NFL

If MLS Is a Ponzi Scheme, Taxpayers Will Get Left Holding The Bag

The league's finances and its competitive structure suggest only suckers would buy-in right now. Unfortunately, many taxpayers may not have a choice.

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Ian Johnson/Icon Sportswire DCD/Ian Johnson/Icon Sportswire/Newscom

Cincinnati, Ohio, has a modestly successful minor league soccer team, FC Cincinnati, which shares a stadium with the University of Cincinnati football team.

Within the next two years, though, the club hopes to join Major League Soccer, the top tier professional league in the United States. To get there, FC Cincinnati will have to beat out 11 other cities that have applied for the MLS expansion in 2020.

Winning the bidding process will likely require taxpayers to agree to fund a new soccer-only stadium for FC Cincinnati. The price tag: about $200 million, at least half of it coming from public sources, the Cincinnati Business Courier reports.

But before Cincinnati—or Charlotte, Detroit, Nashville, Phoenix, or any of the other cities bidding to join MLS—agrees to put-up public financing for a new stadium, officials there might want to take a good, hard look at the financial health of the league they are attempting to join. Because, right now, MLS resembles something a little like a Ponzi scheme.

The league is losing money every year, Commissioner Don Garber acknowledges, even though he's declined to provide specifics. Meanwhile, weirdly, the value of individual franchises is climbing fast. The most recent Forbes' analysis of MLS teams found that the average franchise is now worth $185 million, a 400 percent increase over the average value of a team in 2008.

"That business model and this financial trajectory suggests that MLS's sea of red ink is either a loss leader or a Ponzi scheme," Neil deMause, author of the book Field of Schemes, writes at Deadspin this week, "and it's not always easy to tell the difference between the two until it's too late. Several sports economists, though, aren't optimistic."

DeMause suggests a big part of the explanation might be MLS' rapid expansion.

From its formation in 1996 through 2004, MLS had somewhere between eight and 12 teams scattered around the country. By 2010 membership had jumped to 16, and four more teams were added by 2015. With the addition of Atlanta United and Minnesota United (soccer desperately needs a wider selection of team names) this year, there are now 22 franchises in MLS.

The league reportedly has plans to expand to 26 teams by 2020—that's where Cincinnati, Charlotte, and the other bidders come in. Each new team pays an "expansion fee" of $150 million to the league, to be split among the other owners. And each new team is supposed to bring its own soccer-specific stadium with it, meaning taxpayers are generally part of the transaction, whether they want to be or not.

Since MLS continues to struggle with TV ratings—which drive advertising, which allow other major professional sports leagues to make big money today—and with attracting high-level footballing talent, the long-term viability of the league is questionable, deMause writes.

"If you can't make money either of the old-fashioned or sustainable ways, you might as well recruit a new batch of suckers to boost your bottom line in the short run," says deMause. "It also helps to explain MLS's otherwise puzzling insistence on making a brand-new, soccer-only stadium a primary condition for anointing new franchises."

Even compared to other American professional sports leagues, Major League Soccer operates with a stunning degree of socialism. While other leagues use salary caps or luxury taxes to impose parity, and all leagues use some form of revenue-sharing to balance smaller and bigger market teams, they at least allow the franchises to negotiate salaries directly with players and try to offer the most money to a prospective free agent.

In MLS, players sign contracts with the league and are then allocated to each of the different franchises.

No surprise, then, that the best players end up in New York and Los Angeles, or in places like Seattle and Toronto where soccer is weirdly super-popular. All the teams are supposedly equal before MLS. Some teams are just more equal than others.

It happens in other sports too. It might be unfair the New York Yankees and Los Angeles Dodgers can spend more money than other professional baseball teams. It's a whole different sort of unfair when the league is deciding which teams get the best talent and which don't.

If you're a fan of your MLS team in Minnesota, and you're being taxed to support a stadium project for a new or existing MLS franchise, you'd probably like to know that your team has a chance of competing with a New York. That will never happen because the league is structured so it will never happen.

The league contends once soccer is better established in America and MLS takes its rightful place among the top tier professional leagues in the rest of the world, there will be enough talent for all teams to get some superstar players. There's no reason to believe that day is coming anytime soon. The average team in the English Premier League paid $121 million in salaries last year, while the entire MLS paid just $99 million to its players.

And if everything goes belly-up before MLS claws its way to the top, guess who gets left with nothing?

"For most big-market teams and early adopters, even if the expand-o-ganza goes south, it's a fair bet they'll be left with a chair when the music stops—franchises like New York and Los Angeles should be safe and potentially profitable, even if the likes of Raleigh or Nashville might be screwed," deMause says.

No city should build a new soccer stadium for an MLS franchise until the league is more up-front about its long-term financial plans—and until it agrees to allow franchises to compete with one another, rather than serving as subordinate parts of the whole.

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  1. “To get there, FC Cincinnati will have to beat out 11 other cities that have applied for the MLS expansion in 2020.”

    Correct me if I’m wrong, but FC Cincinnati is a “team”, not a city. And they are trying to beat out 11 other “teams” to be accepted into the big leagues.

    I assume one of the requirements is that the “team” have an independent stadium of a minimum size.

    I know the city of Cincinnati may well get involved at some point, but that isn’t a requirement of the deal is it?

  2. No city should build a new soccer stadium for an MLS franchise until the league is more up-front about its long-term financial plans?and until it agrees to allow franchises to compete with one another, rather than serving as subordinate parts of the whole.

    So once MLS is more up-front and changes a few rules you’re cool with taxpayers getting screwed on soccer stadiums just like they get screwed on football and baseball stadiums? What happened to you, man?

    1. No city should build a new soccer stadium for an MLS franchise or any team of any sport.

      There, I fixed it.

      1. Almost all MLS stadiums are privately funded. My hometeam orlando, our stadium is privately funded. Everything this guy said in this article is rubbish. MLS cannot be a ponzi scheme if owners are privately funding their own stadiums.

        1. I’m going to research this but I don’t think you’re correct.

          1. As of May 19, 2015 tax payers funded 12 of 15 soccer specific stadiums:

            http://m.startribune.com/april…..301011471/

        2. Stewy they’re not privately funded. They may give the money a label like “sewr and street improvements ” but those are costs to the stadium. Cities charge home owners 5 figures for sewer hookups. And for what? Not charging the new stadium for one? That in itself is a subsidy.

    2. Had the same thought. Would like to see him clarify that point.

  3. until it agrees to allow franchises to compete with one another, rather than serving as subordinate parts of the whole.

    This is a complete misunderstanding of where the actual value of sports teams arises. No sports team has a value on its own. It is only valuable BECAUSE of its schedule of games with other teams – and only the league can ‘own’ that schedule in any real sense.

    The problem with MLS and other sports leagues in the US is that the leagues are always merely a cartel of individual teams – but a cartel that can actually survive long-term because the cartel itself is what provides the value. Unlike other countries, those leagues themselves don’t have to compete with other leagues at different levels. Nor do they cooperate in a general sense to create a promotion/relegation type of system that would allow cities to create a non-cronyist type of entertainment/recreation ‘infrastructure’.

    1. No, sports teams as clubs do have value on their own, because of their potential to schedule contests vs. each other. If you look beyond the major leagues, you see clubs jumping from league to league a lot in the USA. The leagues themselves are often ephemeral. It’s only in the majors that you see the franchising concept, and it’s a crooked deal, but lucrative.

  4. It’s not a Ponzi scheme if they’re accumulating assets?and the player, advertising, & TV contracts they’re getting are assets.

    I’m interested in what the franchisees own. Nothing wrong IMO w a business model that is, as you say, “socialistic”. If I ran a team sports enterprise, I’d do it as a league as a single biz entity, parceling out the players & other assets. People could own stock in the whole thing, but the teams would not be clubs, they’d be divisions of the whole. There could still be some “intrapreneurship”, though, with performance bonuses. Communism’s not a bad model for a big biz. In fact I see no fair way to run a league fairly in a franchise relationship, so for this sort of enterprise communism’s better.

    I do think it’s possible to run a league fairly in a contractor relationship with clubs?not franchises owned by the league, but with the league serving purely as an association to facilitate the clubs’ business. The league would have very little in the way of assets, & clubs could pull out any time & lose practically nothing.

    In between communism & association, though, a franchise relationship is a kind of fascism, w politics & winners & losers.

  5. Who cares how the league is run? (Who cares about ‘professional’ sports?)
    The taxpayers should only care that there are NO public funds involved in any way.

    1. Amen. Making a profit or being a wise investment doesn’t mean that it is ok to spend tazpayer money for
      enterrainment.

      MR. Boehm, any chance of writing about the MN legislature & govenor Dayton bending over backward to get the money MN United FC wanted for their real estate project that includes a stadium? They bent right over for those guys making what they gave Digikey and others look like nothin

  6. officials there might want to take a good, hard look at the financial health of the league they are attempting to join

    Or, even, a good hard look at the budget they’re attempting to illegitimately spend from. Or maybe a good hard look at the non-existent legal codification that permits spending tax-dollars on special interests.

  7. A libertarian* owns my team.

    I am an original season ticket holder for the Seattle Sounders. When Seattle joined the league in 2009 the expansion fee was $30 (or $35) million. Each season the club (in its current form) has led the mls in attendance averaging over 40,000/game – though that streak may be in jeopardy given Atlanta’s popularity. the fan base in Royal Brougham Park (or Paul Allen taxpayer stadium -AKA the Clink) has, imo, been largely responsible for these skyrocketing expansion fees. the entire league would like to replicate what we have here.

    Gameday revenue for a Seattle game probably approaches $2 million (back of the envelope estimate). 17 dates. Jersey sales top mls, and the team is currently renegotiating it’s kit sponsorship seeking to double the current amount Xbox pays to $10 million. Total player payroll is around $10 million.

    i’m not buying Don Garber’s claims (or the author’s) that this league is losing money. some franchises struggle and should probably be moved – see below, but I believe their are enough profitable teams in this revenue-sharing league to make this single-entity system flourish.

    Over expansion killed the old North American Soccer League (anyone remember the Tulsa Roughnecks or Team Hawaii?). I worry that is the path the league is on now.

    * – Drew Carey part of ownership group

    1. I never got the eagerness to expand so quickly particularly with start-up soccer leagues.

      I remember the NASL – Manic fan here.

    2. Tulsa Roughnecks I remember, but not Team Hawaii. I remember the NASL’s predecessor, the NSL; the NPSL I found out about only after they merged.

      What’s more interesting was the previous pro soccer boom in North America in the 1920-30s. I don’t think that soccer’s ever been bigger relative to other pro sports here than it was then. Pro soccer in the USA was big before pro (American) football, but faded. Then again, so did pro boxing. In fact from the early 20th C., in the ranking of pro sports for popularity and $, only baseball retains its ranking. In addition to soccer & boxing as sports that lost ground since then, there was also the freakish example of 6 day indoor bike racing, which had an enormous but brief fad. Imagine how for American pro sports within the past century the top draws were once baseball, boxing, soccer, horse racing, and, briefly, bike racing!

      What’s funny is if you go back a little farther, tug of war was an Olympic sport. And the USA’s the only country whose team took the gold medal in rugby, the 2 Olympics it was contested in.

    3. Correction: A rep from the league stated that MLS, as a whole, is still in the red.

      Teams, like San Jose Earthquakes, have been doing the right thing and gathering non-public funds for capital improvements (building a stadium). This is a good cautionary tale article, but not ESP that any local governement will automatically do the wrong thing and split costs for new stadiums. (References: http://www.stadiumguide.com/avaya-stadium/)

      San Jose was an established team, much like Cincinnati, so they were able to fund boosters for the new stadium in advance. So should Cincinnati, if they win the bid to become MLS team.

  8. this author is the dumbest dude on the planet. He must be writing this article for soccer haters. for one, the best players are everywhere in MLS. not only in la, ny, toronto and seattle. the best players kansas city, orlando has kaka and dwyer, seattle has nagbe, atlanta is star studded, colombus etc. MLS is not the NBA. another dumb comment from this dumb writer stating that the owners want tax funded stadiums. no they dont. orlando stadium is private funded, LAFC is private funded and almost every new franchise stadium is private funded. MLS cannot be a ponzi scheme if owners are putting up their own money. this author is scared to death of soccer. we have not even scratch the surface yet. have you seen the explosive growth in the USL. Owners are making money and people are getting jobs and kids are getting off the couch and not playing video games and now playing soccer. who the hell want to be a crash test dummy for the NFL. My suggestion to this author, the next time the NFL , NBA, MLB pay you to write a negative article on the MLS, please do some research. i am just fan and not a paid journalist and i know more than you.

  9. MLS cannot be a ponzi scheme if the majority of owners are privately funding their own stadiums.

    1. “Ponzi scheme” means that profits are mostly coming from people buying into the business rather than operations. It does not mean it is not privately funded.

      1. No. A ponzi scheme is a fradulent scheme AND the _revenues_ comes from new investors. The average MLS team has more than $30M in revenue. That doesn’t include money the league gets for expansion fees.

        There’s no fraud and real revenue. I think the expansion feed are insane compared to revenue but that doesn’t make it a ponzi scheme.

        Speaking of foolishness, Las Vegas is getting a new NHL franchise. The expansion fee in itself is reportedly over half a billion.

  10. FWIW I posted this hours ago back when there were no comments. Looks teh squirrels ate it.

    “the top tier professional league in the United States.”

    It’s almost as if Canada is not part of MLS!

    /sensitive Canadian.

    “…or in places like Seattle and Toronto where soccer is weirdly super-popular.”

    Soccer has always been popular on the West coast (including Vancouver) as far back as I can remember – as far back as the 1980s. As for Toronto, it’s not that surprising either, it’s totes-multicultural:

    http://bit.ly/2vT8NM3

    As for my hometown of Montreal, we’re just plain weird. That I grant you.

    1. You know we let Canada claim to not be part of the USA just to humor Canadians.

    2. And somehow St. Louis got to be a soccer hotbed. Who can figure these things? Like Pittsburgh for women’s football.

  11. Holy shit, is it too much to ask to have a somewhat informed person write for Reason?

    Fuck stadium subsidies, but this post largely misrepresents MLS’s business model and its success.

    1. It’s a lot healthier than NASL that’s for sure.

    2. Thank you! Had the same thought.

    3. Demo, even worse they do not know what a ponzi scheme is. It’s as silly as these dolts that invoke nazism for anyone who says something they don’t like. Apparently.our mixed economy is plagued by systemstic ponzi culture.

  12. You can tell how popular kick-ball is in the US by the number of posts here.

  13. AKA Euro floppy knee grab….

  14. “It also helps to explain MLS’s otherwise puzzling insistence on making a brand-new, soccer-only stadium a primary condition for anointing new franchises.”

    This is not exactly factual. Atlanta United, one of the two newest teams, will be sharing Mercedes-Benz Dome with the Atlanta Falcons. The dome is constructed so that they can change configuration between football, and, well, football.

    And as a side-note, Mercedes-Benz Dome is also majority privately financed. If my numbers are correct, only $200M of the $1.5B cost comes from hotel taxes.

    Currently, Atlanta United are sharing a stadium with Georgia Tech until construction is complete. As I understand it every game is a sell-out and Bobby Dodd Stadium holds more than will Mercedes-Benz Dome.

  15. The MLS needs relegation and promotion. Something interesting and great could grow from that.

    1. Did not relegation and promotion set up in other countries hapoen because the national governments were heavily regulating the leagues? In other words, that is a system unlikely to come yo be in s private system.

      1. No, it had nothing to do w gov’t regul’n.

        In more recent time, we’ve had promotion & relegation in women’s tackle football in North America; at least 1 league set up a 2-tier system, not sure how it’s gone recently.

      2. fifa tends to require pro/rel, but apparently there are a few countries w/exemptions. one of the reasons the expansion fees are as high as they are is there is no relegation in mls.

        $150mm for an expansion team that will likely be relegated wouldn’t fly.

        on a side note: mls owning the player contracts makes this league a bit less attractive to players and seems to require a premium. Freddie Ljungberg was Seattle’s first designated player – until he was “traded” to a dreadful Chicago Fire team. Players in this league have very little say in where they play, which differs significantly from the rest of the world. When a player like Neymar moves from Barcelona to PSG, he gets a portion of the transfer fee. When Dom Dwyer was transferred from KC to Orlando, he got nothing.

        mls is cheap and mooches as much as it can from taxpayers, and the business model is very favorable to ownership groups. in that sense, I don’t see it as a Ponzi scheme

  16. This article is a misrepresentation and gross simplification of how players are acquired by teams. Beyond that, anyone who has been to a sold out MLS game in a soccer-only stadium knows the value of it compared to playing in the empty soulless husk of an NFL stadium.

    1. There has been a sold out game in the MLS? They could never fill an NFL park.

  17. “If you’re a fan of your MLS team in Minnesota, and you’re being taxed to support a stadium project for a new or existing MLS franchise, you’d probably like to know that your team has a chance of competing with a New York. That will never happen because the league is structured so it will never happen.”

    Name all the championship teams and supporter shield teams since ’96 and you’ll see how jack-donkeyish of a thing this was to puke out into the world.

  18. “It also helps to explain MLS’s otherwise puzzling insistence on making a brand-new, soccer-only stadium a primary condition for anointing new franchises.”

    It’s not at all puzzling. As the oroginsl in Columbus shows, it’s not that expensive to build. It’s a bit like owning a house knowing that every now and then youll be able to pay the mortgage by hosting an event for someone else. Bonus they control the vertical for all the concessions.


  19. In MLS, players sign contracts with the league and are then allocated to each of the different franchises

    There is a salary cap for teams. There are a couple special categories for certain types of players. This is all set by the league. The player contracts are with the league.

    Nevertheless, The league __does NOT___ sign nor distribute players. That is up to each team. Each team has to be done within the restrictions of the structure of the salary cap and the couple of player designation types.

  20. This article is a misrepresentation and gross simplification of how players are acquired by teams. Beyond that, anyone who has been to a sold out MLS game in a soccer-only stadium knows the value of it compared to playing in the empty soulless husk of an NFL stadium.
    My recent post: Promoyze Review
    My recent post: Instant Ecom Machine Review

  21. I’m no sports fan & don’t think any grown man should be very avid about any team. But do support any enterprise that can make money & attract customers in the USA or anywhere else.I wondered how this obviously failed sport has survived even this long,now know thanks to Reason.Ponzi schemes even have a certain appeal to those who know what they are getting into.

  22. I’m wondering when all this popularity of men’s American soccer will mean that the USA actually goes deep in the World Cup.

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