The problem with writing about Major League Soccer finances tends to be that a) it involves MLS and b) it involves finances.
Yet I think it’s important for several reasons, not least because the NBC Sports bid for the Premier League has sparked interest lately in the viability of soccer in the United States, and because MLS commissioner Don Garber boldly claimed this past February that his aim was to make MLS one of the top ten leagues in the world by 2022.
Rather than spend the entire day trying to explain how single-entity works, it might be better to direct you to the work of those who’ve made the attempt in the past. One of the best, clearest summaries I’ve read is on a Big Soccer forum (surprise!).
An owner/investor pays Major League Soccer a franchise fee to the league, like the $100 million New York City FC paid MLS earlier this year. Here’s triplet1 with what they get in return:
For revenues, each ownership group retains 70 percent of ticket revenue and 100 percent parking, concession and other stadium revenues, local sponsorship revenues and local TV revenues. MLS gets all of the national sponsorship money, all of the national TV money and 30% of the gate receipts…
In exchange for letting them keep more money, expenses also shifted to the investor operators after contraction [in 2002]. Whereas once MLS paid all the travel and local broadcast costs and half the stadium rent and game day costs, that all now must be paid for by the investor operators…MLS retained the obligation to pay the player salaries — the cornerstone of any single entity model — which it does to the day, save a handful of designated players.
The salary “cap” in MLS is $2.95 million USD per team, and teams can pay a maximum single player salary of $368,750. Teams can pay above the salary and cap limit out of their own pocket for “designated players,” but the maximum salary is counted against the cap (with a few age-based exceptions). Additionally, the last ten players on a 30 man roster are considered “off budget” and don’t count against the cap. There are some other niggling rules that are laid out here. And I haven’t even touched on allocation mone—
Awake now? Good.
So there are many reasons why single-entity makes sense for MLS. For one, it helps keep player salaries low, which has been until now vital in ensuring its member clubs can survive in a very difficult North American pro sports market. For another, the cap and its attendant rules allows the league more control over competitive balance. Despite some bitterness throughout the league toward the perceived special treatment from the MLS front office to teams like New York Red Bulls and the LA Galaxy, they would arguably be even more dominant in a “free market.” This parity theoretically makes the league more exciting.
But single-entity has long been the subject of intense criticism, particularly among fans familiar with the financial freedom (and excesses) in European football. Not only does the single-entity model prevent serious investors from taking an interest in team ownership, critics say (although Man City’s owners might disagree), it also curtails the ability of the league clubs to compete for the best players in the world and thereby grow the league. Also, many fans have been upset with how MLS seems to tinker with its own rules in order to further the interests of the league as a whole at the expense of a single club.
I am not here to settle this debate. However I do think that something should be done to advance it beyond bickering on blogs, ope-eds and bars maybe, I don’t know.
To that end, I think some very difficult questions need to be answered:
- Is it even theoretically possible for MLS to at some point abandon single entity, say by giving clubs back their 30% of gate sales, allowing member clubs to vote on how national TV money is distributed, returning the responsibility for paying player wages and contract negotiations to the clubs, and eliminating all wage restrictions on the upper end?
- Or is there theoretically a pathway MLS could take in transferring salary costs and centralized revenues back to clubs gradually over time?
- Could MLS clubs take a more mixed approach and agree to cover player salaries but maintain a salary cap or institute a luxury tax? Or would that violate anti-trust laws?
- Does the legal partnership between MLS and its owner/investors prevent any change to the current set up? What are the views of owners on salary liberalization? Would a vote for dissolution need to be unanimous?
- What would the legal/practical implications of this change be for the Major League Soccer Players Union?
- Would the USSF have to agree to any changes?
- Based on the current financial means of the various MLS team owner/investors, could most owners absorb current salary costs?
- What are the projections of increased revenues to the league based on higher profile player acquisitions in more revenue rich markets? How would they impact gate sales? Local and national TV rights? Sponsorship deals? What’s the worse/best case scenario for each of the current 19 member clubs?
- Would these revenue increases be enough to offset the cost of inflated player salaries and transfer fees?
- Could wealthy owners cover club losses with equity payments? Or would there need to be a break-even clause to protect the smaller markets?
- How would the changes impact player development in the US and Canada? Would the incentive of higher salaries at home help keep players from going abroad?
- What would the decision mean for other centrally-controlled North American leagues, like the NFL? What would the legal implications be? Would there be pressure from other professional leagues not to change the status quo?
I know. Who the hell has the time to find all this out, right? Certainly not MLS, or at least no publicly. But at some point, I think it would be in North American soccer’s best interests for someone to conduct a feasibility study looking into these theoreticals so that we’re not mired in the same tired debate.
“A study? Really? You pencil-pushing loser, I want action NOW!”
Right, but as someone who participated in one of these and can say with confidence that Canada doesn’t have the economic means to sustain a fully-professional D2 league, they can be pretty useful, not least to point to and say, with some confidence: “This probably can’t/can be done.”
You can use model simulations, means-tests, historical examples, etc. It might have to be commissioned, or it could be an academic study. But I think it’s about time we had some basic answers to these questions, not least to provide pressure either for or against the league’s very loud critics.
Maybe Sean Keay could do it…