Miami FC owner commissions a promotion/relegation study, the conclusion is obvious

Deloitte, in a report commissioned by a company owned by Miami FC owner Riccardo Silva, states that a “revised structure” for U.S. Soccer leagues including promotion and relegation can advance its long-term health once the Major League Soccer franchise model reaches maturity. They cite a poll of over 1,000 U.S. soccer fans conducted in September 2016 and a minimal growth of registered players with U.S. Youth Soccer among factors in the recommendation.

Dan Jones, head of the Sports Business Group at Deloitte said:

“The current closed system has served MLS well in its early years, but as it matures it is reaching member capacity, preventing further expansion. Other challenges facing the current structure include growing fan interest in overseas leagues such as the English Premier League and a stagnation in the number of players annually registered with US Youth Soccer. The number of registered players has barely risen since 2000 despite vastly increased rates of participation in high schools.”

In a 2013 study on American professional sport, Deloitte said this about MLS:

Major League Soccer, though not as large in revenue as the “big four,” has been making quick gains. The average valuation of an MLS franchise increased by 175 percent from 2008 to 2013.

Deloitte also reported in 2012’s annual Football Money League report that the league’s “steady growth has been founded on a strong domestic economy with experience of sound sports business management, a centrally controlled league and investment in the infrastructure of the game. Nine different teams have lifted the MLS Cup in 16 seasons, testament to the competitive balance of the competition.”

Some other reasons cited by Deloitte for proposing this structural change to U.S. club soccer include increasing attendance and revenue, creating compelling content for broadcasters (which is Silva’s primary business, he arranged the NASL’s TV deals in 2016), and motivating ownership at all levels. MLS President and Managing Director Gary Stevenson provided some statistics to Forbes in late 2015 citing growth in some of these areas. Highlights included:

• 2015 marked the first time that every MLS match was broadcast around the world. Total gross viewership was 30 million, a 50% increase from 2013 and an all-time high for the league. Gross viewership was 17.3 million among 18-49-year-olds, a 25% increase from 2014.
• Eurosport had 2.6 million viewers for MLS Cup 2015.
• Local sponsorship, season ticket sales, and attendance figures were all up double digits in 2015.
• MLS added seven new corporate sponsors in 2015.

The previously mentioned 2012 Football Money League report also cited the fact that the average attendance per match for MLS had surpassed the NHL and NBA in 2011. In 2016, the NBA set a record for its highest attendance per game at 17,864. MLS attendance increased 21% in the last five years, setting a record of its own in 2016 at 21,692 per match. The new report cites a 0.1% increase in attendance between 1996-2015 for the “eight ever-present MLS clubs” in that time frame. Comparing the nine teams from 1996 (all except the Tampa Bay Mutiny) to their 2016 attendance averages (using figures at kenn.com), they have increased by 4.7%.

The newly released report also states that “As it stands however, US club soccer is not immediately ready for promotion and relegation.” Key topics to be addressed before this is possible include deciding the right number of teams in the existing leagues, continued development of and stability of a second tier competition (currently the NASL, of which Silva’s Miami FC is a member), and how long term investors’ equity will be “protected” from relegation.

Deloitte’s Jones said:

“Though the US soccer league system may not be ready for such a move immediately and its implementation may not appear urgent, the topic is worthy of greater exploration and debate. US soccer should properly consider the merits of introduction of promotion and relegation and a transition plan for its successful introduction in order to drive US soccer forward.”

The NASL, the current second division in the U.S., has lost three teams since the conclusion of the 2016 season with Minnesota United joining MLS and Ottawa and Tampa Bay opting to participate in the third division United Soccer League. Two more teams, Rayo OKC and the Ft. Lauderdale Strikers have reportedly been unable to pay players and staff since the season ended. The USL has applied for second division status and is expecting to receive a decision next month.

The NASL was formed by a group of owners that were dissatisfied with the business practices and instability of USL after the 2009 season. U.S. Soccer organized a joint second division league in 2010 before the NASL began its own season in 2011. The NASL helped establish more stringent standards for the second division than ever before, but has not been able to completely meet them during its existence. Both the NASL and USL would need waivers from U.S. Soccer to qualify for second division status going forward.

Deloitte included this statement in the report:

The Deloitte report was commissioned by Silva International Investments (UK) Limited, to assist with a preliminary assessment of factors for and against the introduction of promotion and relegation in professional club soccer in the USA.

Riccardo Silva is the owner of Miami FC in the North American Soccer League. They just completed their first season in 2016. He said this about his decision to join the league less than a year prior to their kickoff:

"I never thought of owning a team - I never would have done it in Europe. First of all, because soccer is already huge and there isn't this big potential. In the US you can start with something small and have a big growth potential. Second, in the US, I like the approach to sports as entertainment.

"And I went to NASL and they put everything together in a couple of weeks. I picked Miami because that's where I'm based - it's business but it's passion so I want to see the games and be involved."

"Of course, there is an expansion fee to pay like MLS... but it's not as expensive as MLS and this was one of the reasons why I did it," Silva added. "This is much cheaper but proportionally, I think the leagues are closer than the fees would say.”

Silva is also attempting to launch the Americas Champions League, which would run alongside the CONCACAF Champions League and Copa Libertadores and would involve the biggest clubs of North and South America.

His company MP & Silva previously managed MLS’ international television rights from 2008-2014. The original deal signed in 2008 was valued at “eight figures.” In October 2014, the league partnered with IMG to market and distribute its global media rights.

Jerome de Bontin is a former general manager of the New York Red Bulls who left after strategic differences with the club’s ownership. Jonathan Tannenwald’s assertion that de Bontin was involved in assembling the study has to be taken in consideration when it includes this quote from him:

“This report from Deloitte is significant and will re-ignite the debate as to why the change can be a good thing for US soccer. The long-term growth potential for the sport is clear and it will take a proper pyramid of competitive professional clubs, with promotion & relegation for professional soccer to ever become profitable in the US and for the US to have a chance of winning the World Cup. Across the States there is a huge untapped market of potential soccer fans – an open league scenario would encourage them to engage with the game and help clubs to convert new supporters.

The survey conducted by Deloitte of 1,058 U.S. soccer fans showed that few fans oppose promotion and relegation. Only 6% of the fans polled were against a promotion and relegation system while 51% were in favor of the change. Nearly half of the fans surveyed stated an increased willingness to attend club games and watch them on television if promotion and relegation was introduced.