Forbes’ annual Major League Soccer revenue and team value analysis is out, and a couple of things are clear from it: One, MLS teams are soaring in value, with several teams being sold all or in part at prices that would value them at more than $400 million. And two, there is no good reason for these prices, as Forbes points out in classic Forbesese:
Those aren’t the sorts of prices a sports banker would arrive at given the financial performance of a typical MLS team. In fact, we estimate that, of the 23 teams that played in 2018, just six turned a profit (and half of those were just barely in the black). Altogether, the league’s teams lost more than $100 million last year. And MLS is losing even more money at the league level—as a single-entity operation, player salaries are paid through the league office—which means team owners are on the hook for a sizable capital call in addition to the red ink in their local markets.
This is the kind of financial picture — soaring team sale prices amid massive annual losses — that had me asking whether the league isn’t effectively a Ponzi scheme, where the league’s bottom line is only being kept afloat by annual infusions of new expansion fees. Forbes suggests a couple of other possibilities for what’s at work here, neither of which are too promising:
- MLS’s national TV deals expire in 2022, and the league could be hoping to significantly increase its current $90 million annual take, which would put a dent in that $100 million–plus in yearly losses. MLS TV ratings are up, though still a tiny fraction of even the NHL, so we’ll see how that goes.
- Ownership of an MLS team also gets you a share in Soccer United Marketing, which runs all other soccer in the U.S. (Concacaf, international friendlies, etc.), and which turns about a $125 million annual profit. That’s probably still not enough to put MLS as a whole back in the black, though, depending on how much those league-wide losses on salaries are (total MLS payroll is just under $300 million a year). And it’s certainly not enough revenue to justify $400 million team values.
So what we have here is a picture of a league where owners are overpaying for teams on the basis of (nonexistent) current profits, but are hoping that if the league loses money for enough years, eventually it’ll grow to the point where it starts making money. We’ve seen this model before, and very recently: It’s WeWork, and Uber, and every other go-big-or-go-home money-losing business that is trying to parlay losing lots of money fast into eventual profits. It’s not quite a Ponzi scheme, as there’s a light at the end of the revenue tunnel beyond just finding new suckers — except the light may only exist in the imagination of the company founders, and suckers may be needed eventually regardless.
Note that this does not mean that MLS is going to go spectacularly bankrupt or anything, though if the cable sports bubble finally bursts before 2022, the league could have a rude awakening when it goes to cash in on new TV contracts. It does mean that many of those billionaires buying up MLS franchises in hopes that eventually they’ll make enough money to justify those crazy purchase prices could be in for an unpleasant surprise; at least, unless they can find another billionaire desperate to enjoy the thrill of sports ownership to pass their teams off to in the meantime, which seems to be what passes for a business model all over the American economy these days. There’s a reason why this is currently my favorite newsletter.