Major League Soccer (MLS) 2016 season ended last weekend with Seattle Sounders winning the MLS Cup Final. The league has, once again, set a new attendance record and, as a result of the growing number of globally-recognisable stars, attracted greater interest from the international media. However, in its 21st season, MLS is still, as defined by its commissioner Don Garber, in “investment mode”.
Despite the reported losses – the league’s franchises do not make public their financial statements - the race to join MLS seems to be more competitive than ever. While new clubs for the 2017 season, Atlanta and Minnesota, paid franchise fees of around USD 100m, the league’s president and deputy commissioner, Mark Abbott, explained last August that fees for future teams could be "as high as USD 200m". This is in stark contrast to the modest sum of USD 10m paid by Toronto FC back in 2007.
What makes the prospect of MLS so enticing? In this article, the KPMG Football Benchmark team provides further insights on the current status of the North American top-division.
Back in 1996, the first MLS season started out with all 10 founding franchises sharing their home grounds with a team from another sport or using facilities not designed for soccer. However, much has changed since the construction of Columbus Crew SC’s Mapfre Stadium in 1999, the first soccer-specific stadium in the United States. In the 2016 season 13 of 20 teams played their home games in soccer-specific stadiums and the figure is set to increase as Orlando City SC will move to a newly-built ground in 2017.
In 2016, the MLS regular season attracted an average crowd of 21,692 per game, breaking its record and registering figures comparable to Italy’s Serie A and France’s Ligue 1. Modern and soccer-specific stadia, the inclusion of expansion teams in key market and the improving standards on the field of play, have undoubtedly had a positive impact on attendances. Indeed, the important role played by expansion franchises in driving-up crowds is demonstrated by the fact that none of the top three teams by average attendance (Seattle Sounders, Orlando City SC and New York City FC) are founding members of the league. Moreover, it is notable that Seattle Sounders, with over 42,000 supporters at their home games, have topped the MLS crowd list every year since joining the league in 2009.
In terms of broadcasting rights, MLS differs from European leagues as it sells its national broadcasting rights together with those of the US Soccer Federation and, in addition, franchises are also allowed to license their broadcasting rights locally. At national level, this strategy arguably pushes up the value of the package as ratings confirm that, while American soccer fans still prefer foreign competitions, they do unite to watch their national team.
The latest eight-year broadcasting deal (2015-2022), signed with three broadcasters (Fox, ESPN and Univision), is reportedly worth a combined USD 90m per year. Despite representing a significant increase over the previous deal, when compared to European competitions, the new figure is only marginally above the reported domestic broadcasting deal of the Dutch Eredivisie. Moreover, the league’s TV ratings are still far from those of Liga MX - demonstrating the importance of demographics - and the English Premier League.
Aware of this strong competition, MLS is pursuing a strategy to increase spectator attention, creating fan habits (appointment viewing) and initiatives such as Decision Day (last regular season round) and Rivalry Week (a round of fixtures where only “derbies” are played), which all provide additional commercial opportunities.
Despite lower viewership figures, MLS’ ability to engage a young and diverse fan base provides an attractive proposition to the league’s commercial partners. In this respect, the commercial landscape for MLS is again very different as major deals such as kit supplier sponsorships are negotiated at league level. For example, as a result of the league’s eight-year deal with Adidas, the German firm became the kit provider for all franchises. Conversely, MLS also establishes geographical restrictions on the marketing efforts of its franchises.
At franchise level, it is interesting to note that, as evidenced by four-time MLS Cup winners DC United, follower numbers are not fully aligned to on-pitch success. By contrast, New York City FC and five-time champions LA Galaxy, teams from the large New York and Los Angeles markets with a host of international stars in their squads, enjoy the highest following.
League structure and salary cap
The structures of other principal US sports have naturally influenced MLS. As with NFL or NBA, MLS has an ethos of supporting financial stability. This is achieved by operating a closed league where there is no threat of relegation and a salary cap that encourages efficient cost management.
However, despite the USD 3.66m salary cap (2016 season), franchises can benefit from a number of rules, most notably the three slots for Designated Players, to exceed this soft limit.
Indeed, Toronto FC, this season’s MLS Cup finalist and leader in terms of total compensation, spent five times more on players’ salaries and bonuses than FC Dallas, who had the lowest outlay. Surprisingly, this is closer than expected to the difference in personnel costs between Premier League clubs, where, in the 2014/15 season Chelsea spent 7.4 times more than Burnley.
However, in the case of MLS, the distribution of player salaries reveals a very large disparity. The top 20 highest-paid footballers in the league, representing just 5% of total players, earned over 43% of the combined payroll of all teams. This is aptly illustrated by the case of Kaká (the highest earning player) who had a higher salary in 2016 than the total payroll of 14 of the 20 franchises.
As a result of these imbalances, the correlation between investment in squad and on-pitch success is less accurate than with European leagues. Even though last season’s figures confirm that investment in players does make a difference - the 12 teams that made it to the playoffs spent on average USD 10m on total player compensation, whereas those that failed to qualify spent only USD 6.8m - the case of FC Dallas shows that different strategies can prevail. The franchise from Texas won the regular season (Supporters’ Shield) and the cup competition (Lamar Hunt US Open Cup) in 2016 with the lowest total payroll.
The new expansion franchises, the continuous arrival of household names, the upward trend in average attendance and the growing international recognition demonstrate MLS’ potential for further growth in the years ahead. However, while MLS’ structure does have its attractions for franchise owners, it also limits the league’s ability to attract the top players required to continue raising the quality of play.
Thus, attracting world-class players earlier in their careers and developing quality domestic talent will be key areas of focus on the league’s efforts to become competitive on a global scale. For now, the presence of the likes of Sebastian Giovinco (Toronto FC), Giovani Dos Santos (LA Galaxy) or Nicolás Lodeiro (Seattle Sounders), the assignment of league funds aimed at attracting players that earn USD 0.45-1m (Targeted Allocation Money) and the partnership with the United Soccer League, where various franchises now have a reserve team, are good examples of progress in this direction.
Further investigation into this and related topics, as well as analysis of industry data, can be undertaken for you by KPMG Sports Advisory Practice. Our subject matter experts can also assist stakeholders in assessing and interpreting the potential impact on their organizations of any particular piece of research, identifying the underlying reasons behind specific trends or developing potential solutions and considering future scenarios.