MLS Attendance Analysis: Week 20

Isn't payroll normally the single-largest expense for a club?

 

True, and I don't think that Tim was discussing just the revenue streams generated by Dynamo games. I get the feeling he was referring to all of them (naming rights, sponsors, additional events at the stadium, etc). I still contend that the almost all of the teams in a SSS are making money...even if the team itself is showing a "loss". By owning those stadiums, and hosting all the events, and the additional revenue, that has to be enough to put them in the black. Having the team be in the red is convenient for tax purposes and union negotiations.

At least, that's the sense I got from him.

Here's the article if you want to check it yourself. He doesn't say much, but it is rather interesting

Link

 

Typically, yes, but not in MLS -- not without DPs anyway.

 

I'd be pretty shocked if Chicago was operating at a profit. I think there are other factors at play wiith Chicago in terms of designated players. I think the pressure for front office personnel to perform is fueling Chicago's recent moves, as well as the pressure from the Village of Bridgeview to ensure that the Fire draw crowds to the stadium that the Village owns.

 

Many of us focus on attendance -- this is an attendance thread, after all -- but shirt sales are becoming every bit as important to a team's bottom line. Consider that Kansas City projected they would net $2,873,000 in their first season in a new SSS, increasing to $3,233,000 in year five (after they provided 30% of the proceeds to MLS).

Now look at the payouts on the current shirt deals (from wiki):

Toronto FC $4M-$5M per year
Los Angeles Galaxy $4M-$5M per year
Seattle Sounders FC $4M per year
Vancouver Whitecaps FC $4M per year
San Jose Earthquakes $2–$3M per year
D.C. United $2.8M per year
Chicago Fire $2.5M per year
Houston Dynamo $1.9M per year
Columbus Crew $1M per year
Real Salt Lake $900K per year

There are now seven teams that make roughly as much from their shirt deals as Kansas City projected they would make from ticket sales for an entire season in a SSS.

Just think about that for a minute.

It's happened right in front of us so it probably hasn't gotten the attention it deserves, but the impact of shirt sponsorship money is, I think, potentially transformative for many MLS teams. Remember, teams must give $200,000 to the league for each deal they sign (it's not an annual fee). The I/Os keep the bulk of the proceeds.

Shirt sponsorships represent a huge, new revenue stream for the teams, and this revenue stream alone may well be enough to drag a number of teams into profitability over the next five years, even if they are very average in attendance.

 

When you say K.C. would net $2.9M, is that net of player costs, or net operating revenue from selling tickets?

 

They share revenue as a % of the individual team sales. Since some teams outsell the others, for what is essentially a joint cost, it essentially means Seattle is subsidizing Dallas or Toronto is subsidizing Columbus.

It's like when the government takes a percentage of income from richer people to pay to pave the roads (which are used equally by all people).

Obviously, it's a bit more of a flat tax than a progressive tax.

 

This is a very important distinction to me. I hear a lot of complaints from big-market MLB teams how teams like the Marlins are getting so much in revenue sharing that the owner is just pocketing a lot of it and not reinvesting it in anything.

We might be helping pay the players that Columbus puts on the pitch, but we're not putting any dollars in the pocket of the guy watching them play. It's up to Columbus to do well in the areas that lead to big money for the owner (like shirt sponsorships) if the owner wants to make money.

 

Net operating revenue from selling tickets.

 

That's exactly right. MLS collects shared revenue to buy players. What a team does with those players -- and how the team may or may not profit from them -- is up to the team.

 

So what IS the single-largest expense for an MLS club? I'm hard-pressed to think of something that would be higher than $2.5 million.

I'm assuming you meant "shirt sponsorship sales" at the beginning of your post there. Shirt sales would be an entirely separate revenue stream. Also there are stadium sponsorships ("Xbox Pitch," Toyota Park) and other local sponsorship revenue, but some of that may go to the holding company that runs the stadium and not the club.

But while we aren't putting the dollars in the spectator's pocket, we also aren't necessarily taking them out of the owner's pocket in direct proportion to his club's player expenses. That $2.5 million is being paid by somebody, and if it's not completely paid by me, whatever portion I'm not paying is money I can use elsewhere. And whether I use it for a different expense or deposit as profit, it alters my club's bottom line by exactly that much. This applies whether player costs are on my balance sheet or MLS Inc.'s.

The only thing you can really argue here - and I haven't seen it yet - is that if much of that payroll actually comes out of national sponsorship/SUM money, it's money every club would have "earned" equally anyway. The only question is, IS that money enough to cover all or even most of MLS' total player payroll?

(Note: I am not implying this is "unfair" or even that it's enough to worry about. The topic is whether it changes a club's bottom line.)

 

One stat that I haven't seen much in this thread when looking at the evolution of the league is total attendance. I think this stat is relevant because it clearly reflects the impact of contraction and expansion.

This is relevant because (as you will see in the numbers) total expansion really reflects the enormous expansion in the league's footprint (and thus financial clout and thus stability).

While average and median attendance have seemed quite stable (with some growth admittedly), since 2004, total attendance has increased by no less than 71% which really shows how this league has been growing (despite the crisis and some of the difficulties that it ofcourse will have caused)

Total Attendance (number of teams):
2010: 4.000.560 (16) (extrapolated based on average * total games)
2009: 3.609.048 (15)
2008: 3.456.641 (14)
2007: 3.270.210 (13)
2006: 2.976.787 (12)
2005: 2.900.716 (12)
2004: 2.333.797 (10)
2003: 2.234.747 (10)
2002: 2.215.019 (10)
2001: 2.363.859 (12)
2000: 2.641.085 (12)
1999: 2.742.102 (12)
1998: 2.747.897 (12)
1997: 2.339.019 (10)
1996: 2.785.001 (10)


Average Attendance:
2010: 16.669 (as of August 11th)
2009: 16.040
2008: 16.460
2007: 16.770
2006: 15.504
2005: 15.108
2004: 15.559
2003: 14.898
2002: 15.822
2001: 14.965
2000: 13.756
1999: 14.282
1998: 14.312
1997: 14.619
1996: 17.406

(Source for the numbers: www.mlsoccer.com)

Ofcourse, it would make no sense whatsoever to include it in the AAQ, but it does give some important context to the AAQ.

 

It depends on how specific you want the line items to be. Portland, for example, projects $4.2 million of stadium expenses next year and $4.985 million of administrative expenses. Now, you can break down administrative expenses further to segregate marketing and administrative personnel, but the big point is that as a percentage of revenue, a team's player payroll represents a much smaller expense in MLS than in most other professional sports leagues.

No, my reference was confusing -- I'm talking about selling the ad on the front of the shirt to a sponsor, not selling shirts to fans.

With all of your remarks, it seems you're really trying to consolidate a team's financial statement -- essentially pass through each team's share of the national income and book the payroll expense from MLS, which is appropriate enough for this analysis as long as we remember payroll is not actually a team expense, it's a league expense. Still, the simple answer to your question is that one does appear to offset the other, meaning national TV money, national sponsorship money and shared gate receipts cover the cost of players (DPs excepted). MLS pays for the players directly to preserve the single entity structure, but as I noted in other posts, conceptually it isn't that much different than the NFL, which hands each team enough in shared revenue for the team to pay for its player payroll. The NFL hands teams cash, MLS hands team's players.

The larger point is that even with shared revenues (including gate receipts) paying for the players, unlike the NFL most MLS teams reportedly still aren't making money -- which new fans find hard to believe since players are typically the major expense of running a soccer team -- but setting that aside, if you look at the losses Forbes projected a couple years ago, some of the new shirt sponsorship deals would appear to go a long way towards plugging those losses.

For example, in a 2008 article Forbes projected that the Fire lost $3.1 million in 2007. In January, 2008, the Fire signed the deal with Best Buy that reportedly pays the team $2.5 million a year. If the Forbes number is reasonably accurate, after paying the $200,000 fee to MLS, most of the Fire's red ink should have disappeared in 2008 thanks to the Best Buy deal alone. I say "most", but apparently not all, because Garber has never said the Fire was profitable, and you can see how that would be true. Fire attendance did improve from 247,356 in 2007 to 255,511 in 2008 before falling back to 220,331 last year, but with Blanco on the payroll for a full year in 2008 (increasing the Fire's expenses), the Fire apparently didn't close the gap to become profitable, the Best Buy deal and somewhat better announced attendance in 2008 notwithstanding.

But they should have been close -- and they should be close this year too I would think. And the Fire can thank Best Buy, not improved attendance, for what should have been a big increase in their revenue since Forbes ran those numbers.

We're getting a bit far afield for an attendance thread, but I think we have to be careful not to define a team's financial success only by attendance -- something people tend to do in this and other threads. Yes, attendance is important, but if Kansas City can get a jersey sponsor, after giving the league it's cut of the money, the OnGoal can generate almost as much money by selling the space on the front of the Wizards' jersey as they can by selling tickets to Wizards' games.

 

Could they schedule all of their summer games as night games to combat the heat? Or is there some rule that there can only be one MLS game in the primetime slot on the weekend?

 

You're right, we don't seem to discuss that much, and we probably should. It's interesting that total attendance is considered a very important issue in the J League, so much so that they currently have a drive to draw 11 million fans this year (in J-1 and J-2 combined).

They even have the goal noted on the league website:

http://www.j-league.or.jp/eng/100year/index_02.html

 

I think you mean "yes, my reference was confusing."

Got my premise right - the financial statement is by definition what shows a profit or loss. Good job.

But whether payroll is a league or team expense doesn't matter, for reasons I went on about at great length. I keep thinking of ways to demonstrate that are more simplistic: do I really need to tell you that if you have a dollar and I have a dollar, I use mine to buy ice cream but your parents buy you yours, it still means you end up with a dollar more than I have?

What matters is whether most of the cost is covered by the national money. The reason this matters (sigh) is because every club pays a different total amount in shared gate receipts. National revenue is the only equally "earned" revenue.

You're right - this has gotten far afield. It was the simple note that some clubs are helped more in their quest for profit* by paying in a smaller percentage in gate share than what their parent company gives them in paid players. And this would not be true ONLY if national revenues (NOT gate share) cover all non-DP player costs.

The other stuff, about shirt sponsors: agree, agree, agree. Stadium naming rights, same thing.

*Again, remembering privately-owned teams pretty much always show you (and the IRS) the version of the books showing the LEAST profit.

 

To be pedantic, one of the financial statements is what shows a profit or loss.

This is getting far afield and we should move this to the commissioner's forum, but the distinction does matter. People sometimes accuse Kraft of being cheap because he doesn't spend all of his salary budget. But this is coming from the same misunderstanding you're showing. The cost of non-DP players is borne by the league.

If the league spends more or spends less is doesn't affect the profitability of a particular team.

You seem to be implying that if the league didn't pay as much for the players then the teams would make up the difference. But this isn't the counterfactual. If the league didn't pay as much for the players, the players get paid less.

 

No, that's not what I was implying at all.

And no, I do not "misunderstand." It doesn't matter if the cost of non-DP players is borne by the league, unless it is covered by money that the team pays into/earns in exact proportion to what it gets out.

What I'm saying is:

1. I give MLS 50 cents, you give MLS a dollar.
2. MLS buys us both ice cream.
3. I have 50 cents extra out of the deal.

That 50 cents goes on my financial statement. It doesn't vanish just because I got my ice cream free, and it's irrelevant whether you're a millionaire and I'm dirt poor. I still end up with 50 cents more of spendable, real cash money than you do out of this specific transaction.

I keep wondering why this is so hard to understand. It's basic math.

I'm done. I can't dumb it down any further.

So...wow, best attendance year ever for MLS! And it can only get better! Exciting times...

 

Man I want some of that ice cream, it's cheap..

 

Sorry man, but you're only 25 cents richer. But the point is still quite valid.

 

16,128 @ PPL
19,035 @ RBA

those numbers are about as good as it gets on a Wednesday night.

 

Great Wednesday for MLS

 

Does anyone have the average by day breakdown? I know it was on the Internet a few years ago, but I can't find it. It broke it down by day of the week (including the handful of Monday/Tuesday league games in history).