Why are Major League soccer clubs expensive?
Major League Soccer is no longer a retirement home for European players but rather a destination for young talent and it is now becoming quick and entertaining and all of this makes Major League Soccer increasingly popular. However, Major League Soccer franchises are surprisingly valuable. According to Sports Business website, Sportico MLS’s top three most valuable franchises as of 2021 are Los Angeles, FC Atlanta United and LA Galaxy, valued at $860 million, $845 million and $835 million respectively. Colorado Rapids who find themselves at the other end of the list at 27th, are estimated to be worth around $ 370 million.
In August 2021, Forbes estimated the average National Football League (NFL) franchise to be worth $2.48 billion but for a league in which the average attendance is just over 21,000 and the competition’s broadcasting contract pays just $90 million per season, these are eyebrow raising figures.
Specific examples; less than two years ago, Mike Ashley was reportedly willing to sell Newcastle United for $415 million and West Ham United who are currently subject to takeover interest are estimated to be worth about $508 million despite being 17th on Sportico’s list.
These numbers are just hypothetical, but such value is described by the actual sums paid for stakes in Major League Soccer franchises in recent years. In February 2020, Cardiff City owner Vincent Tan sold just 10% of Los Angeles FC for $70 million dollars. The previous year in July 2019, NBA star James Harden purchased a minority stake in the Houston Dynamo for $15 million a month before.
It is clearly an attractive investing environment and the level of demand is best described by the inflation in expansion fees the Major League Soccer has been able to collect as the competition grows towards becoming a 29-team league in 2023. Back in 2007, Toronto joined Major League Soccer having paid $10 million. The same year as part of his playing contract, David Beckham was assured the right to purchase a future franchise for $25 million.
It is a trend that makes Major League Soccer an outlier even in the hyper-capitalist world of US sport. The Athletic writer Sam Stedskill wrote an article in March 2021 reporting that, the average percentage increase MLS saw in its team’s Forbes valuations from 2018 to 2019 was nearly triple that of the NBA and NFL and roughly four times the increases seen in Major League Baseball (MLB) and National Hockey League (NHL) in the same period.
With ownership comes stakes in soccer united marketing; a subsidiary which has near total control over soccer’s commercial interests in the United States. In addition to negotiating MLS’s television and marketing interests, it also handles the commercial rights of the United States Soccer Federation (USSF) and Concacaf and it is lucrative. According to a 2019 estimate from Forbes, sum which is wholly owned by the league investors is worth around $2 billion with annual revenues of $350 million and it is estimated that some clubs derive more than 40% of their value from those holdings alone.
It creates a distinction between the variety of ownership found in European football which is a more traditional kind of stake holding tied to a team’s rise and fall, and ownership within the Major League Soccer model where the franchises are commodities and the investment is in not only the league, but the game itself.
A survey carried out in 2019 amongst US English Premier League watchers revealed that, 55% of the viewers were 45 years or younger, thereby making soccer highly favoured by a younger demographic in the American society. Last season, broadcaster National Broadcasting Company (NBC) reported an average total viewership across their various platforms of 879 000 per Premier League game which was both a 2% rise on the year before and double than that of the average NHL broadcast.
In July 2021, 9.4 million viewers watched the European Championship final between England and Italy, a 59% rise on the 2016 final between Portugal and France. Italy’s win at Wembley was also seen by more viewers than on average.
In 1994, the momentum generated led to MLS’s original launch and the expectation this time is for a much bigger jolt and presumably an even bigger boost to a now developed footballing environment. they are caveats of course, expansion and the revenues associated with it cannot carry on forever, not without damaging the quality of the league and more importantly, while the United States Information Service (USIS) will doubtless be drawn to the world cup and the less franchises won’t hold that attention if its product is inferior. But clearly, investors and owners understand that and the vast sums of money they continue to pour into the league would indicate that it’s a risk that they are willing to take.
Source: Tifo Football