Is Major League Soccer “On the Rise”? Not Quite.
In October, I was fortunate enough to be a part of a panel at the Harvard Law School Sports Law Symposium entitled “On the Rise? Pro Soccer in the United States.” The question mark in the title was added at my suggestion. My uncertainty as to the place of soccer in the North American sports landscape is derived from the financial realities of MLS and its clubs, as I will explain in this article (we will save discussions about the USL for my next article).
As an initial matter, if MLS is on the rise, it seems to necessarily suggest that other leagues are on the decline and that MLS may pass them. Indeed, some MLS club owners have spoken of MLS passing MLB and the NHL in popularity. This is not reasonable. The four major North American sports leagues collect the following approximate amounts of revenue each year: NFL - $14B; MLB - $10B; NBA - $8B; and, NHL - $4B. MLS’ revenues are approximately $1B per year, 25% of the NHL’s revenue and only 10% of MLB’s revenue. This is not a gap that is likely to close anytime soon, if ever. Consequently, MLS seems likely to remain the 5th largest and most popular league in North America for a long time to come.
Next, let’s turn to the most important source of those revenues – television contracts. The NFL just signed new television deals worth approximately $10B per year. No other league is reaching those numbers any time soon. The NHL this season started the terms of national television deals which bring the league $725M annually. The English Premier League just signed an American television deal worth $450M annually for six years. By comparison, MLS is currently playing under television deals worth a reported total of $90M, or a little more than $3M per club. Those television deals expire at the end of 2022 and MLS is banking on a major increase. Further, MLS has instructed that clubs cannot extend their local television deals beyond the 2022 season, retaining the possibility that the league can package all of the clubs’ television rights into a single package (as is done in the NFL).
The question though is what MLS can realistically expect from a television contract. MLS matches on ESPN and ABC this season average 384,000 viewers. So far this season, NHL games on ESPN and Turner Sports appear to be averaging about twice that. Next, the 2020 MLS Cup had approximately 1 million viewers. By comparison, the 2021 NHL Stanley Cup Final averaged about 2.5 million viewers. These figures would suggest MLS is capable of a television package that is at most half of what the NHL receives, or $362.5M annually. Based on the Premier League’s recent package, this seems possible. This would be a dramatic increase in revenue but I am not persuaded it will materially change MLS’ financial outlook.
We also need to consider local television contracts. In MLB, NBA, and the NHL, teams enter into agreements to broadcast locally games which are not being aired on national television. These deals are worth millions or tens of millions of dollars per year. In contrast, it is my understanding that most MLS teams must pay to be on television locally. Simply put, the local ratings for MLS matches are so low that television networks do not see value in broadcasting them. Clubs are forced to pay the networks to broadcast their games (while also usually paying for production) just so the clubs can try to maintain some sense of credibility and momentum with their fanbases.
Without meaningful broadcast revenues, clubs generate the majority of their revenue from ticket sales. COVID-19 obviously put a major dent in that bucket and seems likely to continue to do so for an extended period of time. While some MLS clubs have impressive attendance figures, more than half the league averages less than 15,000 fans per match (assuming clubs are accurately report attendance, which some probably aren’t). MLS tickets average $45-50. With only 17 home matches, a club averaging 15,000 fans per match receives annual revenue of approximately $11.5-12.75M. In most contexts, that is a pile of money, but when it is the principal revenue source for operating a professional sports club, it is not much.
Having discussed two of MLS’ principal revenue streams, let’s consider club finances generally. Of the 124 teams in the NFL, MLB, NBA, and NHL, it is my understanding that all but a handful of NHL teams are profitable in their own right, i.e., without regard to the finances of a parent company or affiliated entity (such as a stadium). By comparison, it is my understanding that at most there is 1 or 2 MLS teams that are profitable. The remainder lose millions of dollars a year. Further, it is my understanding that the MLS league office relies on multi-million dollar capital calls from its clubs to operate each year. No other league does this. Finally, with revenues of $1B, that implies that the average club has revenues of approximately $37M, which qualifies as a small business according to the standards of the Small Business Administration.
Some have taken to calling MLS a Ponzi scheme. I’ll explain. MLS had 20 teams in 2016. By 2023, it will have 29. All those new clubs will have paid large expansion fees, some in the hundreds of millions of dollars. The league, through one channel or another, distributes much of those funds to its clubs to help fund their operations. At some point soon, the league will reach capacity and the expansion fees will dry up.
Consequently, I believe MLS relies on two ownership models. First, there are uber-wealthy individuals who do not mind losing millions of dollars every year on their MLS club because it likely offsets taxable gains elsewhere – this group includes individuals who also own NFL clubs, like Arthur Blank, Robert Kraft, and Ziggy Wilf. The second model is having clubs borrow considerable sums from major financial institutions, often with high interest rates, to fund operations and construction of new soccer-specific stadiums, in the hopes that the equity value of the club will rise fast enough to allow for refinancing on better terms or new investors. Some clubs are regularly selling off minor stakes in the clubs to fund the club’s operations. For example, if the club (including related entities) is valued at $500M, the club may sell a 1% stake to a professional athlete or public figure as a vanity investment for $5M. The club will then turn around and use that $5M to cover payroll and operating costs. This is not exactly a model of financial stability.
Despite the above questions, the league marshals on. Indeed, it successfully survived COVID-19 which it might not have been able to do a decade ago. The financial situation of the league and many of its clubs can sometimes seem precarious – particularly as compared to other sports leagues – but the league and clubs have managed them to date and likely will continue to do so. Nevertheless, there is nothing about MLS’ attendance figures or television ratings that indicates this economic model is going to materially change anytime soon. Consequently, MLS, the preeminent soccer league in the US, is not on the rise – it is and will remain flat, as the 5th league in the United States.
Christopher R. Deubert is the Principal at the Law Office of Christopher R. Deubert, Esq., specializing in sports, litigation, and labor and employment. Chris has more than a decade of experience in sports and the law, including a stint as General Counsel of an MLS club, and has more than 30 academic publications to his credit. For more, please visit www.deubertlaw.com.
MLS Owners Predict League Will Pass Baseball, Hockey in Popularity in Next 10 Years, SI.com (Feb. 26, 2020), https://www.si.com/soccer/2020/02/26/mls-owners-predict-future-popularity-mlb-nhl-premier-league.  https://espnpressroom.com/us/press-releases/2021/08/major-league-soccer-audience-on-abc-and-espn-networks-up-50-percent-in-2021-compared-to-2020-regular-season/.  https://www.cnbc.com/2021/10/14/nhl-started-its-1-billion-deal-with-espn-and-turner-sports-heres-how-many-people-watched-the-season-openers.html.  https://www.sportspromedia.com/news/mls-cup-final-tv-ratings-viewers-fox-unimas/  https://www.sportspromedia.com/news/stanley-cup-final-tv-ratings-nbc-viewership-average-audience/  https://soccerstadiumdigest.com/2021-mls-attendance/  https://www.ticketmaster.com/mls  Ken Belson, Don Garber on M.L.S.’s Past, Present and Future, N.Y. Times (Aug. 3, 2019), https://www.nytimes.com/2019/08/03/sports/soccer/don-garber-mls.html; Neil DeMause, Is MLS A Ponzi Scheme?, Deadspin (Aug. 4, 2017), https://deadspin.com/is-mls-a-ponzi-scheme-1797509617.