Once an afterthought in a crowded sports landscape, Major League Soccer is starting to capitalize on America’s rising obsession with soccer. But whether MLS can sustain its recent rabid growth for years to come remains a matter of debate.
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By nearly any measure, 2015 was a banner year for the United States’ premier pro soccer league. League-wide average attendance rose 12.7% year-over-year to more than 21,000 fans per contest, with the crucial 18-34 demographic accounting for 65% of the audience. New media rights deals and soccer-specific stadiums helped drive the value of the average MLS franchise to $157 million in 2015 – a 52% increase of just two years earlier, according to a Forbes study. Earlier this year, league officials announced plans to expand from 20 teams in 2016 to 24 franchises by the year 2020.
The signs of growth are unmistakable and encouraging, but Major League Soccer’s outlook isn’t entirely rosy. As with any sports league, rising revenues are generating debate about player compensation and the long-term sustainability of MLS’ business model. The league’s prohibitive salary cap – a rarity on the global soccer stage – has also garnered criticism.
Debates on these issues will be at the heart of labor negotiations when MLS’ current collective-bargaining deal expires in 2019. But there’s no denying that MLS is on more far stable ground than it was during its infancy in the mid 1990’s, before its teams had soccer-specific stadiums and devoted fan bases.
“When the league first started, it was a massive education process, when we would try to sell a sponsorship or try to persuade a sports editor to cover Major League Soccer in greater detail,” Dan Courtemanche, MLS’ executive vice president, told FOXBusiness.com. “Now, that process is very, very different.”
That’s partially due to the natural progression of soccer in America. The sport, which has traditionally taken a backseat to baseball, football, hockey and basketball, has enjoyed a spike in popularity thanks to the strong performances of the U.S. men’s – and especially the women’s – national soccer teams. The television rights to the 2018 and 2022 World Cups fetched about $1 billion in the United States – an unfathomable figure when MLS opened its doors in 1996.
Major League Soccer’s new television deals with FOX, ESPN (NYSE:DIS) and Univision are worth a combined $90 million annually – a threefold increase over its previous rights deal. Total television viewership of MLS games reached 30 million in 2015, up 50% from 2013. Courtemanche says MLS is most popular among millennials, who grew up with the league, and Hispanic-Americans, who already loved soccer and now compose about a third of the league’s audience.
The league now has a total of 19 national sponsors, including key additions of household names like Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ) and Heineken. Courtemanche credits team owners like Robert Kraft and Phil Anschultz for guiding the league’s evolution during its formative years.
“It really starts there and the investment they have made in the foundation of the league,” Courtemanche said. “When we started, we didn’t have any soccer stadiums. We were playing in the Rose Bowl with baby blue lines for UCLA painted in the end zone.”
As of 2016, 15 of MLS’ 20 franchises have their own soccer-specific stadiums, which grants more control over their revenue streams. Expansion franchises, such as New York City FC and Orlando City, are already among the league’s top teams in terms of attendance.
Patrick McCabe witnessed MLS’s growth firsthand. A former player and soccer agent for the last 19 years, McCabe represents several clients in MLS and has seen the league expand from fledgling enterprise to a real force among the U.S.’s top sports leagues.
“If people don’t think it’s relevant, I think they have their head in the sand,” McCabe told FOXBusiness.com. “Because it really is. I wouldn’t have said that 20 years ago or 10 years ago, but you can certainly say it now and you can say it with confidence.”
The league, which operates as a single entity, has granted its teams more and more room to operate as they see fit. Top executives have gained experience and are now more adept than ever before at steering a franchise’s business operations.
But McCabe says the league’s rules on player contracts and transfers are outdated and too restrictive. In European leagues, teams often sell their best players for massive fees and then reinvest their earnings into new prospects. MLS’ system is more complicated – teams only recoup a portion of transfee fee revenue, depending on the length of the player’s service.
“That’s a different model than most leagues are operating under. They’re selling players to pay the bills. That’s never been the strategy of MLS,” McCabe said. “When you’re dealing with foreign partners and teams, they think, oh, we want to buy that player. Well, [MLS teams] don’t want to sell.”
Player compensation is another key issue. MLS’ salary cap will hover around $4 million next season – far below caps in other major sports. MLS allows each team to pay “designated players” beyond the salary cap's limits, but middling performers are often paid comparatively low salaries. Of more than 500 MLS players, just 22 earned more than $1 million in 2015, according to the MLS Players’ Union.
That pay disparity is one of several issues that could cause labor discontent in 2019 – especially in light of how contentious negotiations were in 2015.
“The rank-and-file are not really benefitting from the league’s growth, in terms of sponsorship and all those positives,” McCabe said. “The CBA that was negotiated in early 2015 is going to go through the 2019 season and then there’s going to be some real unhappy players that are going to want a new CBA, because they felt they got the short end of the stick last time.”
Long Road Ahead
MLS executives and team owners are taking steps to increase spending on players. As of now, each franchise is allowed to spend outside the cap on three “designated players.” Owners also put $50 million into an allocation pool that allows teams to sign additional players for between $500,000 and $1 million. While the current salary cap is around $4 million, franchises are spending closer to $13 million on compensation and player development, Courtemanche said.
Long-term, MLS is counting on the continued expansion of its fan base and a series of new soccer stadiums to inject new revenue and sustain growth. Increased income from licensing deals and new sponsors will help MLS avoid overextension, Courtemanche said. In addition, the league is eying new, more lucrative broadcast partnerships overseas as a potential revenue source.
“Our plan is to continue to grow the fan base and grow the sport and, ultimately, Major League Soccer becoming one of the top soccer leagues in the world in the next decade,” Courtemanche said.