Friday, 12 June 2020

The Growth of Major League Soccer: Commentary, Analysis & Explanations from the Literature


By Dr Alex G. Gillett & Dr Kevin D. Tennent


Introduction

As regular readers of this website might be aware, a significant strand of our research has been concerned with the FIFA World Cup, in particular aspects of its administration and management in recent(ish) history.  Our 2018 paper ‘Opportunities for all the Team…’  published within The International Journal of the History of Sport (Gillett and Tennent, 2018) (and recently re-published as a chapter within a book: Tennent and Gillett, 2020) examined the 1966 and also the 1994 editions of the FIFA World Cup, and it is the latter which is the starting point for this article, which critically examines one sporting legacy of the event: Major League Soccer.

It has been well documented elsewhere that part of the intended legacy from the USA’s hosting of the 1994 FIFA World Cup, was to establish and sustain a top-level fully professional national soccer league.  Whilst professional soccer had been tried in the USA before (see for example the numerous books detailing the history of the NASL of the 1960s-1980s, and indeed the prior history of soccer in North America), the emphasis this time was on a financially sustainable proposition.  The outcome was Major League Soccer (MLS) and was originally planned to ‘kick off’ in 1995, to be buoyed up by the hoped-for soccer fever spilling over from the previous summer’s World Cup.

Due to various organizational problems, the MLS did not begin play until 1996, with just ten teams competing, rather than the twelve that had originally been planned for. The first season began in San Jose, as the San Jose Clash hosted the Washington (D.C.) United.  MLS is not the only professional soccer league in the U.S. and Canada; The United Soccer Leagues (USL) was formed in 1986 as an indoor league, but expanded into outdoor soccer three years later and was granted Division II status in the 1997 season by the United States Soccer Federation (USSF). 

The success and sustainability of the MLS can be claimed by the fact that the league has operated continuously since 1996 to the present date, which is longer than the previous attempt at a ‘Division 1’ caliber national league, the NASL which existed 1968 – 1984.

Deeper analysis as to the financial viability of MLS is somewhat difficult due to the amount and type of data available, the complexity of the MLS business-model, and ambiguous nature of the meaning of ‘sustainability’ or ‘viability’ in the context of soccer clubs; indeed it is common for clubs to have relatively strong brand recognition globally, but to have revenues comparable to a medium-sized enterprise such as large supermarket store.  Financial profitability is not always achieved nor is it the only or primary motive for clubs and their investors, and it is generally accepted that football clubs will often require subsidy (Gillett and Tennent, 2018; Kuper and Syzmanki, 2010).  

We now examine what academic and non-academic (i.e. business consultancy and news media) research tells us about the growth and financial viability of the MLS.


Discussion

The MLS, as a league, seeks to be profitable.  Because its model involves an ownership stake in its member clubs which are offered to investors as franchises, it has vested interest in their financial viability, or at least that these clubs are sufficiently viable to attract investors.  In 2014 the MLS stated “On a combined basis, MLS and its clubs continue to lose in excess of $100 million per year” (Abbott, 2014 cited by Szymanski, 2015) and this is still the case according to the most recent figures published; In 2019 just seven clubs reported operating income, totaling $21 million between them, whilst sixteen reported an operating loss of cumulatively £126 million (Gough, 2019) meaning that on a combined basis the clubs lost $125million (summarized in the below table):  



Table 1: Operating Income and Losses of MSL Franchises reported in 2019


Franchise / Club
Operating Income/Loss ($US Million)
Atlanta United
+ 7
LA Galaxy
+5
Portland Timbers
+4
Real Salt Lake
+2
Seattle Sounders
+1
D.C. United
+1
Sporting Kansas City
+1
Orlando City SC
-1
New England Revolution
-2
Philadelphia Union
-5
Los Angeles FC
-5
Vancouver Whitecaps
-5
Colorado Rapids
-5
San Jose Earthquakes
-5
New York Red Bulls
-6
Houston Dynamo
-6
FC Dallas
-7
Columbus Crew
-8
Minnesota United
-8
Montreal Impact
-12
Chicago Fire
-16
New York City FC
-16
Toronto FC
-19

 Source: (Gough, 2019)


However, measured by revenues, MLS reportedly ranked as the 11th ‘richest’ league in the world in 2017 with ‘average’ revenues of $32 million per club (in contrast, the top of the list was the English Premier League at £331 million per club). These revenues for clubs include a share of surplus funds from the MLS. Most revenue is generated through media and sponsorship deals as well as player transfers, ticketing, and other commercial rights, and a share of ‘expansion fees’ paid to the league by new members, until all 28 of the available soccer franchises have been purchased (Abatan, 2018).  

Increasing fees for new ‘expansion’ franchise investors do not currently appear to be driven by financial performance; the league and most of its teams continue to operate at a significant loss. Investors are thus speculating on the MLS as something to develop for a longer-term pay-off (Smith, 2019)

Longer term, the MLS seeks to enhance revenues via multiple media rights deals to sustain growth and to compete with other pro-sports in the US market.  Although reasonably popular in local television markets in regions with an established soccer base, this growth will require growing appeal on a national scale, and MLS’ aims to increase the number of teams by making available more franchises, and by attracting more ‘star’ players to boost soccer’s profile and appeal to attract more fans to the sport (Young, 2020).  There will also be opportunities to ‘boost’ soccer by leveraging the momentum of another World Cup hosted by the USA (as well as Canada and Mexico) in 2026.

As distinct businesses, the financial viability of each franchise as a soccer club is less clear, but the model is based on a collective view that they are all participants in the MLS, a competition which is a greater ‘product’ than any team individually.  However, to examine the viability of having a franchise in, let's say for example the San Francisco Bay Area (specifically, San Jose)  as opposed to an alternative regional ‘market’ we can use various measures.  

(Note: which we chose for illustrative purposes firstly because it was the host team for the inaugural MLS fixture in 1996, and secondly because we happened to be preparing some research on the team). 

One way in which to approximate is to examine average match-day attendances of San Jose over the history of the MLS, and compare with the league average. Whilst this does not provide the ‘whole story’ it offers a window into the popularity of soccer in San Jose and the wider SFBA as a live sporting attraction.

Figure 1 shows the original franchise known as ‘San Jose Clash’ reported average attendances which tended to approximately follow those of the MLS generally, albeit slightly lower in some years, and never above. That franchise was relocated and for two years the city had no team. In 2008 a new franchise was launched with the name ‘Earthquakes’ a throw-back to the team by that name which played in the NASL.  After a difficult first few years in which attendance dipped to 9,713 before increasing to a peak of 20,979 in 2015 and then staying slightly under that figure ever since, albeit gradually declining. 


Figure 1: MLS compared with San Jose Total Average Attendances 1996-2019


Solid line: MLS Total Average Attendances
Broken Line: San Jose Franchise Total Average Attendances (no franchise in 2006 or 2007)

Academic studies analyse the different influences on average attendances, to indicate that some of this growth – and the growth in revenue for the MLS generally – is attributable to inclusion of ‘star players’ such as David Beckham (e.g.  Jewell and Molina, 2005; Lawson et al. 2008).  Meanwhile, DeSchriver et al. (2016) identify how the construction of soccer-specific facilities (rather than shared multi-sport stadiums) may also allow the franchise to retain most, if not all, of the revenue generated from concessions, parking, and non-MLS events – although some examples of teams which ground share larger stadiums with other sports, have attained higher attendances (e.g. Seattle Sounders).  They also identify how the scheduling of games for weekends, and the timing of games around big public holiday of 4th July, can raise crowds.   

Perhaps the clearest factor attributable to rising attendances includes the Leagues expansion in the number of participating teams.  Literature summarized by DeSchriver et al. (2016) and also confirmed by their own study, and more recently by Love et al. (2013), indicates a type of honeymoon period exists in various sports but including for new MSL franchises, for at least 3 seasons, and there may be several reasons for this:  


  •       The novelty might attract spectators who are simply curious; 
  •     The new team’s marketing team might work harder or with more enthusiasm for a ‘start-up’ and new challenge in comparison to those of an older team; 
  •     The accuracy with which the MLS has determined the best markets for its expansion.

DeSchriver et al. (2016) also found that both the proportion of the local population that was Hispanic, and median household income, were both positively related to attendance.  Conversely, Jewell and Molina (2005) found a negative relationship between the size of the Hispanic population in a city and MLS attendance. Other variables that they found to be statistically significant with attendance included the degree of competition from other sports teams within a market, population size, the year in which the season took place, and star players (mentioned above) – in fact they found that in general,  performance of individual players’ tended to influence attendance, but team performance did not.


In Conclusion

There are many variables which might help to explain the apparent growth and buoyancy of the MLS.  Although the numbers give some indication as to why investors continue to speculate, it is useful to interpret them critically when trying to predict the future of professional national league soccer in the USA and Canada.  In particular, the recent Covid-19 pandemic has had significant effect on attendance at large-scale events, and on the jobs and income of supporters.  It is therefore difficult to predict the effect on attendances at ‘live’ events or the effect on take-up of televised and streamed events played to limited crowds or even behind closed doors, as has been the case in some countries.


References


Abatan, E. 2018 “MLS will ‘imminently join’ world’s top 10 leagues by revenue” Sporting Intelligence, June 12. Accessed 15 May 2020. https://www.sportingintelligence.com/2018/06/12/mls-will-imminently-join-worlds-top-10-leagues-by-revenue-120601/


DeSchriver, T.D., D.A. Rascher, and S.L. Shapiro. 2016. If we build it, will they come? Examining the effect of expansion teams and soccer-specific stadiums on Major League Soccer attendance, Sport, Business and Management, 6 (2): 205-227. Doi: 10.1108/SBM-05-2014-0025


Gillett, A. G., and Tennent, K. D. 2018. Shadow Hybridity and The Institutional Logic of Professional Sport: Perpetuating a Sporting Business in Times of Rapid Social and Economic Change. Journal of Management History, 24 (2):2 28–259. Doi: 10.1108/JMH-11-2017-0060


Gough, C. 2019.  “Major league soccer teams ranked by operating income 2019” Statistica, November 21. Accessed 15 May 2020. https://www.statista.com/statistics/477866/team-operating-income-of-mls-soccer-teams/



Jewell, R.T. and Molina, D.J., 2005. An evaluation of the relationship between Hispanics and Major League Soccer. Journal of Sports Economics6(2), pp.160-177.


Kuper, S. and Szymanski, S., 2010. Why England Lose: & other curious football phenomena explained. HarperCollins UK.


Lawson, R.A., Sheehan, K. and Stephenson, E.F. 2008. Vend It Like Beckham: David Beckham's Effect on MLS Ticket Sales. International Journal of Sport Finance3(4): 189 – 195. 


Love, A., Kavazis, A., Morse, A.L. and Mayer, K.C., 2013. Soccer-specific stadiums and attendance in major league soccer: Investigating the novelty effect. Love, A., Kavazis, A., Morse, A., & Mayer, KC (2013). The influence of soccer specific stadiums on attendance in Major League Soccer. Journal of Applied Sports Management5(2), pp.32-46.

Smith, C. 2019. “Major league soccer’s most valuable teams 2019: Atlanta stays on top as expansion fees, sale prices surge”, Forbes Online, November 4. Accessed 15 May 2020. https://www.forbes.com/sites/chrissmith/2019/11/04/major-league-soccers-most-valuable-teams-2019-atlanta-stays-on-top-as-expansion-fees-sale-prices-surge/




Syzmanski, S., 2015.  “So what is the MLS business model?”, Soccernomics, 23 April. Accessed 15 May 2020. https://www.soccernomics-agency.com/?p=692


Tennent, K.D. and Gillett, A.G., 2018. Opportunities for all the Team: Entrepreneurship and the 1966 and 1994 Soccer World Cups. The International Journal of the History of Sport35(7-8), pp.767-788.


Tennent, KD & Gillett, A 2020, Opportunities for all the Team: Entrepreneurship and the 1966 and 1994 Soccer World Cups. in W Vamplew & D Porter (eds), Sport and Entrepreneurship. Sport in the Global Society - Historical Perspectives, Routledge.

Young, J. 2020. “Major league soccer has a 25-year plan, but it needs to secure huge media deals first” CNBC Markets, Feb 27.  Accessed 15 April 2020.  https://www.cnbc.com/2020/02/27/major-league-soccer-has-a-25-year-plan-but-it-needs-to-secure-huge-media-deals-first.html











Friday, 15 May 2020

World Cup Animation Featuring Our Book

Our book "Foundations of Managing Sporting Events: Organising the 1966 FIFA World Cup" is featured in a new animation available on Youtube entitled "How North Korea and Middlesbrough Became Unlikely Football Friends".

The animation, which lasts around 8 minutes long, tells the story of Middlesbrough and North Korea's unlikely friendship, which begins at Ayresome Park in 1966.




The video was produced by Tifo football, and the script was written by Dr Tosh Warwick of Manchester Metropolitan University. It draws from Dr Warwick's own excellent research on the 1966 World Cup, and a comprehensive review of literature relating to the tournament, including our book, which the film describes as "groundbreaking".

Pak Doo Ik's winning goal secured the Asian minnows a place in the quarter-finals of the FIFA World Cup. There, a curiosity developed in the Middlesbrough locals, after initial disinterest in the team, and the lowest recorded match attendance in the tournament. What evolved over the games, however, was a connection that warmed the hearts of many and one that has continued into the 21st Century.


Check it out by following this link: https://www.youtube.com/watch?v=h5M7Xf3HwAs

Thursday, 7 May 2020

New Article Alert: The Rise of Marketing

A quick newsflash to announce a new text, 'The Palgrave Handbook of Management History' (Palgrave, due August 2020) print edition is available now to pre-order.  The electronic version is available now, and will be made available to anyone that pre-orders the print edition.  The book is edited by a team of top management history experts led by the editor of the Journal of Management History Bradley Bowden, as well as Jeffrey Muldoon, Anthony M. Gould and Adela J. McMurray.

Although we have not written any sport or soccer-specific content for this book, we have co-authored a chapter entitled 'The Rise of Marketing' which focuses on the era from the early 20th century until the 1980s.  This is an area of management and theory we have of course written about in papers published elsewhere, about marketing and soccer clubs and the world cup.  

Kevin has provided another couple of chapters on 20th-century management, focusing on the work and impact of the paradigm creating business historian Alfred D. Chandler, as well as a chapter about the history of strategic management writing, and edits a section of the book focusing on the history of management between 1940 and the 1980s, a period considered the height of modernity.  Other authors who appear in the section include Jim Philips writing about Industrial Relations, Alice White discussing the rise of Organizational Psychology, Kaylee Boccalatte and Bradley Bowden on Keynes' rivalry with Hayek, and John Quail, focusing on the struggles of British management after World War Two.  This will be a useful contextual section for sports historians to draw on.

The book more broadly contains chapters by the editors and other scholars on both classical topics for management historians including (but not limited to) the industrial revolution, the impact of Ford and Taylor, and the Tavistock Institute. It looks at a broad selection of less well-trodden periods and geographical contexts too, from antiquity to the medieval, and early modern, from China and Russia to Africa.  There is likely to be something of interest to everyone in the book!  Click here to see a list of chapters already finalized.




  •  “The most comprehensive and in-depth examination of its subject matter in the market place.
  • - Spans management history thought and traditions
  • - Maps the discipline both temporally and geographically
  • - Engages with pre-modern ideas and post-industrial concepts


Overall, it is an extensive reference book of around 1200 pages, and is priced to appeal to libraries rather than individuals.  The chapters are useful summaries which can get students up to speed on a variety of topics.  So if this looks interesting to you please request to your university librarian that they purchase for their collection:

Click here to find out more (and please share this link with your friendly librarian/library purchasing officer): 9783319621135