Why the Power *may* leave Long Island. REVENUE: Ticket Sales: $1,000,000 (Assuming 10 games, 5,000 per game, $20 per head) Parking Revenue: $ 0 Merch/Concession Sales: $ 200,000 (Assuming $5 per person per game) Camps $ 360,000 (Assuming 4 weeks of camp x 300 kids x $300 per kid) ---------- Top Line $1,560,000 EXPENSES: League Escrow $ 780,000 (Assuming SEM 50% of top line, this pays for TV, Players, Marketing etc.) Stadium Rent $ 80,000 (Assuming $8,000 per game) Promotion/Marketing $ 50,000 (Assuming $5,000 per game) Staff Expense $ 500,000 (Taking GM, HC, AC, GC, Sales Staff, Press Staff etc. Figure is low as many of these probably have TW duties too, so the Power get charged a portion of the total) Insurance $ 120,000 (Assuming $12,000 per game) Security $ 60,000 (Assuming 20 guards at $300 per night times 10 games) Office Rent $ 25,000 (Assuming $5000pcm for 5 months) ---------- $1,615,000 These are in the same ball park, so due to many assumptions being made, there could be a profit or a loss, but the point is they are pretty close to break even. Or that is how it would appear. Remember, this is just looking at the balance sheet of the team. AOL/TW are also a part investor in the LEAGUE, which gives them the right to operate the team. So let's do a little more math: There are 8 teams in the league, with the I/O of each team owning a 1/8 stake in the league. They will collect 1/8 of the league profits, and will have to pay up for 1/8 of the league losses for each team they own. I guestimate that the buying-in fee would be $8million. SO the league starts with a pot of $64m. Add corporate sponsorship -- 5 charter sponsors, reportedly at $2m for 5 years, or $400k per year. 13 'other' Sponsors, unclear as to how much they are worth. Be generous, and say average $100k per annum each. Therefor for year 1, corporate sponsorship would be $3.3m Year 1: League has $67.3m in the bank. Reports say the league SPENT $50m in year 1. That leaves $17.3m. Assuming aggressive cost-cutting (moving offices etc. etc.) saves them 20% of their costs, which would be impressive, then year 2 would cost $40m. Add another $3.3 m for corporate sponsorship and what do you get? -$19.4m The eight I/Os have to pony up that amount between them. That works out at about $2.8million per team. They pay up. Each I/O is now down around $11m, for a league with zero cash and effectively no net assets. Then factor in the fact that TW is not doing to well financially. They got killed in the merger with AOL (topic for another day), and wouldn't mind writing off everything that they can get. Assuming the costs of year 3 of WUSA are equivalent to year 2, they would be down another $4.8 million next year. At those rates you could probably buy the team for a nominal fee (say $1m), because you would not be buying an asset, you would be buying a debt with a potential to turn into a profit. Now go back to the figures above. The Power are probably close to breaking even by any conservative measure (they could in fact be losing money h over f) Would *you* want to buy them for $1m, knowing that you'd have to pay about another $5m in league fees this year (as well as 50% of your top line), for a team that cannot turn a decent profit at its present location? However if you were confident that you could up their revenue by 20-30% through better attendance, being able to collect parking revenue and operating in a city with much lower costs (for example Portland), where the star of the team is from your city and a sure draw (i.e. Portland) and where you could probably negotiate a lowered SEM fee to help them save credibility (instead of folding the team), *then* it might be more tempting. That's why I think there is a risk of the Power leaving Long Island. I for one would be sad to see them go.
Remember that this is all speculation based on guesstimates. The point is to show that the losses that the league is incurring effects the I/Os of the teams, and that those losses may be the factor that decides whether an I/O wants to stay put, relocate the team, or sell the rights to I/O the team to someone else. :L
How did you arrive at the $8 million buy-in? $8 mil may not seem a lot if Time-Warner simply looked at the Power as programming content, but the $5 mil annual fees is what's steep. For programming content, $5 mil a year could be better spent bankrolling a reality-based TV show that flops. On that line of thought . . . . . a wacky idea would be for Time-Warner and other I/Os to maximize league visibility by creating a reality-based program featuring the day-to-day lives of the league's players. I think that would be a home-run for legions of PTHs. I mean, c'mon, who would have thought Ozzy's program would be a hit? Or . . . . . a Woosa-based "The Bachelor" anyone?
Larry, any insights as to why Mitchel Field was chosen as opposed to the Swamp? How much more is the rent at Giants Stadium?
Rent at Giants stadium has been speculated as low as $75,000 and as high as $125,000 PER GAME on these boards. As Mitchel is a public park, with a much smaller capacity I would say the rent is a lot lower, but I can only guess at the figure. :L
$8Million based on reports that I read that the budget for the league over 5 years was in the 60-65 million price range. As far as programming content is concerned you are bang on the money. Last year, the national exposure for WUSA was TNT / CNNSi. (Owned by AOL/TW), however CNNSi is gone, and the ratings were presumably not good enough for TNT, so now the league has to buy airtime on PAX... The $5m isn't for annual fees -- that is for you to cover the leagues losses, assuming they are spending at the rate that I guestimate. The annual fee is a %age of your top line. I guestimate 50% based on reports that I have read of MLS %age fees. :L
Nice analysis. How about the Power moving to the new Metrostars stadium in Harrison (if it gets approval)?
I think that would be great, but it would have to be on the back of increased revenue and decreased expenses. I wonder how 'friendly' the Metros/AEG would be under the circumstances... :L
Thanks, LMoroney! Great analysis. Now if only I have enough knowledge of accounting to follow your reasoning...Pardon my ignorance, but can you please explain a few terms like "league escrow" and "I/O" (I work in computers and I'm used to "I/O" meaning input/output!) Thanks!
I/O : Investor/Operator. WUSA (and MLS) don't have 'owners' in the traditional sense of the word. You buy a 'chunk' of the league (Invest), and get the rights to Operate a team in the league. League Escrow: Escrow is Perhaps the wrong term, but if you (for example) are the I/O of a W*USA team, you *own* 12.5% of the league. If the leagues' bank account reaches -$40m due to losses, then you have to 'pay up' $5m as your part of the share... :L