you mean the MLS team standing alone. But if the question is, did HSG make money by owning the Crew, the answer is no, the Crew did not lose money. Crew Stadium would still get high school football and whatnot if the Crew disappeared...but I doubt it would get Nats games if the Crew folded.

I think the Rapids have 4 stadium and league related corporation. Which ones count and which ones don't when asking, do the Rapids make a profit?

 

5 if you include TV and merchandising.

 

mmmm, it's still got that new thread smell.

 

Remember that scene with the three-headed knight in Monty Python and the Holy Gral? Well the third head is the USSF and the three are inseperable.



About three years ago Sunil Gulati asked the other two heads, "What do I think?" and they told him he thought it was a great idea to replicate Bradenton across the country via the creation of the Development Academy. [Disclaimer: Relax, it's a joke]

The MLSPU can point at the MLS head and claim he's making money off the SUM head, and they both nod towards the USSF head and exclaim, "...but he's spending it as soon as we make it!"

Yes, a rather extreme and far-fetched example, but the three-heaed moster can play the schell game with finances all day no matter how many times Forbes, the MLSPU, and BSer's yell "Show me the money"!

 

Yeah, I mean that in the broadest strategic sense.

If one only took the costs to acquire the rights and to put on the broadcast of the Super Bowl, and then the revenue from selling commercial time, I'm sure it would look like CBS 'lost money.' But that doesn't account for a lot of other things, like that the crappy reality show they put on afterward and that nobody would have watched were it not airing after the Super Bowl (mea culpa) got a 19 rating.

At the end of the day, MLS was unattractive to investors from 1999 through about 2003, and at some point shortly thereafter became attractive to them. I think it's exceedingly unlikely that this change was accidental or insignificant. It makes more sense to note that it came with the following historical events:

1) The divestiture of league-operated teams (a process that started with contraction in 2001, and I would say ended with the moving of the Earthquakes to Houston in 2005)
2) The founding of SUM (2002)
3) The opening of the Home Depot Center (2003)

 

Reporter Nick Green weighs in here:

http://www.dailybreeze.com/sports/ci_14408465

 

In the early days, Phil Anschutz went around buying franchises for more than they were worth, apparently for the purpose of being able to pitch to new ones that no one had ever really lost their shirt betting on MLS (even Horowitz had his I/O share converted into a more general 'league share', something the league likely wouldn't have cared about if they weren't trying to protect their image). I think you can consider the early guys who bailed out (Soros, Rapaport, Kluge/Subotnick) somewhere pretty near a net zero, because Anschutz effectively assumed their losses.

And even at that, he sold the MetroBulls and DC United at more than the inflated (at a different time) value he paid for them, sold the Rapids that he'd held since the $5 million days at a significantly appreciated value and sold half of the QlashNamo, which AFAIK he hadn't really had to pay for at all (there was just no one else to take it off the league's hands) for $20 million.

He lost a lot of money on operating expenses at the beginning, but if today he were to sell the Galaxy at $70, 80, maybe 100 million more than he bought it for (1)? He might be pretty close to break-even. And that's assuming he hasn't gotten a fat check from the last couple of expansions, which he probably has.

With respect to Clark Hunt making back Uncle Lamar's losses, it's more speculative. No one knows how much the Crew and FC Dallas would actually fetch on the open market, except that it wouldn't be in the same area code as the Galaxy. For Bob Kraft, he probably never lost the same kind of money operating the Revs (and the Quakes, since he only did that briefly), but OTOH he'd also have trouble selling that team unless he was either willing to allow the new owner to move it, or else gave him a sweetheart deal on rent at the current venue.

1-Which was around $20 million to Marc Rapaport, in one of those cases of 'buying it for more than it's worth so that we can say he didn't lose money.'

 

In a lot of cases sports ownership really is about making a profit on the sale of the teams. Look at Howard "cursed be thy name" Shultz. He claimed he could never make a profit on the Sonics because of their crappy lease but then goes and sells the team for a record amount. An amount that was much much higher then he paid for the team. Now MLS is a differant scale, but i think a lot of original investors will be able to recoup their loses by selling their teams at the new, increased, value for a MLS team.