Major League Soccer Economics

[Ansem]

I thought I'd create this thread since I couldn't find something similar.

This is due to La Presse who took the opportunity to follow up on the Journal de Montreal questioning the "secrecy" and "complexity" of the league's economics. La Presse used the opportunity to dig a bit deeper and explain some of the economics behind the league while covering the Montreal Impact status. I will post the full translated article with link to the article. I will also link this to CPL General thread as we can speculate on what CPL might take or leave.

Même déficitaire, l'Impact vaut 223 millions

http://affaires.lapresse.ca/economie/quebec/201708/17/01-5125220-meme-deficitaire-limpact-vaut-223-millions.php

Translation* (had to fix Google translate here and there)

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For the third consecutive season, the Montreal Impact lost money in 2016. But these losses did not prevent the Montreal team to see its value jump 30% in one year, according to Forbes. A phenomenon far from being unique through Major League Soccer (MLS): teams lost on average 1 million US, but their value is up 20%, to 223 million US. How is it possible? It is that investors are rushing to get an expansion team and believe in the growth potential of the league. Explanations.

 

MONTREAL IMPACT PROFITABLE WITHIN FIVE YEARS

In 2016, the Impact had Didier Drogba, a participation in MLS semi-finals and the largest increase of assistance (+ 17%) of the league. Yet, the team lost US $ 3 million (CAN $ 3.96 million, based on the 2016 exchange rate) on revenues of US $ 25 million (CDN $ 33 million).

According to Forbes magazine, the value of the Impact rose from 135 to 175 million US in one year. At the current exchange rate, the Montreal club is worth CAN $ 223 million. Last January, Impact President Joey Saputo said he hoped the team would be profitable within five years, in 2021.

"The Impact is in an excellent position, it was in the eastern finals last season and the enthusiasm continued the following season. Montreal made a good financial decision by not paying Didier Drogba any more, but the exchange rate did not help, because the players' wages are in US dollars, "says Chris Smith, Forbes journalist and editor of the report On the finances of the MLS, in an interview with La Presse.

 

A PERFORMANCE OF 172%

The Saputo family, the majority owner of the Impact, paid US $ 40 million (CAN $ 41.6 million according to the exchange rate at the time of the announcement in 2010) for an MLS expansion team in 2012. Family Saputo has also spent 17 million to finance part of the expansion of the Saputo stadium and 16 million for the Nutrilait training center. The other shareholder, the Fonds de solidarité FTQ, invested $ 7.5 million for a minority interest. In short, the Saputo family and the Fonds FTQ invested CAN $ 82.1 million for a team worth CAN $ 223 million, a return of 172% over seven years (2010 to 2017).

 

MLS has a deficit of 20 MILLION

Eleven of the twenty MLS teams were in deficit in 2016. In total, the 20 MLS teams lost 20 million US, or 1 million on average per team. And yet, the average value of the teams increased by 20% to reach 223 million US.

Why ? Because several cities are willing to pay 150 million for an expansion team, which are then divided among the current owners. "It's a gamble on growth," says Chris Smith of Forbes. Owners see these losses as investments for future profits. They think that when the MLS will mature with 28 teams, the league will make money and will have a better TV contract. "

 

SEVEN TIMES INCOME

If mature firms sell on a multiple of their profits, growing firms (ex: in the technology sector) are often valued on the basis of a multiple of their income. Blocks of shares within MLS teams have thus sold up to nine times revenue. Forbes evaluated the value of an MLS team according to several criteria, including a multiple of seven times its income. Thus, the Impact, which generates 25 million US of income per season, would be worth 175 million US.

 

$4.4 BILLION US

This is the total value of the 20 MLS teams. But there's more: the MLS teams are also owners of Soccer United Marketing, which manages MLS television and sponsorship rights as well as the American and Mexican soccer teams. This year, MLS bought out the shares of its minority partner in Soccer United Marketing in a transaction valuing the company at US $ 2 billion. The Montreal Impact's share in Soccer United Marketing is therefore worth approximately US $ 100 million (it will be diluted over the next few years).

 

TELE AND ADIDAS

The MLS must increase its TV audience (average in the United States: 236,000 households, compared with 467,000 households for the National Hockey League) to negotiate its next US broadcast contract. Up to 2022, the MLS receives $ 90 million per season in the US, compared to $ 200 million for the NHL and $ 167 million for the Premier League (in the US), according to Forbes. In contrast, MLS ($ 117 million per year) surpassed the NHL ($ 90 million per year) in sponsorship of clothing with Adidas. Neither the impact of Montreal nor the MLS have not commented on Forbes figures yesterday.