Friday, April 24, 2015

Is the MLS Sustainable?

Stefan Szymanski, professor at the University of Michigan and author of the forthcoming book Money & Soccer, has written a post questioning the sustainability of the business model of Major League Soccer, The post has attracted considerable discussion and debate, as it cuts right to the issue of the long-term prospects for professional soccer in the United States.

Let's cut to Szymanski's bottom line -- after reviewing data and estimates for MLS revenues and expenditures he concludes for 2014:
Overall we arrive at an annual loss of $139 million, or just over $7 million per franchise in 2014. No doubt there are various tax write-offs to soften the blow, especially if losses can be written off against profits in other businesses. But I doubt that would make this a profitable venture overall.
He then surmises that this loss-making situation does not appear likely to change anytime soon, with its impacts softened only by the entrance fees paid to the league for new teams. The bottom line?
You can fund a loss-making enterprise from the entrance fees of new buyers for a while, but without making money, the only reason for doing this would be glory, not profits. Americans constantly tell me that owners of sport franchises in the US will insist on making money. If that really is the case, then I predict that MLS will collapse, and probably sooner rather than later.
His last statement is a conditional, predicated on the desire for owners to make profits. If owners don't care about profits, then of course, Szymanksi is not predicting collapse.

There have been two types of critiques of Szymanski's argument. One is that his numbers are wrong, and MLS is not in fact a "loss-making enterprise." For instance, @kevinmacauley writes at SBNation:
The basic argument of "Giant costs - smaller revenues = big loss, therefore collapse is imminent" only makes sense when you've actually accounted for all revenues. Szymanski hardly got started on that. When someone makes this argument while actually accounting for all revenues, maybe their argument and prediction will be taken seriously.
On his blog Szymanski responded to a similar criticism:
Well, until MLS decides to reveal the books to us we are both speculating. 
A second type of critique focuses on the longer-term prospects of the MLS. Here is an example:
This was always going to be a long term effort with return on investment delayed much longer than your typical stock market play. From an individual team standpoint, losing $5 million dollars per year, 1/20 of that $100 million, the loss is not all that significant when you factor in what these teams, or the league, could be worth 10 years down the road. A $5 million dollar loss per year is peanuts to some of the richest men in sports. Also, TV revenue tripling in 10 years isn’t a bullish thought. The numbers are so low now that it wouldn’t take much to accomplish that. This would more than cover the current losses and that’s before we factor in advertising, sponsorship and other sources of revenue that would naturally increase as well.

If MLS has done anything well, its certainly been the strictness of their cost control. A slow and steady approach has led to an extremely successful league at the ticket window. Once that transfers to television, the sky is the limit.
Arguments about future revenue growth reflect hopes and dreams as much as dollars and cents. The sky may indeed be the limit, and if a profit is to be made then Szymanski's conditional is off in any case. Those critiquing his argument in this manner can just ignore it, and watch the revenues grow year by year.

Here I'll offer a third perspective. Whether MLS is sustainable or not is probably the wrong question. If it is not sustainable, it will collapse -- that is a truism. But if it is sustainable, any realistic assessment of its future would be hard pressed to conclude that it is as "minor league soccer" or, as Simon Kuper recently quipped, as an "elephant's graveyard."

It is just hard to overcome the financial mathematics. Last fall at Sporting Intelligence, I wrote about the staggering wage bill gap between the MLS and the EPL:
On the 2014 [MLS] salary list are 572 players earning total wages of just over $129.5 million. This sounds like a lot of money, and it is. But in comparison to the Premier League, for example, it is small potatoes. The MLS total includes 21 clubs (for 2014 it includes Chivas USA, since folded, and partial squads for NY City FC and Orlando City FC, both being formed). Yet their total wage bills combined equals about the same as the wage bill for Queens Park Rangers ($126 million) in 2012-13, the most recent year’s data available.

In 2012-13, six Premier League clubs each had wages bills well in excess of the entire MLS, with Manchester City topping the list at $376 million (for all club staff). The wage bills for the top 20 clubs in England were almost $2.9 billion combined. For the bottom 20 payers across the Premier League and the Championship it was about $750 million.
The total payroll of the MLS is about 1/15 that of the NHL (data from my new book). Right now the MLS is to global soccer what the Russian professional hockey league is to the NHL -- interesting domestically, but not a threat to the world's top league in any way.

Perhaps there is a way to make MLS more major. Along these lines, Szymanski has previously made an interesting suggestion:
I think the only way around this conundrum is for MLS to become a minor league for Europe and for European teams to buy up MLS franchises. European teams already employ the talent that would make MLS attractive and the big clubs have more talent than they put on the field. Manchester City’s acquisition of the new New York City FC franchise is surely a logical step. Of course, European teams could just loan players to MLS in the same way that they do in Europe, but then there’s the worry that the borrower will not take good care of the asset.
This might be branded as a 2nd-tier Champion's League of sorts, as the clubs with the assets to invest in a minor league farm team would likely overlap significantly with regular Champion's League squads. Such a strategy would also have the advantage of not denying the MLS status as a minor league, but instead, exploiting that fact as a feature.

All this aside, it is great to see Americans debating the MLS, its status and its future. However, in terms of development of soccer talent in the US, I think there are larger issues elsewhere -- like the NCAA, but that will have to await a future post.

Wednesday, April 22, 2015

English Political Constituencies by Football League

Via Philip Cowley, Professor of Parliamentary Government, Nottingham University.

FYI: Red =  Labor, Blue = Conservative, Yellow = Lib Dem

Thursday, April 16, 2015

Poisoned Spikes

Above is the full documentary shown on Kenyan TV channel Citizen Television which claims systemic doping in Kenyan athletics.

WADA has issued a statement here.

Thursday, April 9, 2015

Transparency International on Sport Corruption

Transparency International, a global anti-corruption NGO, today has launched a "Corruption in Sport Initiative." They explain what they are up to:
Sport is a multi-billion dollar business engaging billions of people. It is also a global symbol of fair play and a source of great joy for many people on this planet, whether participating, attending or watching events.

With so much public involvement, political influence and money at stake, corruption remains a constant and real risk. Mounting scandals around match-fixing, major events and elections, and systemic deficiencies in sports governance are now so undermining public trust that it is reaching a tipping point.

Keeping sports clean is therefore a global imperative. Our goal is to ensure that sport can continue to “create a way of life based on (…) the educational value of good example and respect for universal fundamental ethical principles” (Olympic Charter).
At the core of the initiative is a major report on sport, which will eventually be comprised of more than 50 (!) chapters on various aspects of corruption and sport. (I am an author of one of these chapters.) Of note is that TI is including the NCAA as a focus in its report.

Five of these chapters have been put online today (available here), including one by Jean-Loup Chappelet, a Swiss academic and dean of scholars on the Olympic movement.  The TI initiative is using a Twitter hashtag #sportintegrity and has a companion set of pieces on the TI blog. You can also find there an interview with Jens Sejer Andersen, international director of Play the Game.

As a participant in the TI effort, I have been extremely impressed with their commitment to accuracy and quality in the preparation of the chapter which I contributed - better than most any academic journal, for sure. The initiative is a significant contribution to the growing interest in sports governance around the world.

Have a look, and participate in the discussion!

Wednesday, April 8, 2015

What's Going on with FIFA and its Watches?

Trying to figure out why FIFA does what FIFA does is often a challenge. Take the ongoing saga of the Brazilian gift watches (background here and here).  In theory, this situation should provide a great opportunity for FIFA to demonstrate publicly and unequivocally its commitment to its new ethics rules. Instead, it is an issue clouded by mystery.

In the matrix above, for my own benefit, I have tried to sort through the combinations of possibilities related to whether or not FIFA has all 65 gift watches in its possession, and whether or not FIFA would claim that publicly.

As a matter of logic and common sense, it would seem that FIFA does not have all 65 watches. I cannot imagine a scenario in which FIFA has all the watches and would not admit as much (of course that might just reflect the limits of my imagination!) If this is so, it would imply either (a) that its very public ethics case against Greg Dyke was selective, (b) or that other cases remain open. If the latter, then as a matter of consistency we should expect ongoing press releases about returned watches and ethics case, as we saw yesterday with respect to Dyke. If (a) then that would really refelct poorly on FIFA - using ethics rules selectively to punish or shame.

Whatever is going on at FIFA, this episode reveals a continuing lack of transparency and a basic failure to understand the meaning of ethics guidelines and their application. As I have previously written, FIFA could make a powerful public statement by holding a press conference with the 65 gift watches arrayed on a table, and then could announce the donation of $1.3 million (their collective value) to some noble cause.

For FIFA watchers, this episode is but one of many that raises an eyebrow, but it also suggests that despite claims to the contrary, little has actually changed.

Tuesday, April 7, 2015

An Update on FIFA's Swanky Watches

Last year FIFA officials were given some swanky £16,000 watches by the Brazilian Football Association. This was a kind gesture, of course, but according to FIFA, against it's ethics rules. So FIFA asked for its watches back.

Today FIFA announced that Greg Dyke, chairman of the English Football Association, has returned his gift watch and FIFA has thus dropped ethics charges against him.

Richard Conway of the BBC asked FIFA about the status of the other 64 watches, and reports back FIFA's reply above, via Twitter and reproduced here. FIFA is apparently "unable" to account for the other 64 watches. The statement comes from Cornel Borbely, FIFA's recently installed chief investigator, who replaced Michael Garcia who resigned in protest.

This would mean that FIFA is not in fact accounting for its request that the watches be returned and appears to have been pursuing an selective investigation of Dyke. FIFA could show that it takes such ethics violations seriously by simply accounting for the improper gifts, say by laying out the 65 watches on a table at a press conference.

Also, if Sepp Blatter has not returned his watch, under FIFA's rules, he would be ineligible to participate in the upcoming FIFA election.

Monday, April 6, 2015

SNL Mocks the NCAA

In traditional SNL fashion, it's not terribly funny, but the fact that the hypocrisy of the NCAA is being mocked is noteworthy.