TV Fees – The Key to MLS' Future

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.