Wednesday, March 4, 2015

Report: Philadelphia Union franchise value is $90 million

For the first time in five years, Forbes has calculated the franchise values of all of the teams in Major League Soccer.

Report: Philadelphia Union franchise value is $90 million

(Ron Cortes/Staff file photo)
(Ron Cortes/Staff file photo)

For the first time in five years, Forbes has calculated the franchise values of all of the teams in Major League Soccer.

As MLS has grown, this is something that a lot of observers have been waiting to see. The last figures were compiled in 2008, when the league had 14 teams instead of the current 19. Seattle, Philadelphia, Portland, Vancouver and Montréal had yet to join the league. Those five teams have done a lot to raise MLS' profile. So it was getting to be time for some new numbers, and now we finally have them.

Although MLS and its clubs are notoriously secretive about their financial data, the report provides data on revenue and operating income for each club in the 2012 season. Forbes does not disclose much publicly about how it reached its figures, except to say that “operating income is team earnings before interest, taxes, depreciation and amortization,” and that “valuations are based on multiples of revenue, using recent transactions as a guide.”

That same principle goes for Forbes' studies of National Football League, Major League Baseball, National Basketball Association and National Hockey League teams. Those reports are well-regarded across the sports industry, so it's fair to also take the analysis of MLS teams as being reasonably accurate.

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Forbes values the Philadelphia Union at $90 million, which ranks No. 11 in the league. The Union's total revenue was $21.4 million, and the team banked an operating income (i.e. profit) of $1.1 million. Those figures rank 13th and 9th in the league, respectively.

Not surprisingly, the Seattle Sounders are MLS' most valuable franchise, at $175 million. They banked a league-high $48 million in revenues in 2012, and a league-high operating income of $18.2 million.

You'd expect Seattle to be near the top, as they have an enormous fan base, a sponsorship base that includes Microsoft, and a prime downtown stadium location. They also gain value from sharing that stadium and other resources with the NFL's Seahawks.

All of those figures were measured before Seattle signed Clint Dempsey, of course, and that put a big dent in the Sounders' pocket book. But even though the league reportedly paid a chunk of Dempsey's transfer fee to bring him to MLS over the summer, the Sounders could have afforded that $9 million and Dempsey's $5 million salary this year and still turned a profit.

The Los Angeles Galaxy rank second, with a franchise value of $170 million. That's a $70 million increase from 2008, when Los Angeles was the only MLS club with a nine-figure value.

I wasn't surprised by most of the rankings, including the Union's place in them. I suspect, though, that some Philadelphia fans may find the numbers disheartening. After all, the Union are based in the United States' fourth-largest television market, and North America's sixth-most populous metropolitan region.

And if you look at other professional sports teams here - especially the Eagles, Phillies and Flyers - it's fair to say that they wield more financial clout relative to their respective leagues.

But as we have seen from other recent reports about the Union's finances, the team is well aware of both its past and potential. If this winter's plans bear fruit, it's fair to believe that the team will improve both on the field and on the balance sheet in 2014.

I wrote above that I wasn't surprised about the Union's place in the franchise value ranking. I was, however, surprised to find the Vancouver Whitecaps two spots below the Union. They have a big fan base, a modern stadium with a perfect downtown location, and strong local and national television deals.

More importantly, from everything I've read the Whitecaps are one of MLS' top teams in corporate sponsorship revenue. They're also perennially among MLS' biggest spenders on player salaries, though they fell a bit this year compared to 2012.

I also found it noteworthy that the New York Red Bulls lost $6.5 million in 2012 despite fully owning their own stadium. The Red Bulls' franchise value is seventh-highest in MLS at $114 million, and their total revenue was also seventh-highest at $28.1 million. It takes a very big loss to offset those numbers.

Then again, New York paid out nearly $17 million in salary in 2012, including $4.6 million to notorious Designated Player bust Rafael Márquez. This year, the Red Bulls paid out a shade under $11 million in salary, with fellow DP Thierry Henry taking a $1.3 million pay cut. I suspect that an analysis of 2013 revenue and profit would cast New York in a better light.

In addition to its reporting on teams' finances, Forbes profiled the eight MLS club owners who are either worth $1 billion as individuals, or who have direct access to family fortunes of that scale. Philadelphia Union owner Jay Sugarman did not make the cut, but many influential individual owners in MLS - such as Portland's Merritt Paulson - didn't either.

Of course, some teams derive their resources from corporate owners, such as Toronto FC with Maple Leaf Sports and Entertainment. Those organizations may not have individuals of great wealth, but they don't lack for money on the whole.

There is one name on the billionaire's list, however, that deserves special mention. Robert Kraft, owner of the New England Revolution and NFL's Patriots, has a net worth of $2.9 billion. The Revs generated $17.1 million in revenue in 2012, and their $2.6 million in operating income was the seventh-highest figure in the league.

Such figures look great on paper. In reality, New England's soccer team plays in a soulless NFL stadium with an artificial surface in an exurb an hour away from its region's main population center. That they turn a profit in doing so removes yet another excuse from the Kraft family's refusal to build the team its own stadium in a location that is properly accessible to the thousands of soccer fans in Boston and Cambridge.

Now for some thoughts on Forbes' assessment of MLS as a whole.

Though the league still struggles to resonate on the wider American sports landscape, Forbes' report delivered two pieces of very good news.  

First, the average value of a MLS franchise has jumped from $37 million in 2008 to $103 million now, an increase of over 175 percent. Second, 10 of the league's 19 teams made a profit in 2012, with eight making a loss and one coming in flat.

In Major League Soccer's early years, almost all of the teams lost money every season – and significant amounts in some cases. The wave of soccer-specific stadiums built across North America has clearly had a huge impact, not only removing large rent payments but delivering serious revenue.

That revenue isn't enough to deliver true financial sustainability, though, and the report's figures prove as much. The next step, as I've said repeatedly here and elsewhere, is to land television contracts whose values exceed the revenues earned from gate receipts.

It's no secret that negotiations for those contracts have already begun with current rights-holders ESPN and NBC Sports. Both companies want to remain with MLS, and are willing to contribute the money that will help the league keep growing.

But despite the heated market for all kinds of sports television rights, that money won't come solely on MLS' terms. The league and its owners, both new and old, will have to give the television networks what they want. Such terms are likely to include exclusive national broadcasts on Friday nights and flexible scheduling in the second half of the regular season.

It does not help the position of owners reluctant to embrace those changes that MLS' national TV ratings fell 31 percent on ESPN's networks this year and 13 percent on NBC's networks. For as much as the values of MLS clubs have grown over the last five years, the time to prioritize national television's resources over local clubs' desires is now, not later.

With that said, there are some changes that would do more harm than good. Chief among them, from where I sit, is a potential move to a winter-centric schedule. Even with the arrival of Orlando City as MLS' 21st franchise, an overwhelming majority of the league's clubs play in cold-weather markets. Having more games played outside of the summer does not make sense for them, nor should it.

Though it sounds good in theory to get MLS' playoffs out of the way of football, the cost to the rest of the season would be exorbitant. I highly doubt that most fans in Philadelphia would willingly sit outside at PPL Park for regular-season games in November, December, February and March.

And if the people who talk to me on Twitter are any indication, I'm pretty sure that there are similar sentiments across North America. From Washington and Toronto to Salt Lake City and Portland, I've heard loud and clear the views of soccer fans who think a winter-centric schedule would be a disaster.

Sure, it's the way things are done in Europe. Plenty of people in the North American soccer community have argued loudly that MLS should play a winter-centric schedule for that reason alone. But what works in Europe does not inherently work in the United States and Canada.

The sports culture on this side of the Atlantic Ocean is different, and always will be. It is entirely fair for MLS to align itself with the ways of life in the countries where its fans live, not in the countries where its fans may wish to live.

This point doesn't just apply to MLS. Soccer as a whole has earned its popularity in North America because its signature events - the World Cup, Olympics, European Championships and CONCACAF Gold Cup - take place during the quietest period of our continent's sports calendar. It's why Fox Sports, one of the U.S. rightsholders for the 2022 Qatar World Cup, has threatened to sue FIFA if it moves the tournament to winter.

Fox paid FIFA $425 million to televise soccer during the summer because the network knows knows that's when the largest number of people in this country want to watch the sport.

Perhaps that language is excessively strong, But the point at hand is of grave importance to soccer's future here.

Indeed, it's my understanding from multiple sources that the winter schedule question is currently the subject of heated debate within MLS and its clubs. There are some powerful influences behind closed doors pushing for a change, and they're using the timing of new TV deals to help their cause.

But it's also my understanding that a majority of clubs in the league are strongly against such a move. That majority is large enough to remain in place even if Orlando City and New York City FC, the two 2015 expansion franchises, don't join it.

I happen to think, as many across MLS do, that adopting Friday night national broadcasts and flexible scheduling would give a big enough boost to MLS' TV ratings that changing to a winter-centric schedule wouldn't be necessary. So would ensuring that all playoff games take place on weekends, and that all FIFA windows are truly observed.

If that means more midweek regular season contests, so be it. There is more than enough space in June, July and August to accommodate them. I have no doubt that if MLS' television partners are given the creative space they want, they'll give the league plenty of help in growing its ratings.

That's enough from me. I'd be interested to know what you think. Post a comment below or send me a note on Twitter with your view.

Jonathan Tannenwald Philly.com
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The Goalkeeper is your home for the latest news about the Philadelphia Union, Major League Soccer, U.S. national teams and the rest of the world's most popular sport. It's also a place for fans to gather and celebrate the culture of soccer and its unique place on the sports landscape.

Jonathan Tannenwald Philly.com
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