Thursday, February 18, 2010

Stupid Questions Part 6: A Billion Stupid Questions about Em El Es.

So now we turn, inevitably, to Major League Soccer.  Remember when I paraphrased Chuang Tzu and wrote that the number of financial articles you can find on a league is directly proportional to its financial stability?  Well basically anyone who follows MLS regularly will know something about allocation money, or the Designated Player rule, or the up-to-the-minute minutiae of collective bargaining talks.  You can't talk about MLS without talking finance.  That's not to say that MLS is financially unstable—rather, the question of whether single-entity is either fucking brilliant or fucking brutal has yet to be satisfactorily settled for all involved. 

It's for that reason I don't want to write five long posts on the mechanics of MLS single-entity ownership.  Major League Soccer bloggers have all written yards on it; hell, even I've written extensively on it in the past.  If you don't know how it works, and very few of us can say with confidence we entirely do, as a starter you might go here for a very simple overview, and then here for Fake Sigi's excellent two-parter on the MLS single-entity structure.

For the nutshell, over to Fake Sigi:
MLS LLC is a limited liability company with single taxation and partners that own it who are a mixture of corporations, partnerships and individuals. MLS owns all of the teams that play in the league (a total of 12 prior to the start of 2002), as well as all intellectual property rights, tickets, supplied equipment, and broadcast rights. At the same time, MLS contracts with owners to operate the teams it owns. These contractors retain a portion of ticket sales and other revenue, and must pay a portion of operation expenses. Contractors have a right to operate the teams they contract for and can sell a percentage of that right to other investors who may not be investors in MLS LLC.
In response to which Kenn Tomasch over at the aptly-named kenn.com, countering the commonly-held assumption that MLS owns 51% of its clubs (perhaps pilfered from the Bundesliga?), clarifies :
MLS controls its franchises. MLS ultimately decides what happens to its franchises. The “owners” (investor/operators) of MLS clubs own stakes in MLS, LLC, which, in its single-entity model, controls player contracts and league-wide marketing and media deals.
So basically replace the word "own" with "control" in FS's paragraph and you've got it.  I think.  MLS runs the show and gives local owners a piece of the action.

So why single-entity?  Well, it's careful.  MLS employs a salary cap so that the sort of transfer fee and player wage inflation that has bankrupted many a European club doesn't wreck a league promoting an immensely popular global sport in a fickle-but-wildly-wealthy North American market.  The league offers a bit of a way round with the designated player rule, essentially allowing franchise investor/operators to use their own money to make a marquee signing.  But the emphasis is on a centrally-controlled approach to prevent any runaway spending that might threaten the league as a whole.

I'm not going to get into the pro/con debate, except to say that it's raging and it forms a clear ideological fault-line among fans of MLS.  Critics believe that the centrally-enforced salary cap (currently $2.3 million per team) and single DP allowance are preventing the league from getting better players and improving the quality of play, getting asses in the seats, and allowing the league to negotiate better TV deals.  Competitively, they point out league parity is balanced to the point of absurdity.  They also point out that single-entity is propping up successful-yet-money-losing and poorly-attended clubs like the Columbus Crew.

Defenders point out the sort of money required to improve the quality of play in MLS to the extend more people watched/attended would bankrupt the league.  They also believe allowing profitable teams the right to spend whatever they make on players would lead to the sort of problems that led to the demise of the NASL.  My own view is 100% non-committal either way.     


But that's because I have about a million unanswered questions about MLS single-entity system.  And I'm not alone; it seems everyone has endless reams of "stupid questions" on that front, from players to fans to pundits to whomever. I'm not always convinced people writing/commenting about single-entity are really entertaining or acknowledging these questions in good faith, but project their own view and sort of leave it at that.

My stupid questions are fairly simple but infuriatingly broad: does single-entity make it harder for less profitable teams to move to a more profitable market or disappear altogether?  In a league where championship clubs don't sell out at home, what sort of leverage do fans have in participating in the operation of their club?  Is there a way to improve the quality of play in MLS without spending more on player transfers and wages?  Would an improved on-field product even be enough to convince a European soccer-loving American to purchase an MLS season ticket?  Would profit margins dramatically improve if they all decided to buy MLS season tickets tomorrow? Under what circumstances would an American who doesn't watch soccer start going to MLS games?  Would they even watch MLS if it became the best league in the world?  Or is there something about MLS sporting culture that's preventing the league from selling more tickets and getting better TV deals?  Is there any research or precedent to support the argument that the league just "needs to be around longer" to get more fans?  And is single-entity a good platform to build wider support for soccer in North America?  Does wider support for MLS or soccer in general in North America even matter?

I have many, many more questions besides.  I'm not sure I'm willing to dedicate a several part series on them, but I will try to answer these questions in relation to the problems currently experienced in the wildly popular/profitable Premier League, to see whether single-entity should either be a bridge to something else, or the status quo for North American soccer. 

11 comments:

Kenn Tomasch said...

Thanks for the link and the questions. I'll try to give you my take as best I can, and I hope I don't leave you with more questions at the end. (Note, I had to break this up because I wrote wayyyyyy too long, so it'll be in several parts).

>>>Does single-entity make it harder for less profitable teams to move to a more profitable market or disappear altogether?

It didn't keep San Jose from moving to Houston, and it didn't keep Tampa Bay and Miami from going away. In fact, in the latter case, it might have made it easier (Tampa Bay was a league-run team with no owner).

"Single entity" as MLS practices it accomplishes these things, mainly:
1 - Allows all player contracts to be held by MLS, LLC, instead of the individual clubs, which enables the whole deal to legally operate as a quasi-monopoly and keep player costs (one of the biggest line items) down. High player costs are seen as one of the (many) things that killed the old NASL, and it's almost a certainty if some sort of restrictor plate isn't placed on player spending.
2 - Allows MLS, LLC to more easily negotiate sponsorships and buys on a league-wide basis and achieve economies of scale.

Those are really the biggies. Some of the ways MLS does business (i.e., paying all player salaries out of New York and skimming a percentage of each team's ticket sales and shirt sponsorship money, etc.) could still be done if they weren't single-entity, it just makes it a little more tidy.

Also, each investor/operator gets the right to operate a franchise and gets an equity stake in MLS, LLC (as well as SUM, if they want it).

>>In a league where championship clubs don't sell out at home, what sort of leverage do fans have in participating in the operation of their club?

I'm not sure what one has to do with the other. Some clubs do have very active and involved supporters groups that have good relationships with their front offices, but as far as "participating in the operation," that doesn't happen that I'm aware of. Nor am I of a mind that it should. As Brian Billick said,"Players play, owners own, coaches coach and writers write." He could have added "Supporters support." If you want to run your own club, pony up several million bucks and knock yourself out.

>>>Is there a way to improve the quality of play in MLS without spending more on player transfers and wages?

If there is, it's the slow way. It just takes time. The American player (who makes up about 60% of MLS' rank and file) has improved over time (30 years ago, we just couldn't play), but it's still slow going and there's an "American style" of play that's not always that attractive to watch. We've produced one guy with Landon Donovan skills in 100+ years (oddly enough, it's Landon Donovan), while Brazil produces a few of those guys a week.

Spending is a quick fix. Might work, might not. Would be ghastly expensive. Building takes time and might not work, either. But the guys writing the checks are going conservative, for the most part.

>>>Would an improved on-field product even be enough to convince a European soccer-loving American to purchase an MLS season ticket?

Depends on who you talk to. I personally don't think so (I think they'll find another reason not to support the league), but others do. A European soccer-loving American might be dazzled enough if you spent a kajillion dollars on players, but we're not in a position to do that.

In Toronto, they took the tack at launch of saying, "We're not asking you to give up your love of Arsenal or Juventus. But you can support this AS WELL, and you the Arsenal fan and your mate the Juventus fan can BOTH come and support this together."

Kenn Tomasch said...

>>>Would profit margins dramatically improve if they all decided to buy MLS season tickets tomorrow?

How many "all" are we talking about? Some 40 million viewers supposedly watched the 1999 Women's World Cup final on ABC, but I am not sure there are 40 million soccer fans in this country. Some 17 million people watched the 2006 World Cup final, which is probably a closer estimate to the number of actual soccer fans that you could reasonably attract, but it's probably still high (about 17 million people watch your average NFL game on a Sunday).

The 2008 Euro final got about 3 million viewers, while your average MLS Cup gets fewer than a million. So there is a gap, we're just not completely sure how to accurately quantify it.

Obviously, if everyone who could would buy a ticket, that would help, but there have to be a lot of those people who aren't in MLS markets or for whom it's just not convenient. MLS drew about 3.6 million people last year. Every team except Seattle and Toronto could obviously sell more tickets than they do (LA, too, but not by much). There'd be an effect, but the "other" 10 million or so are never going to just all of a sudden pony up and start going to MLS games.

>>>Under what circumstances would an American who doesn't watch soccer start going to MLS games?

I'm sure it has happened already. Someone drags them along, they're looking for something to do, a night out, they hear soccer is popular and want to check it out. But MLS spent too much of its formative years attempting to GET that person to come to games (it was, more or less, "Soccer for People Who Don't Like Soccer," which is asinine when you think of it. Who the hell would ever open a restaurant with the slogan, "Pizza for People Who Don't Like Pizza?" MLS left a considerable number of potential fans by the side of the road at launch by going too "American," in my opinion. But even if they hadn't, even if they'd gone single table at launch, a double-round-robin with no playoffs, traditional team names and uniforms and badges and all that, the quality of play was pretty ragged at first and would have turned off a lot of folks, I believe.

MLS has spent much of the last 10 years or so (since not long after Don Garber took over as Commissioner) trying to get closer to the "world's game" in a lot of the ways it presents itself. It's not there yet. And some folks have come around. But there are still a lot to get.

>>>Would they even watch MLS if it became the best league in the world?

Who, the people who don't like soccer? I doubt it. Then again, I really don't care about those people (see the pizza analogy above). I think we should spend our limited resources trying to get the people who are standing just outside the tent to come in under the tent and worry about the people down the street who haven't bothered to come near the tent some other time if we have to.

But MLS is unlikely to ever be the "best league in the world," so it's a non-starter.

Kenn Tomasch said...

>>>Or is there something about MLS sporting culture that's preventing the league from selling more tickets and getting better TV deals?

Well, there's something about the intrinsic place soccer has in our sports hierarchy. We have several leagues and pastimes and other options that make it very, very difficult to sell tickets and get "better TV deals" for this sport, which is (relatively) unpopular. I shouldn't say that - "this sport" is pretty popular here, or, at least, there is a core constituency for it. It's just not nearly as large as for other sports. Read Markovitz's book "Offside: Soccer and American Exceptionalism" if you want a pretty good read on how American sport space got settled and why soccer is where it is.

>>> Is there any research or precedent to support the argument that the league just "needs to be around longer" to get more fans?

Other than having been around for 14+ years (a victory in itself) and gaining more fans over that time period, I don't know. that's my theory. Empirically, it seems as though over time, there have been more fans as improvements have been made, the "oh, this league is going to fold soon" stage has long since passed, and teams have developed histories and roots in their communities.

So, no, I can't "prove" it to you, but it's what I believe.

>>>And is single-entity a good platform to build wider support for soccer in North America?

That's a big one. I'm not sure it matters. Among some rabid fans/conspiracy theorists, single entity is blamed for everything but H1N1 - partially because it's trendy or easy to do so (B follows A, therefore, A caused B).

I have no doubt it's been a great platform to keep a professional Division I league alive this long. As I mentioned above, "single entity" doesn't mean as much as some would like to think it does. Cost containment has absolutely been key. The (perhaps) unintended consequence has been (arguably) too much parity. Some argue that you need a Superclub to spice things up, and MLS rules and regulations stifle that. Others say we don't want an EPL-type situation where the top four are obvious to everyone from Day 1. The answer, as with most things, lies somewhere in the middle. There's probably a way to loosen some things up so that you can create some teams that are more memorable than what some would call the "mediocrity" of what we currently have - but you're almost inevitably going to have some shockingly bad teams, and that's not good, either.

The notion that any team can potentially win is seen as a good thing by many. Others disagree. I'm not sure there's a good answer.


>>>Does wider support for MLS or soccer in general in North America even matter?

I'm not sure I understand your question. Does any business want more customers or not? Or are you asking, "Is it ever going to get to whatever I consider to be an acceptable level in this part of the world anyway?"

I guess that depends on what you consider an acceptable level.

And, finally, to get back to single entity for a second - honestly, considering how much revenue they share and how "collectively" NFL teams have thought since the days of Pete Rozelle, that league is almost a much better example (except for the player costs part, which are under a salary cap, but that cap rises much more quickly and steadily than MLS') of single entity than MLS is.

And the reborn Arena Football League is having individual team ownership, but having all players and employees under contract to "the league," so you can see how it could be a popular way to keep a lid on one of your biggest budget line items.

Sorry that's so long. You asked a lot of questions. I tried my best to give you my take. But it's just my take - I could be wrong.

Richard Whittall said...

Wow Kenn, thanks for this. I too have much to comment so I'll think I'll leave it for the next post.

Anonymous said...

Kenn, just want to say thank you for your economic insight into the league - you do a good job with it.

Elliott said...

Richard and Ken-

great stuff. My thoughts on "attractive football" are that MLS could really go poach technically talented Latin players from South America and totally change the complexion of the league, but MLS thus far has put a lot of faith in the American (read: Anglo hardrunning ballheading) player.

I think as North American population demographics shift, and as our coaching improves and players grow up with a soccer ball and only a soccer ball, we'll get better technically.

Still, barring a lock out, don't expect an influx of cheap technically savvy "scabs" from south of the boarder.

Jason Davis said...

I fall in with most of Kenn's sentiments, though I'll admit to getting swept up in the idea that spending more (but not a lot more) would benefit the league on occasion.

The problem is pinning down whether that would actually "help" matters, and whether the juice is worth the squeeze. There is just too much working against soccer in North America for there to be any easy answers. I think that single-entity, which Kenn outlines rightly is just about cost control, was/is the right way to go; it was done the other way once (obviously NASL), so why not try it in a way that better ensures longevity? Fiscal conservatism will never be popular with everyone, but that doesn't mean it isn't the right way to go.

As for "technically savvy 'scabs'", I wonder if they truly exist in enough numbers to suddenly make MLS a technical league if we suddenly went that route; while there is a greater abundance of skilled Latin American players than American ones, are there so many, and so many looking for jobs, that MLS teams could go find enough cheap ones to populate their squads? I'm honestly asking a question I don't know the answer too.

Also Elliot, your note about the reliance on "Anglo hardrunning ballheaders" brings up the touchy question of just how "American" MLS should/needs to be. That's an off-topic tangent I won't get into, but it is part of the larger issue.

OleGunnar20 said...

i am no expert on the intricacies on S-E nor do i ever really care to be. i understand that to start and to keep stable during the formative years MLS needed a very tightly controlled operating structure. i am just not convinced that such tight structure is the best way to get the MLS to being a competitive league worldwide. MLS will never be on par with EPL, La Liga, Serie A, Bundesliga, Ligue 1 or probably Eriedivise. But I see no reason why the ultimate goal (say within the next 15 years) shouldn't be to fall somewhere between 7-10 in leagues world wide (on an overall combination of measures: value, exposure, quality, etc). As a fan isn't that what you should want? I mean otherwise what is the point?

Now if that is our goal. To put MLS in the top 10 leagues worldwide (and perhaps its top teams into the top 50 worldwide) how do you get there if your league is essentially a monopoly in practice? isn't competition what breeds excellence? i am not advocating a spending free for all by any means. but at some point doesn't every fan want to support a club that if it has been able to sustain 32K fans per game (and as a result of such fan fervor probably get more revenue from TV and sponsorship), like SSFC, and can sustain that parlay that success into well earned advantages for the club on and off the pitch?

isn't the MLS sort of making rules that hold everyone to the lowest common denominator? wouldn't rules that allow for a wider band of leeway for clubs of varying success levels be better to grow and improve the league to the ultimate goal level?

it is sort of like teaching a class to the level of the slowest students? is this the best approach to get the most out of the class as a whole? or do you only hold up the best students and short change the middle students that probably do better if challenged to compete?

OleGunnar20 said...

if i can also address a few specific things that i think the MLS/S-E has as drawbacks going forward that hinder the MLS from achieving top 10 worldwide league status.

1. Guaranteed Contracts: it is hard to attract the best players when the MLS is the only league that does not guarantee contracts in some way. now we are not talking MLB contracts guaranteed for the life of the contract. we are simply talking about if you make the roster for the start of the season then you are guaranteed for that year's salary per your contract. it seems simple enough to me. but lets say that the argument is that this is too risky and too expensive for the struggling clubs. ok, fair enough. but with MLS being a single entity and holding all the player contracts you don't allow for not struggling clubs to say "well, honestly we think this kind of guaranteed contract is essential to attracting the quality of player we want and we are willing to take the risk/bear the cost."

2. Reserve Clause: if a team waives a player or a player's contract comes to an end that should be that. the team no longer has any rights to that player and any other team should be able to sign them. some say this leads to free agency free for all salaries? uh, not with a salary cap. it simply leads to one team saying we think this guy is not good enough for our team and another team saying maybe he is good enough for there's. who is right, who is wrong? don't know but that is what teams competing is supposed to be about.

3. Salary Cap: nobody is arguing for the MLS having no salary cap like the EPL. at least nobody i have heard. most people are saying that 2.7M per team, increasing by a 100K pittance per year, is no longer sufficient. allowing teams to spend more money on players means they can more easily keep native talent (US/Canada), attract better foreign imports and most importantly eventually allow for BIGGER ROSTERS (see #4)! does the cap need to double or triple next year? no. but what is wrong with setting a floor/ceiling (3M-5M) within in which teams can do as they like relative to their revenues and ability to spend? oh wait, maybe because the teams are not really independent competitors?

4. Roster Size: related to Salary Cap of course and dependent on it. but in the long run MLS teams really need to be allowed to have much bigger rosters overall between an Active (24) and a Reserve (16) so that there is an intermediary step between Youth Academies and the first team for player development. Without MLS teams having Reserve Teams/League there are too few spots for youth talent to develop and get experience. the stated goal of USSF/MLS is for the Youth Academies of the professional clubs to serve as the paragon for youth development in the country (and i'd imagine Canada too). that is made increasingly difficult if there is a huge void in playing opportunity between U-18 and 1st Team. again. need this take effect next year? no. but it should be the long term goal i would hope and there should be steps along the way that allow for bigger rosters to reward those teams who's youth academies are turning out more and better players. but again. under MLS S-E no such freedom for individual clubs or reward for one team doing better than another team exist.

OleGunnar20 said...

there are probably other issues i could raise but essentially i just cannot get on board with a system in which individual teams are not really independent and free to operate and compete and succeed against one and other (within mutually agreed parameters) to separate the wheat from the chaff and thus motivate the chaff to strive to be more wheat-like. i don't have all of the answers and maybe there is away to achieve these things within S-E. i don't know.

but then maybe the MLS does not aspire to eventually a top 10 league in which the top clubs are amongst the to 30-50 in the world? maybe it is simply a mechanism to allow some rich dudes to make a pile of cash first and foremost and the soccer being a distant and trifling (and mediocre) second?

oohrogerpalmer said...

Hello Villasupportgroup.

This is plea to help some nonsense-seekers circumvent the systems of morality and add a little chaos to the world.

I appreciate your in the middle of you billion, so I think waiting to the end might be a tad too late for this.

On 17th February 2010, the Rumour Mill, written by Paul Doyle that day, inspired a truly ridiculous response which was duly noted in Wikipedia Entry briefly detailing the events that unfolded - please look up the word HOLLIGAN on wikipedia (I don't know how to link here)

Due to Wikipedia's relatively robust criteria, it is essential that other news organisations / publications mention this experiment in social chaos.

Unfortunately my experience is limited to the Football Weekly on the Guardian and a few brief forays into other Guardian based blogs.

Whilst brazenly massaging to your electronic ego, as the most professional and publicised blogger I actually know ( I even know what you sound like), I am appealing to you to shoehorn a reference to this wiki entry into your blog, and if possible attempt to have it mentioned in some of your other sources/links, of which I'm sure someone with your media savy and broad, international contacts, has many.

This appeal obviously goes out to any other contributors to this fine vessel.

Kindest regards

oohrogerpalmer