Major League Soccer announced a belt-tightening this week that is being attributed to the pandemic. The explanation may be accurate on the surface, but American soccer’s top league faces longer-term financial worries that go beyond that.
While it’s fashionable to call the MLS a success story, it is up against competition that the English Premier League or the rest of Europe do not face. And it doesn’t have the star power of Lionel Messi, Neymar, or Cristiano Ronaldo to close the gap with what Patrick Mahomes and LeBron James mean for their respective sports in the United States.
Report: MLS lays off 20% of its staff
Yahoo Sports reported last week that 20 percent of the staff at the MLS headquarters in New York City has been let go. Including some vacancies, the move affects nearly 70 positions. The league had put a hiring freeze in effect and announced salary reductions in April when the COVID-19 pandemic forced MLS to suspend its season.
MLS resumed its regular season in July, and its playoffs began over the weekend. But the inability to play in front of fans since the opening weeks of the season has been costly. Commissioner Don Garber estimated in June that the league expected to lose $1 billion in revenue in 2020.
MLS hasn’t been alone in feeling the financial effects of the pandemic. The NBA and NFL offices also went through layoffs over the summer. However, those sports, Major League Baseball, and major college conferences have had their television contracts to fall back on.
MLS is a success story … on paper, anyway
MLS began play in 1996 as the successor to failed professional leagues on the continent including the North American Soccer League. Considering the head start that baseball, football, and basketball had, what MLS has accomplished in its bid to become relevant to sports fans is admirable. There are 26 U.S. and Canadian teams already, and expansion will push that number to 30 by 2023.
The unusual structure of MLS – the league owns the teams while individual investors operate the franchises – is a plus that has contributed to stability. It allows for keeping player salaries and other expenses in check. Additionally, it simplifies negotiating national partnerships.
On paper, the strategy works. According to Huddle Up, Atlanta United is the most valuable franchise at $500 million. LA Galaxy ($480 million) and Los Angeles FC ($475 million) are close behind. Those numbers are dwarfed by the Dallas Cowboys in football and New York Knicks in basketball, but they hold up well against a lot of NHL franchises.
So, what’s the problem? According to Forbes, only seven MLS teams turned a profit in 2018 – and only three were by $1 million or more.
Revenue growth is drying up
The MLS television contracts with Fox, ESPN, and Univision have two years to run and currently total around $100 million a year, which amounts to about $4 million per franchise. In Major League Baseball, that will get you a No. 4 outfielder or a middle-innings reliever; the revenue haul for every MLB, NFL, and NBA team dwarfs what MLS franchises get from TV.
That means that the soccer teams are much more dependent upon game-day revenue. They have to fill their stadium seats and sell hot dogs, beers, and souvenirs – and they can’t do that during a pandemic. It doesn’t help that top leagues in England, Germany, Italy, and Mexico all show games – featuring superior, high-priced talent — through cable outlets across the U.S., creating competition for eyeballs that the NFL doesn’t worry about.
There will be a vaccine sooner rather than later, which will solve the attendance problem. But MLS is staring at a bigger issue on the horizon. As Huddle Up phrases it, MLS has been artificially inflating franchise valuations through a dependency on expansion. Nashville and Cincinnati recently paid a combined $300 million to join. Austin, Charlotte, St. Louis, and Sacramento will push about another $900 million into the system between now and 2023.
But what happens after that? Once the league hits 30 teams in 2023, there won’t be much left in the way of potential new cities, drying up the options for growth. Given that expansion money reportedly made up almost half of total league revenue a year ago, that’s a serious problem that the next wave of TV contracts won’t come close to solving — especially when so many top American players go to Europe for better money and competition.