8/29/02: Center Circle

A little business/expense tidbit from the Segroves article which may help in analysis of league finances:

"And beyond that, the costs of an MLS franchise make it more doable.

While NBA, NFL and NHL teams pay huge salaries and operating costs, Lund said that would not be the case.

“Absolutely, they cost less to run,” Lund said. “From what we have learned, the average cost per team ranges between $7 million and $10 million per year. That’s considerably less than any other major league team.”

Somebody must be passing along these numbers to Mr. Lund.

 

oops, I see jmiesson beat me to it...

 

all good, nice to see that someone else noticed that... and i think it was brought up in the meeting thread in expansions

 

Poor Damn Celtic.

"Bolivian Problems

The Bolivian league has imposed a maximum salary of $1,500 a month for players and coaches and has banned them from receiving additional bonuses. It has also banned referees from traveling outside their home cities."

Suddenly the MLS minimum doesn't look so bad. How many Bolivian players can MLS now entice?

"Taylor Twellman scored twice in the first half to grab a share of the MLS goal lead as the New England Revolution beat the Colorado Rapids, 3-1, at Foxboro, Mass."

After a perfomance like that - Valderamma says he's going to play one more year?

Way to go Revs - it's nice to see someone make it interesting down there. Look out Metros and KC.

 

Lund on operating costs

“Absolutely, they cost less to run,” Lund said. “From what we have learned, the average cost per team ranges between $7 million and $10 million per year. That’s considerably less than any other major league team.”

VERRY interesting.

So, let's do the revenue numbers, assuming those numbers are all-in costs for EVERYTHING, including debt service on your stadium.

Ticket sales -- 14 dates @15k per x $20 average ticket = $4.2 million

Concessions -- 14 dates @15K per x $3 average purchase = $630K

Parking -- 14 dates @ 15k per x $3 per seat average = $630K

Sponsorships -- 8 sponsors @ $50K each annually = $400K

Television revenue sharing (a guess) -- $750K

Total?

$6.5 million

Therefore, you are ALMOST at break even with a $7 million expense structure. This doesn't take into account additional revenues from other events placed in the stadium YOU own, plus tax benefits passed onto your limited partners.

 

I don't think MLS makes much if anything at all from TV revenue. But if the LUND is $7-$10 million per team, MLS can't be to far off from breaking even. Of Course I don't think the LUND includes the expenses that the league itself has.

 

Someone pass these numbers around to some deep pockets. This looks like a no-brainer!

 

That's exactly what I was thinking... Jaime and Marco maybe past their prime, but I think Vaca shows what kind of talent is still available...

MLS should sent some scouts/poachers down their PDQ.

 

nitpicking... but i believe lund is a person


as for tv revenue, we pay for exposure... we might have get some money from local tv deals, but i really have no information on any of that, and there might be some money from radio stations as well

-jim

 

We actually need to be looking at this situation differently...

We assume that the clubs keep the money and then pay up to MLS HQ, but in actuality, it works the other way. That's the beauty of single entity.

All ticket money, local sponsorship, etc, is paid to MLS. They then return 1/2 of ticket revenue to the clubs and a portion of local advertising.

MLS has made some changes after contraction to give the clubs a bigger share of local advertising, but it isn't all of it.

On concessions, parking and merchandise (CP&M). No one knows if, in a situation like Columbus, Hunt Sports Group (HSG) keeps the money themselves to pay for the stadium, or gives a cut of it to the Crew.
In DC, DC United doesn't get any concession money, and only pennies of the $10 a car parking fee.
The question remains as to how the money is distributed when there is 1 owner for a club and a stadium. HSG has overhead to pay (salaries, mortgage on the stadium, upkeep, etc). Do they get that money from charging the Crew rent or do they get it from keeping CP&M?
Does HSG look at its investment in a total picture or piece by piece. Does it try to balance Stadium profits with Crew losses? IF the Crew makes $1 mil and the Wizards lose $1 mil, does HSG see that as a net $0?

Arrgh... too many questions...

 

aye, it's my understanding that the fire do time buys as well... i believe most teams do, but that recent stuff with the metros simulcasting made me question what was going on for them

 

My little "back of the envelope" calculations -- admittedly a simplification -- assumed a Columbus like situation, where an SS Stadium is owned and controlled by the managment group -- which, I think would be the case in Oklahoma.

Things are certainly different in an RFK or Soldier Field situation, and way more complicated in a Kraft or Hunt/KC situation, where issues of transferring costs and transferring revenue make apples to apples comparisons impossible for outsiders like us.

Again, professional team ownership is not about "revenue" or "profit" but about cash flow and asset accumulation and appreciation. Losses are perfectly OK if you cover your operations with internally generated cash, and you can earn future upside with the team/stadium as the key assets you own.

It what you exit at, not what you earn on an ongong basis.

 

Is $3 per seat for parking realistic? Does everyone in a seat pay for parking? Do a third? Is it $10 to park? I don't know.

And if you can only generate $400,000 in sponsorship revenue in this day and age (assuming the teams, through MLS, LLC, get a piece of the national pie) there's something wrong. I would suggest the figure is bigger than that, but I'd have to check for sure before saying absolutely that it should be higher. Seems low.

Update:
In fact, at the time that Tampa Bay was contracted, it was said they had $1M in sponsorship revenue for the upcoming season that MLS would be foregoing. (http://mutiny.tbo.com/mutiny/MGAHW8ECBWC.html)

Doesn't seem out of line, all told.

And the San Jose CyberRays of WUSA were said to expect $500,000 in sponsorship revenue this season (http://sanjose.bizjournals.com/sanjose/stories/2002/02/04/story1.html).

 

My calcs assume 4500 cars (3 people per car, roughly) each game at $10 per car, which is about $3 per seat, kinda sorta. $10 is pretty standard.

Sponsorship numbers were, of course, a guess; presumably league shares some league wide sponsorship $, but any $$ the local team gets on their own can go to their own operating budget.

 

Fair enough.

 

If we go back and consult one of the only documents that has been made public...
The Rose Bowl Agreement...

http://www.ci.pasadena.ca.us/councilagendas/2001agendas/feb_05_01/5a2.pdf


We see that the Galaxy get $450,000 in advertising, just from permanant signage in the Rose Bowl. That doesn't include the temporary boards around the field, kit sponsorship or any other.

Of note... The Galaxy and the Rose Bowl split parking and concessions profit. Meaning the Galaxy get 17.7% of profit. Galaxy have to kick back 50% of merchandising profit to the Rose Bowl.

Rose Bowl rent is $65k per game with additional $2 per ticket on attendances b/w 20k-34,999 and $3 per ticket over $35k. So on July 4, when they drew 55,234, Galaxy owed the Rose Bowl $165k in rent. $100,000 over the normal amount!

 

Let's not forget the Fusion lease deal was made public, too: $500.00 (no missing zeros) per game rent, and the team kept nearly all of the parking and concessions revenue. The Fusion had to kick either 25 or 50 cents per ticket sold to the local government. Also, the Fusion had control of stadium signage and an option to sell the naming rights to the stadium, which, inexplicably, was never done.

Some pretty basic "back-of-the-envelope calculations," as Karl Keller called them, would reveal that the Fusion could not have lost that much money in 2001, even with their poor sponsorship revenue.

A return to Lockhart would be very realistic if an investor could work out an agreement to buy out the stadium from Horowitz, who still operates it, and sign a lease extension with the local government. Lockhart is probably the easiest and cheapest buy-in for an potential MLS investor who would need to meet the league's must-have-an-SSS policy.

Regarding the Tampa sponsorship revenue, as the author of the story I can vouch for its accuracy. They were on a bit of a role in securing sponsors. Tropicana signed a $100K+ per year multi-year deal during the 2001 season.

 

Do you have any idea how far $1500 goes in Bolivia??? a damn sitght further than in greater Boston or NY;-)


rand

 

. . . if you're Ken Lay, that is. Here in the non-fraudulent business world, the value of your assets is assumed to be a function of the profit they earn on an ongoing basis.

 

True but considering that top players earn around three to five thousand that's a heck of a paycut.

 

A little accounting lesson for you.

--I borrow $30 million to build an asset -- say a building, a ship, a bunch of oil wells, or a sports franchise with a stadium infrastructure.

--I am a good manager, so the asset, once built, thows off, before expenses, $6 million cash per year.

--Cash expenses are $4 million a year.

--Net cash is $2 million.

--Meanwhile, I depreciate my asset over 10 years at $3 million per year; I treat that as a expense, even though there's not a single penny of cash involved in taking such depreciation.

--My "profits" -- rather "losses" -- are NEGATIVE $1 million per year. That is, $6 mill, minus $4 mill, minus $3 mill = -$1 million.

--Ergo I am netting $2 million in cash, even as I am "losing" $1 million a year.

--I take those tax losses. Since I am in the 40% tax bracket, those losses are worth $400k per year on my tax return.

--Ten years later, someone buys my asset for, say, $50 million. My "basis" for my asset -- ie. the value for tax purposes -- is $0 ( I have fully depreciated it), and as a result I have a long term capital gain of $50 million. So my tax bill at the long term capital gains rate (25%) is $12.5 million.

--Of the $50 million CASH I get at the sale of my asset, $12.5 million goes to Uncle Sam, $30 million goes to the bank to pay off the loan, $7.5 million goes into my pocket.

--So for 10 years I have "lost" $10 million, but have netted $20 million in cash, while pocketing $7.5 million after-tax when I exit.

THIS, ladies and gentlemen, is Accounting 101 for the a business where cash is king, "profits" are meaningless, and asset appreciation is everything --the game of real estate, shipbuilding, oil and -- ta da! -- sports franchise ownership.

 

KK,

Interesting. Couple of questions from a non-accounting type person:

1) Why would you be able to claim depreciation on a sports franchise? I can understand a car, house, ... boat, building etc. But I don't understand how you claim that on a sports team. I know your simplifying, but still...

2) How is the depreciation rate figured? I that something the bank/loan folks come up with?


Thanks for the quick lesson, btw, that was pretty interesting and informative. I'll hang up and take your answer off the air.