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With the expansion era ending, MLS needs to improve its product to find new revenue

The end of the expansion era is nigh

MLS: Chicago Fire at LA Galaxy Kirby Lee-USA TODAY Sports

MLS had something of a rough start. There the early years of augmented rules, a clock that stopped, Billy Campbell playing forward, low attendance, and then contraction. They were dark days, then Don Garber became commissioner and frankly saved the league. The MLS business model since Garber took over and initiated the expansion era has been something along the lines of: offer investors a low risk way to make money by keeping player salaries low, trying and attract sponsorships from car companies and multi-level marketing schemes, expanding strategically with owners who have deep pockets and a commitment to the league, building soccer stadiums sometimes, making a little bit of money off of TV deals, and making a lot of money with expansion fees and through Soccer United Marketing (that last one is doing a lot of the heavy lifting when it comes to the making money part).

At least one of those revenue streams will eventually stop flowing. The expansion era will eventually end and it could be sooner rather than later. MLS has announced that it will expand to 30 teams. Eventually, that number could grow, but for now the goal is 30.

The expansion era has been very good for MLS owners, arguably selling franchises is as important as SUM when it comes to creating revenue for the league. NYCFC joined for $100 million, Orlando City and Atlanta bought in $70 million, Minnesota United paid $100 million, a second franchise went to LA for $110 million, southern Ohio and Nashville got a team for $150 million, the same price paid to Anthony Precourt to buy the Crew so he could have his team in Austin, David Beckham cashed in his option to buy a team for $25 million, and then there’s the $200 million price tag being put on teams 29 and 30. Add that all up and it’s $1.325 billion - or 10 MLS franchises for the cost of about half of what the Houston Rockets recently sold for.

But wait. 30 teams? Are they really going to stop there? There’s been serious talk about a team going to Detroit, St. Louis, Sacramento, San Diego, Charlotte, Phoenix, and Indianapolis. That’s seven cities and two slots and $400+ million the league could be leaving on the table if it doesn’t follow the NFL model and bump it up to 32 teams.

We could keep doing this kind of math forever, but for now, 30-32 teams - somewhere around there the league will stop adding teams, maybe - it could keep growing until the violent heat death of the universe, but 32ish seems about right and is what Canada and the US markets seem to be able to support for a sports league. Then what?

How other sports leagues make money

In the post expansion era, MLS will either evolve or stagnate. Owners probably don’t want stagnation, they want growth. A big part of how sports leagues make money with TV deals. The NBA is paid $24 billion for its nine year contract signed with ESPN and Turner in 2014, networks paid the NFL $27 billion for nine years on its deal, in soccer the EPL gets $1 billion for NBC to show soccer in the US for six years and that’s a small part of the €9.59 billion the league raked in globally.

As our friends at FMF State of Mind pointed out, that’s where the big money is for EPL teams. They noted that the year Sunderland was relegated, the TV money brought them €111.65 million - you could almost Save the Crew for that much money.

Compare that to how much MLS makes now on its national TV deal - $720 million over eight years. Local teams have their own deals with the LA Galaxy leading the way with a $10 year $55 million deal - but on the low end of the spectrum, teams may make as little as zero dollars to let local networks put them on TV.

30 teams and beyond

Obviously, if the league stops expanding it can’t collect expansion fees. That seems to mean that it will be relying on SUM and a new TV deal to make money for the owners. Selling men’s and women’s World Cup rights and TV rights to the USMNT, USWNT, El Tri and other soccer properties is obviously very profitable. SUM has probably kept the league afloat since it was founded in the dark years of the early 2000s and is an attractive return on the hundreds of millions of dollars owners plunk down to buy a franchise.

The league is also gearing up for a new TV deal. With the national deal set to expire in 2022, MLS will try to package it along with the local broadcast deals in one big league-wide contract. This sounds good, it’s what the NFL does and that makes it a lot of money. In England, the EPL has a national broadcast deal for its teams as well.

The problem that MLS has is that nobody watches it on television compared to other leagues. In pure viewership numbers in 2018, 31,350,000 total viewers tuned in for MLS games, the EPL drew 62,133,000, and LigaMX got 105,636,000 total viewers. Over three years, MLS saw 8% growth in TV viewers with the EPL increasing 69%, and LigaMX growing 46% according to World Soccer Talk.

So what gives? To start MLS is the best worst soccer you can watch and Wayne Rooney torching some Anonymous College Graduate who is on the team because he fits under the salary cap and doesn’t take up an international slot isn’t good enough and it never will be.

Don Garber has his own theory. Back in 2013, he noted that, “There’s more soccer on [US] television than any other sport by far. You’ve got European soccer. You’ve got Mexican soccer. You’ve got Major League Soccer. There’s way too much soccer on television. I think all of us got to figure out a way to narrow that window so you can get a situation like the NFL has, a couple of days a week, short schedule, something that’s very compelling and very targeted.”

Another way of looking at that is that MLS is entire galaxies away from being able to give viewers what they want and what they get out of the EPL and LigaMX - good soccer. In this case, the league will also be its own worst enemy since a team in the EPL can spend more on the transfer fee for one right back than what half of all MLS players make combined.

The immovable salary cap meets the hard to watch league

Now we have a place where the MLS business model stands in the way of its future success. Adding to the ways the league makes money, it also has very tight and very restrictive rules for how players can move within the league and even go outside of it. This also includes a salary cap and tight limits on free agency. It also disincentives teams from selling players to other leagues because, unless they meet very certain criteria, the league keeps a portion of transfer fee rather than letting the selling team keep all of it. All of this is meant to keep labor costs low, something MLS owners are really keen on because it means they can keep more money for the product that they sell but don’t produce. But these rules stand in the way of bringing in good players and making the product they sell better.

This is a problem for MLS if it wants to compete for TV viewers. Soccer is unlike other American sports in that the best league in the world is abroad and people will actually wake up with the sun to take in a match featuring their beloved Arsenal or take in a Monterrey game in the afternoon rather than watch the Colorado Rapids.

To compete, the league will have to spend more money on good players across the league and in every position on the field. The designated player deal has brought in great attackers while lower paid defenders have kept up because it’s not that hard to bunker and frustrate those great attackers. The league will need to start paying for great young right backs in addition to talented forwards to have a better product. In order to do that, owners will have to loosen some of the labor restrictions and salary rules that keep money in their pockets and they’ll probably have to bring those players in to grow viewership under a less than ideal TV deal before seeing a return on their investment. Is that what owners bought into? Is that what the league is going to do? Or are we just going to be talking about Romelu Lukaku blasting past a player making the minimum salary playing for new MLS side West Albany Albion during a game that nobody watched on TV in a decade?

I don’t doubt that MLS has thought of this and perhaps there’s some wildcard that the league will play to make all of this moot. Or maybe they’ll take Riccardo Silva’s $4 billion in 2022 and institute promotion and relegation (probably not). If nothing changes, the league will get marginally better, perhaps introduce new kinds of fake money, but if nobody watches it none of that will matter and the league will just be an afterthought as SUM checks continue to underwrite its middling quality.