National Post article on MLSE & MLS

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Publication: Financial Post Business; Date:2006 May 05; Section:Business Magazine; Page Number: FPB52

ItT a k e s e a f R s a n d p a t o r , s t b e o y t a s a

p l a n h s o Ba ts a d n E n t e r ls roT i n o tn

BY DIANE PETERS

On Saturday mornings, while many people sleep in, a handful of bars across the city of Toronto unlock the door, warm up the grill and adjust the satellite dish. Fans of the English Premier League, Spain’s La Liga and Italy and Brazil’s Serie A leagues fill the tables, sometimes before 8 a.m., to watch their teams and rib rival fans. While the beer doesn’t flow until 11, the cheers are thunderous when the Flamengo of Rio score, Chelsea gets a penalty kick or Real Madrid’s David Beckham gets a yellow card.

And that’s just during regular season play. When balls start flying next month at the FIFA World Cup in Germany, entire city blocks will be given over to mayhem for the world’s most popular sport. Both are the kinds of scenes that have, for years, tempted entrepreneurs with the notion that Toronto, with its huge population of immigrants from soccer-mad countries, should be a great place to operate a professional soccer franchise. Such visions have never been matched by reality, however. Instead, when given the choice, Toronto fans seem to prefer saving their loyalty and their support for teams and leagues from their ethnic past.

But now, that status quo is in for its biggest-ever challenge. Come next spring, Maple Leaf Sports and Entertainment (MLSE), the same group that owns the Toronto Maple Leafs and Toronto Raptors, will bring to the city a new team, in a new 22,000-seat stadium, that it hopes will be enticing enough to get Old World soccer fans off their bar stools and into its bleachers. Given that both the Leafs and Raptors are currently watching the playoffs from the sidelines, the MLSE braintrust, led by CEO Richard Peddie, also has to hope that its team — the only Canadian franchise in the 10-year-old, New York-based Major League Soccer (MLS) circuit — will have more luck in the standings. That won’t happen overnight. But while the inability to win championships doesn’t seem to be hurting the Leafs in the pocketbook, it’s a safe bet everything will have to go right on the soccer front if MLSE hopes to make money on the team rather than lose it.

Of course, as with all things to do with privately held MLSE, it’s easy to question the ultimate plan. The company’s start-up investment in the franchise and stadium is only about $30 million, pocket change for a business its size. So unless the team is so bad or so much of a money pit that it’s an embarrassment, MLSE may not need it to be profitable. For sure, the mere act of bringing soccer to town is already making MLSE a darling of soccer associations and the city government. It also gives it an all-seasons footprint on the local sporting scene and further shuts out other contenders. Who knows? The whole venture might be as much about bolstering other revenue streams and locking up the local market as it is about ticket sales and winning on the pitch.

FOR THE MOMENT, though, the talk is about soccer, as Peddie and his executive team gather in the CEO’s Leafs-decorated office in the Air Canada Centre, home to the Leafs and Raptors. Tom Anselmi, executive vice-president and chief operating officer, sits straight, talks serious and brings a business card. Paul Beirne, director of business operations for the new team, plays the young guy, brimming with energy for the game itself. Peddie slouches, fiddles with his glasses and gives his take in a relaxed drawl. “We fully expect this to be a home run,” he says. “It won’t be an immediate one, but 10 years from now, absolutely.” According to Peddie, the company hopes the new team — whose name will be selected later this month — will turn a profit in three or four years and win a championship in five. He also believes that soccer could reach the level of hockey and basketball in terms of fans, advertising and franchise value.

In order to churn out these future profits, the company must first draw people to the game. “We’ve got to get out there and really engage clubs and associations,” Peddie says, noting that there will be no big windfall from corporate boxes. Instead, the company plans to price tickets cheaply (probably less than $20), promote the team at kids’ soccer games and pack the stands via group sales. As for the TV soccer lovers? “The European soccer fan that has a relationship with a club back home is more of a secondary market,” says Anselmi. “They mesh, they overlap,” pipes in Peddie. Indeed, MLSE seems to have subtle hopes of wooing Old World fans by hyping its players’ ethnicity. Peddie says his dream team would be a roster of second-generation Canadians, one each from Italy, Portugal, the U.K., Jamaica, Brazil and Greece.

Both men agree that fans of all kinds will demand a stellar team. A new, soccer-specific facility is nice, but what’s on the field will have to be on par with international play. Anselmi would also like some trophies, something MLSE’s existing teams aren’t delivering. “The reason we do sport is to win,” he says.

Beyond ticket sales, the stadium itself — currently in the early stages of construction on the city’s Canadian National Exhibition grounds — is a source of multiple potential revenue streams. While the city will own it, MLSE chipped in $18 million towards its total $72.8 million price tag in exchange for the right to manage the facility (worth $200,000 a year), naming and sponsorhip rights (potentially worth $100 million over a 20-year term), a sweet deal on rent (just 7% of the gate) and revenue obtained from on-field advertising.

The team’s prospects are also tied to the fortunes of the entire league. And there, things are also looking up. Launched in 1996, the MLS is bankrolled by several wealthy team owners, while every team also kicks in an average US$2.5 million annually to help out. Total MLS losses from day one are reportedly as high as US$350 million, but last year it helped reverse that drain when it signed a 10-year sponsorship contract with Adidas worth an estimated US$150 million. More teams are now showing profits and, last March, New York City’s MetroStars were bought by Austrian energy drink maker Red Bull in a deal that MLS president Mark Abbott says is worth well over US$100 million.

It’s still a stretch, but if the sport does grow to the level of basketball or hockey, the league is set up so player salaries and economic inequities between franchises don’t get out of hand. MLS operates under a single-entity structure with team owners acting more like investors than franchisees. The league pays all the players directly (the average salary is about $100,000) and even sets out a player budget for each team, avoiding the rich-versus-poor battles that occur in many leagues. As well, management has a collective bargaining agreement with players to 2009.

PERHAPS THE PROSPECTS really have changed for North American soccer. If the MLSE’s team is to succeed, they’d better have. Up til now, professional soccer history in Toronto — and Canada — is a timeline of launches and flops.

The only current contemporaries are Canada’s three teams in the United Soccer Leagues (USL) first division. Based in Montreal, Vancouver and Toronto, all are struggling to some degree.

The Montreal Impact fares the best: It makes $200,000 a year, but does so as a non-profit that garners considerable government and corporate money. It sells single tickets for $5 and a season pass for $25. Its new stadium should open next summer. The Vancouver Whitecaps, meanwhile, lose $100,000 a year. That franchise is trying to reverse its slide with considerable investment from its wealthy owner and a new stadium due in 2009.

Faring the worst of all is the Toronto Lynx. The team draws just 2,500 fans to games — that’s all its run-down stadium can hold — and owner Bruno Hartrell estimates he has lost $5 million in the 10 years he and his wife Nicole have run the team. “We keep hanging on. You’ve got to claw at it to make it work; you make your money in pennies,” says Hartrell.

These managers agree that with soccer’s slim — or non-existent — profit margins, MLSE may never make back the US$10 million franchise fee and annual US$2.5 million donation to the league. “Even before you kick a soccer ball, you’re shelling out money,” says Joey Saputo, president of the Montreal Impact. Also, MLSE will be denied access to one great income stream — transfer fees paid whenever a top player is “bought” by a European league team. In the case of the MLS, this money stays with the league. (The most impressive example is the US$4 million it got from Manchester United for goalkeeper Tim Howard in 2003.)

Saputo also warns that Toronto’s ethnic communities will ignore MLS. He thinks they’re too spread out and enmeshed in their own soccer clubs. Meanwhile, Hartrell says few kids who play soccer have passion for the game. Parents see it as babysitting and won’t pay to sit in the stands. “Unless they put hockey players on the team, they’re not going to get the people they think they’re going to get,” he says. “They have to learn how to sell a ticket.”

That could be the rub. Beyond hockey, selling tickets has been a challenge for MLSE lately. Last season, it moved its American Hockey League farm team, the Marlies, from St. John’s to Toronto. But the Marlies’ average attendance was less than 3,000 in its first season. “I think we took too much for granted that we could sell the Leafs, ergo we could sell the Marlies,” says Peddie. In response, MLSE has tweaked ticket prices and boosted group sales.

Saputo may be a skeptic, but he does allow that MLSE is the best candidate in the Toronto market to make soccer work. “If anyone can do it, it’s Maple Leaf Sports and Entertainment,” he says. MLS president Abbott is a fan, too. “The Maple Leafs are a tremendously impressive organization,” he says. “We believe they can translate their business in hockey and basketball into soccer.”

But then there’s the matter of MLSE’s overall objectives. It’s quite possible that it may have already succeeded before its team has sold its first ticket or lobbed in its first goal. Consider: The company’s expertise, money and promise of a team allowed the City of Toronto to finalize plans for the soccer stadium. In turn, Toronto landed a spot to host the FIFA World Youth Championship in 2007, plus filled a need for soccer field space in the city. Talk about great hometown PR. Peddie thinks soccer can help save the city’s youth from obesity and crime, a view he says Toronto’s mayor, David Miller, shares.

And the team fills other roles. Peddie says the company wants to be a “city builder,” and the stadium, along with its condo project, Maple Leaf Square, do just that. Speaking candidly, Peddie also admits: “We have aspirations to be a global leader in sports entertainment.” Others suggest the company wants to control all of the city’s sports ad dollars and could one day try to buy the Toronto Blue Jays, the only local elite team it does not control.

Peddie also allows that a slower-than-expected march to profitability won’t be a killer. Since MLSE is reportedly worth at least $1.3 billion, soccer amounts to petty cash. “We had a basketball player until recently that we paid more in a year than it cost to buy this team and we’ll re-sign Chris Bosh for more than it costs to buy this team,” says Peddie.

This much is for sure: Even if Toronto’s new soccer team never finds fans or makes a profit at the gate, it won’t go the way of the now defunct Ottawa Renegades of the Canadian Football League. Since MLSE is unlikely to bail — not with the city watching and its reputation at stake — it’s got no choice but to get grass stains on its hands and sell soccer. Enough to make a good showing, but ideally more. “It’s going to be a new product. It’s going to take time,” cautions Peddie. It’s been 39 years since the Maple Leafs won the Stanley Cup: For the sake of the world’s most popular game, hopefully success for Toronto soccer won’t take as long. B

>PHOTOGRAPHY BY LORNE BRIDGMAN FOLLOW THE BOUNCING BALL : (left to right) Tom Anselmi, executive vice-president and COO, Maple Leaf Sports and Entertainment Ltd.; Bob Hunter, executive VP and general manager, Air Canada Centre; Paul Beirne, MLSE director of business operations; Richard Peddie, MLSE president and CEO

[G-Man]

Interesting to see both Saputo and the Hartwells give such an honest take on the state of the pro game in Canada.

I agree with Saputo that just because you have X amount of ethnics in your town doesn't mean they'll show up for your local product. And parents in this country, do see soccer as babysitting. Doesn't mean just cause you play soccer- doesn't mean your going to take in a game.

And to think all that welfare money (close to 80 million) that went to MLSE when they're worth 1.3 BILLION.

1.3 Billion. Say that slow. The rich get richer and the rest of us pay their bills.

my favorite line "Peddie thinks soccer can help save the city’s youth from obesity and crime" But can it end world hunger and the rape of women?

I understand hyperbole but that statement is moronic, and if he's the guy to fill the seats...I wish the soccer scarf wearers all the best with their mls wet dream.

Hahahaha. save the city's youth from obesity! that's funny as as ****. So I guess going to pogey park will get you fit now. Or does Peddie think that the MLS team will inspire our young porkers to join youth soccer leagues and shed those pounds.

And I loved his slag of the Leafs. Never bite the hand that feeds MLStoronto.

[TOareaFan]

What is interesting to me is the quote

“We’ve got to get out there and really engage clubs and associations,” Peddie says, noting that there will be no big windfall from corporate boxes. Instead, the company plans to price tickets cheaply (probably less than $20), promote the team at kids’ soccer games and pack the stands via group sales. As for the TV soccer lovers? “The European soccer fan that has a relationship with a club back home is more of a secondary market,”

I remember a discussion on here where an MLSE representive came on soliciting ideas to make the team successful. I recall that there was a bit of a theme about not catering to kids and soccer moms but to make it a real Euro atmosphere with "ultra" sections, flares and the like. This sounds to me that they are heading in the more traditional North American approach of kids and moms! In that case, drop the Inter name (one that I actually like) and name the team after a cute animal that translates well into a furry mascot.

[TOareaFan]

What is interesting to me is the quote

“We’ve got to get out there and really engage clubs and associations,” Peddie says, noting that there will be no big windfall from corporate boxes. Instead, the company plans to price tickets cheaply (probably less than $20), promote the team at kids’ soccer games and pack the stands via group sales. As for the TV soccer lovers? “The European soccer fan that has a relationship with a club back home is more of a secondary market,”

I remember a discussion on here where an MLSE representive came on soliciting ideas to make the team successful. I recall that there was a bit of a theme about not catering to kids and soccer moms but to make it a real Euro atmosphere with "ultra" sections, flares and the like. This sounds to me that they are heading in the more traditional North American approach of kids and moms! In that case, drop the Inter name (one that I actually like) and name the team after a cute animal that translates well into a furry mascot.

[Guest Jeffery S.]

quote:Originally posted by TOareaFan

What is interesting to me is the quote

“We’ve got to get out there and really engage clubs and associations,” Peddie says, noting that there will be no big windfall from corporate boxes. Instead, the company plans to price tickets cheaply (probably less than $20), promote the team at kids’ soccer games and pack the stands via group sales. As for the TV soccer lovers? “The European soccer fan that has a relationship with a club back home is more of a secondary market,”

I remember a discussion on here where an MLSE representive came on soliciting ideas to make the team successful. I recall that there was a bit of a theme about not catering to kids and soccer moms but to make it a real Euro atmosphere with "ultra" sections, flares and the like. This sounds to me that they are heading in the more traditional North American approach of kids and moms! In that case, drop the Inter name (one that I actually like) and name the team after a cute animal that translates well into a furry mascot.

I think that they considered the kind of response they got here and from supposed fan groups and decided it was not the way to go. Or maybe they saw that video of Red Bull fans visiting DC and got scared off.

In any case, the MLS rep who came onto this board is one of the people mentioned to be sitting around the table in this article. So I suppose he is in the picture too.

It is one of the best researched pieces of journalism we've seen on the question. Lots of views, some pretty silly, others at least to make you think. But the writer did her job. I quite appreciated seeing a piece that was not cut short by a fearful editor, that got into things in some depth.