In my last post on MLS’ future, I postulated that the television rights deals of the future will determine the level of play we will see on the field. I also stated that it is my belief that MLS must offer a better quality product on the field in order to achieve higher fees. Kind of a chicken or egg dilemna.

A quick review. The major domestic rights deals, with Disney(ABC,ESPN) and Univision, expire in 2014, two World Cups from now. The impact of the success or failure of the US Men’s National team is a subject for another post, but it will definitely have an impact on MLS of some sort.

As I mentioned in the last post, the Forbes – September 2008 article on the 2007 season stated that each of the 13 teams received around $800,000, or about 45% of the tv rights in place at the time, around $23M total. Note the domestic rights are down to $21M as the $2M HDNet contract was not renewed after the 2008 season.

So, with $2M less and 2 more teams, the amount teams would receive would drop to around $633,000 if the distribution percentage remains the same.

As a point of reference, using a 45% distribution rate, here are the approximate per team domestic tv rights for the ‘Big Four’ professional leagues in the US: NFL(53):$43.8M, MLB(40): $14.35M, NBA(15): $14M, NHL(23): $2.57M.(Roster sizes in parentheses)

OK, back to the point in this post. I believe that MLS is currently in an optimal position to improve the on field product. MLS and SUM have come off of a monster cash generating ‘Summer of Soccer’. SUM and MLS owners, by virtue of their interest in SUM, also have a fairly steady stream of new franchise fee payments coming in. Now I suspect that some of that money went to reply some of the $350M in losses the league reportedly incurred in its first decade, but I can’t be sure of that. Of course, the money hasn’t just begun to flow.

But while over half the clubs are expected to lose money this season(and I’m being generous here), that doesn’t mean the entities that own the franchises will lose on their investment in professional soccer. Remember, every franchise owner shares in the revenues generated by Soccer United Marketing. And there’s nothing to say that those revenues make it onto the club’s books. That also goes for the fees generated in team owned stadiums, i.e.; concerts, field rentals, etc.

It is amongst this backdrop that the upcoming Collective Bargaining Agreement(CBA) discussions will transpire. The CBA expires on Jan 31, 2010.

Jason Davis did a fine job doing an early preview of the CBA negotiations back in May and as an old professor of mine once said, ‘why reinvent the wheel?’. Below I’ve posted the most relevant salary sections of the current agreement.

The main section covering salaries in the current CBA:

For each year covered by this Agreement, MLS agrees that the Player
Compensation shall be no less than the following: 

(a) 2005: Player Compensation paid for 2004 plus $200,500.
(b) 2006: Player Compensation paid for 2004 plus $216,500.
(c) 2007: Player Compensation paid for 2004 plus $333,500.
(d) 2008: Player Compensation paid for 2004 plus $511,500.
(e) 2009: Player Compensation paid for 2004 plus $599,500.

Note from Peter C: The 2004 ‘Player Compensation’ was in the neighborhood of $1,730,000. Source: SoccerTimes

Section 10.5
Bonus Pools:  The following Team bonuses will be paid, with the allocation among players on the Team to be determined by the Team’s players: 

(i)  MLS Champion: $165,000
(ii) MLS Runner-Up: $60,000
(iii) Regular Season Conference Champion: $31,000 

(In lieu of, not in addition to, bonus for Qualifying for Playoffs.) 

(iv) Qualifying for Playoffs: $15,000
(v)  U.S. Open Cup Champion: $100,000
     U.S. Open Cup Runner-Up: $50,000 

(U.S. Soccer will pay these bonuses or such other sums, if any, that U.S. Soccer may make available.  If U.S. Soccer does not pay such bonuses, MLS will have no obligation to do so.) 

(vi) Regular-Season Game Winner: $2,750 

        The Union will consult with MLS regarding distribution of the regular-season
        game winner bonus. 

        Notwithstanding the above, in the event of format changes, MLS and the Union shall
        meet and confer concerning amendments to the above bonus schedule.  In no event shall
        the total dollar amount of the bonus pools decrease as a result of format changes (except
        as to those bonuses paid by U.S. Soccer). 

(vii)   Tournaments and Exhibition Games:  If an MLS Team or MLS receives prize
money by virtue of the Team’s performance and/or participation in a compulsory tournament
(i.e., where MLS is required to participate by U.S. Soccer, CONCACAF or FIFA), Players
competing in that tournament will receive the following: 

        (a)      if the Team or MLS receives up to $200,000 in prize money, fifty percent
                   (50%) of such prize money; or 

        (b)      if the Team or MLS receives prize money in excess of $200,000, the
                   Players will receive 50% of the first $200,000 and thirty percent (30%) of
                   amounts over $200,000, up to a maximum payment to the Players
                   (collectively) of $200,000. 

        (c)      With respect to the CONCACAF Champions Cup tournament, the
                   following prize money shall be paid to each team, unless the amount in (a)
                   or (b) above is greater, in which case the amount in (a) or (b) above shall
                   be paid: 

                   Team advances to quarter final: $11,000
                   Team advances to semi-final: $16,500 additional ($27,500 total)
                   Team advances to final: $22,000 additional ($49,500 total)
                   Team wins final: $27,500 additional ($77,000 total). 

                   Notwithstanding the above, in the event of CONCACAF Champions Cup
                   format changes, MLS and the Union shall meet and confer concerning
                   amendments to the above bonus schedule.  In no event shall the potential
                   prize money decrease as a result of such format changes. 

Neither MLS nor any MLS Team shall be required to pay Players a portion of any
compensation MLS or the Team receives in conjunction with participation in
a Non-Compulsory Tournament, but nothing in this CBA shall prohibit MLS or
a Team, in its sole discretion, from voluntarily making payments to Players in
connection with such tournaments.

End of CBA snippets

Want to read the current agreement? The Collective Bargaining Agreement

Interestingly, if I read the salary section correctly, in 2008 18 players counted against the cap, while in 2009 20 players count against the cap. Calculating the caps for 2007-8 at $2,211,500 and $2,299,500, respectively, the average cap room per player actually went down from $122,861 to $114,975.(this excludes those teams that have more than 4 developmental players grandfathered in)

And, again if my calculations are correct, if an MLS team were to win 1) its conference 2) MLS Cup 3) US Open 4) CONCACAF Champions League 5) 16 league games, the players on the team would divvy up a grand total of $343,500. A 24 player split equates to $14,313 to each player.

If anyone out there can correct me on this, by all means, go ahead. If, on the other hand, my calculations are correct, a pretty slick piece of sleight of hand by the league.

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What are the players looking for?

Liz Mullen and Tripp Mickle of SportsBusiness Journal reported that free agency and guaranteed contracts are important issues for the players’ union. The current ‘Contract Guarantee Date’, “the date on or after which a Semi-
Guaranteed Contract may not be terminated”(Article 2 vi) is July 1.

What do I suggest?

TV Rules

The number one item that should be on the agenda for MLS officials should be has to be the preservation of the TV rights contracts.

Why do I believe that TV holds the future of MLS in its grasp? Because it’s already saved the league once. And as of now, it could be argued that the contracts might not even be extended at the current price, or not extended at all(unlikely). In light of the recent debut of La Liga and EPL on ESPN, one has to wonder to what extent ESPN will promote MLS. After all, ESPN is in business and in business, MONEY TALKS. And ESPN’s MLS ratings do not inspire confidence.

If MLS lore is to be believed, the league was saved by televsion money, albeit was the sale of the US television rights to the 2002 and 2006 World Cups by Soccer United Marketing, a creation of Don Garber and other investors when the league was in danger of collapse. But that’s another story.

So where does MLS stand now? The current contracts were signed in 2007 when there were 13 teams. By 2014, the renewal year for ESPN and Univision, the two largest domestic rights contracts, there will be at least 18 teams. According to Forbes, teams received around $800,000 from SUM in 2007. Along the way the teams are going to have to share a pie that will be sliced into smaller pieces.

“Soccer United Marketing, a separate business owned by investors in the league, runs the league’s national television deals ($23 million last season from ESPN, Fox, HDNet and Univision), as well as the commercial rights to a bevy of soccer properties (such as the U.S. rights to the FIFA World Cup). Yet SUM distributed less than $1 million to each team in 2007. That means that to be successful in MLS, a team has to generate a lot of cash from its stadium and local television and sponsorship deals.”
Forbes – September 2008

The Teams

That’s fine for the larger cities, LA and Toronto do particularly well with their local television deals, but what about the rest of the league? A little bit of math from the Forbes figures reveals that less than $13M of the $23M+ was distributed to the teams.

A sampling of local revenue sources referenced in the Forbes piece.

In New Jersey …

ESPNsoccernet. The Red Bull extended its TV deal with MSG for another 3 years. Financial terms were not announced.

For LA and MLS, the Beckham effect cannot be denied …

• “Herbalife agreed to a $4 million-a-year jersey sponsorship deal, twice what any other team commands.”
  
• “Sponsors like American Express , Delta Air Lines and Valero Energy bring in another $6 million annually for the team.”
  
• Last I checked, Beckham had sold over 300,000 jerseys at around $75 a pop. $22.5M in jersey sales alone.
  

  
  For Toronto:

• “Toronto also rakes in $4 million in local television and sponsorship revenue.”
  

Smaller market teams like Kansas City and Real Salt Lake cannot hope to match those ancillary revenue streams. They will always depend on a share of the national and the
newly sold overseas rights to MLS (only $10M!). But while ancillary revenues are part of the full picture, they are not the focus of this post.

According to the Forbes article, “In 2007, the three teams that were in the black–Los Angeles Galaxy, Toronto FC and FC Dallas–had a combined operating profit of $6.7 million.” We’ll see(maybe) if FC Dallas is able to remain profitable with the drastic drop in attendance they are experiencing. If FCD reports a profit for 2009, it raises the question of what constitutes revenues for FCD. For as part owner of Pizza Hut Park, they earn revenues from non FCD events, i.e.; concerts, rodeos, etc. As such FCD could show a profit as a corporate entity while the football operations lose money. Therefore my next question is this;

If the corporate interests that own MLS franchises can show a profit without running a positive cash flow for football operations, what immediate incentive do they have to significantly raise the salary cap?

The Bigger Picture

To put things in perspective, Fox Soccer Channel and Setanta pay $57M for the US broadcast rights of the EPL, nearly triple the $21M that MLS receives for all of its domestic rights(the HDNet agreement ended with the ’08 season). And the ratings appear to both justify the price and demonstrate what MLS can aspire to earn in domestic rights.

The two largest contracts are with ABCESPN, currently paying $7-8 million per year, and Univision which is paying $9-10 million.

American fans will recognize that these numbers are dwarfed by NFL, NBA, MLB and even the NHL. Here in the USA, the NFL garners $3.1B, the NBA $930M, MLB gets $400,000,000 from TNT alone. MLB also has contracts with Fox and ESPN.
and the NHL $930,000,000(includes Canada).

This is the comparison of team shares of national domestic rights fees if all leagues distributed the same 45.2% as did MLS after 2007 based on the Forbes report. I believe, however, that the players’ unions in the ‘Big 4′ cut better deals vis-a-vis TV money for their players.

As an example of how important the TV revenues are, I present this simple scenario. Many fans have suggested raising the salary cap to $5M. With 18 teams, the differential from $2.3M to $5M means an additional $48.6M for player salaries($2.7M per team).

Hey, I love the idea, imagine what the extra money would mean for roster quality. But how to get the money? Tickets sales just won’t do it. TV is where the big bucks are.

Jason Davis’ take on the effects of the low salary cap.

Which brings me back to my belief that the focus of the leagues should be improving the quality on the field. That leads to better audiences and a better chance that the rights fees extended and enhanced. And with MLS via SUM as flush as its going to be, after all, expansion won’t go on forever, the importance of the upcoming CBA talks between the league and the Major League Soccer Players Union may be the big opportunity to take a step towards a better on field product.

Liz Mullen and Tripp Mickle, writing for SportsBusiness Journal posted this on the negotiations. Major League Soccer Players Union Fires Opening Salvo.

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I have to thank The Gaffer and Kartik, for it was on the heels of their recent thought provoking pieces, MLS TV Ratings Are Doomed Because Of Euro Football by The Gaffer of EPL Talk, and Kartik’s MLS’ TV Problem: Discussing Possible Solutions, that I finally put to words the thoughts that have been bouncing around my head on the issue of MLS, its quality and continued advancement. And I also thank many of the commenters who also helped stir the pot. A few standouts from Kartik’s post are

by YAR H – “The solution though if simple would have been implemented already. No easy answers my friends. None. MLS is under performing.”

by Soccer Guru comment #87 “MLS has been oversold by ESPN for years. Now that they have La Liga and EPL they will build their brand around those respectable products, not around something that has constantly failed for years.” Worth reading the full reply.

by JOHAS – Does TV really matter in the larger scheme of things?

JOHAS, if you’re reading this, I hope I’ve demonstrated why TV really does matter.

SUMmer of Soccer Continues

The ‘Summer of Soccer’ which began on June 20, rolls on. As of now, over 1,455,000 have attended SuperLiga, the Gold Cup, the World Football Challenge and a variety of club and international friendlies.

Since my last post on the SUMmer of Soccer, an International Friendly doubleheader was played and a few more friendlies were scheduled …

SUM, MLS Coffers Filling Up Before CBA Negotiations Get Serious

More ch-ching for Soccer United Marketing(SUM). This was the first year of the 3 year agreement between Barcelona and SUM. They’ll return next summer, especially given the report that they took home over $8.5 million for their little USA preseason excursion. SUM would be hard pressed to have a bigger treasure chest increase than the one they are collecting during the ‘Summer of Soccer’. In one form or another SUM earned revenue from the events listed below.

Add to that 150 million on the books in expansion fees since 2007, the savings from the elimination of the reserve league(where is that money?), and you have the ingredients for interesting Collective Bargaining Agreement discussions.

Note: Don Garber has already stated that the SuperLiga will be back in 2010, a World Cup year. It’s a sure indication that live attendance and wide distribution of English language coverage in the US are irrelevant. It demonstrates where the real money comes from; sponsorships and Spanish language TV. SuperLiga in August or September next year?

Where Am I Going With All This SUMmer of Soccer Stuff?

I’ve been struggling with this piece off the ground for several months now. All of the SUMmer of Soccer posts have been leading up to offering some observations on issues and obstacles that stand in the way of MLS becoming a better league.

With the summer coming to a close, the coffers are bulging. At least the ones at Soccer United Marketing, and by virtue of profit sharing, the corporations that own MLS franchises.
The first event that will effect the direction of MLS is the Collective Bargaining Agreement(CBA). Ideally, a deal will be worked out by the time MLS Cup ’09(Nov 22) rolls around.

In my next post, I will discuss what I believe to be the main element that could hold MLS back from achieving significant gains in the quality of its product.

In my last post I prompted a discussion that centers around SUM and its relationship to MLS. If you are unaware of Soccer United Marketing(SUM), it was created at a time when the league was in danger of folding. Just 5 years after its first season in 1996, the league was looking at contraction and possibly worse. It was then that new commissioner Don Garber convinced league investors to pony up the money for the US broadcast rights to the 2002 and 2006 World Cup from the German company that had originally purchased the rights from FIFA. Here are a few background articles that do a far better job than I to get caught up with some sum history.

U.S. Soccer, a World Cup Dud, Sustains Pro League With TV Deals – Curtis Eichelberger – July 7, 2006

Tapping Into a Gold Mine – Ridge Mahoney – May 1, 2007

How Don Garber helped MLS get its game on – Tripp Mickle – March 16, 2009

Note that if you see articles with bylines of either Mickle or Mahoney, read them. Their reports on the business of soccer are usually a cut above.

And that brings us back to what started this discussion, SuperLiga 2009. Haters of this tourney can take heart from this…
In its first year, hello David Beckham, the event drew an average of over 17,300 for the first 8 matches. Last year over the same period, the event pulled in just under 15,900. This year, after match day 2, the numbers have plummeted to an average of 8,152. Additionally, as bad as it sounds, it’s actually worse. In the first two years of SuperLiga, each group match(12 total) were single game events. This year, on the matchday that pits the MLS teams against each other and the Mexican teams against each other, the groups played doubleheaders, effectively halving matchday 2 attendance potential.

To illustrate, matchday 2 attendance in 2008 was just over 66,800; this year just over 14,500. Without knowing the inside financial details of the SUM event, it could be inferred that the stadium expense for two extra venues, plus any extra travel expenses were calculated to yield the highest return and pointed to using 2 locations vs 4 . But I doubt the SUM anticipated such a precipitous drop in gate attendance. The event’s Mexican broadcasters and de facto partners FMF(Mexico’s USSF) will only be concerned with how the sponsorships, ratings and ad sales come in.