SBD/August 6, 2014/Leagues and Governing Bodies

With Multiple Cities Vying For A Team, Will MLS Revisit Decision To Cap Expansion At 24?

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Garber (l) last year announced that MLS would cap expansion at 24 until '20

MLS has insisted that it has no plans to expand beyond 24 teams before '20, but with multiple cities vying for a franchise and interest in the game rising, the question remains over whether the league may revisit the decision. The league currently has 22 set franchises and would have 23 if David Beckham's group is able to find a suitable stadium site in Miami. The plan to cap expansion appears to be non-binding and was announced last July by Commissioner Don Garber. Ultimately, though, the power rests with league owners. If the plan was upheld, it would leave only one spot up for grabs until about a half a decade from now, unless Beckham's bid falls through, which would then leave two. The suitors chasing the last slot include groups in Minneapolis, Las Vegas, Sacramento, El Paso and San Antonio. Furthermore, there have been reports of varying levels of interest from groups in cities including Austin, St. Louis and Charlotte. This increased competition, combined with a post-World Cup boost and rising franchise values, have left some wondering whether the time is ripe for MLS to capitalize on expansion beyond the current intent. Recent expansion franchises have fetched fees like $100M for NYC FC and $70M for Atlanta and Orlando. Premier Partnerships Managing Dir Jeff Marks, whose company is working with Falcons Owner Arthur Blank on selling sponsorships and naming rights for the team's new stadium, said, “If someone tomorrow steps up and does ‘a Ballmer’ and offers the league half a billion dollars for an expansion franchise -- if you’re one of the MLS owners, are you going to say, ‘No’? Limited supply creates demand, but if someone steps up and changes the paradigm, I think MLS has to take a strong look.”

FINDING THE RIGHT RATE: MLS declined to comment on this story, but league President & Deputy Commissioner Mark Abbott last night at an All-Star Game press conference said, "We’ve determined that the right rate of growth for us is to get to 24 teams by 2020. We think that’s the right balance for a variety reasons -- the player pool that we have, the way our television contracts work -- so other than to say it’s our business judgment, I can’t point to any one particular answer." Former league Commissioner Doug Logan said that despite the increased interest, MLS should continue to approach expansion conservatively. He dismissed the notion that just because American soccer is seeing heightened interest, the league should try to strike while its hot. "What that infers is that this is a flash in the pan or a peak that is going to go away," Logan said. "I see it as an escalating, long-term growth. So I don't think they should feel any pressure to capitalize on anything today. I think they should continue to make prudent business decisions and exploit those opportunities that are in front of them and do it in the business-like way that they've done over the course of the league's history." The league started with 10 teams in '95, expanded to 12 in '98, contracted back to 10 in '02 and started adding new teams again in ‘05. Since then, expansion has continued unabated, albeit slowly and strategically. From a logistical standpoint, staying at 24 has some advantages because it is an even number that allows for more equitable scheduling and conference alignment. But MLS still has fewer franchises than all of the four other major U.S. pro sports team leagues, leading it to be viewed as what Marks called “that last frontier where, if you want to own a franchise, this is something that’s pretty affordable.”

AN ELUSIVE EQUILIBRIUM: Logan said that at one point during his commissionership, he did try to envision what the perfect number of teams would be for MLS, but he eventually rejected the notion altogether. Logan: "I still don't think there is a perfect model for saying, 'Hey, we need to be 30 teams like some of the other leagues or 28 teams or 24 teams.' I think it's based upon empirical data. And that has to do with, No. 1, does expansion satisfy whatever criteria you've established from a standpoint of policy? No. 2, do you have good and viable ownership that's willing to abide by what your rules are and become good owners? No. 3, is there a place to play? And, No. 4, is the market large enough to accommodate another team, or is it just too saturated?" On top of the financial considerations, there also is the competitive balance aspect that must be taken into account. “The question right now is the product," Marks said. "MLS has to continue to grow the product; it has to be top quality (on the field). And if they grow too fast -- and dilute that quality -- that’s not good, either." LeadDog Deportes Managing Dir Brad Rothenberg, who is a close observer of the league and whose father, Alan, helped found MLS, said that particularly due to the way sports leagues make the majority of their money these days, MLS should feel no pressure to expand beyond 24 teams. He added, "Expanding beyond a certain number of cities in this country doesn't matter -- because all that matters is the TV rights. And with their new TV deal (with Fox Sports and ESPN), they're not going to have to worry about TV for 10 years. If you look at the MLS markets, they probably cover 75 to 80 percent of the total population of the country. ... Is it worth going to other cities that don't really increase the value of your media deals?"

INTEREST IN MLS AMONG LOCAL SPORTS FANS IN POTENTIAL EXPANSION MARKETS
(According to data from Scarborough Sports Marketing)
MARKET
% VERY OR SOMEWHAT INTERESTED IN MLS
El Paso
12.2%
Las Vegas
9.8%
Sacramento
8.0%
Austin
7.2%
San Antonio
7.1%
St. Louis
6.3%
Charlotte
4.5%
Minneapolis-St. Paul
4.4%
   

WHERE TO GO: After contracting the Miami Fusion and Tampa Bay Mutiny in '02, MLS has been particularly careful about choosing the right spots to expand. But with a teeming list of suitors, the league is now faced yet again with some tough decisions over who gets a franchise. Avoiding overly saturated markets is seen as one key, and Logan offered up Phoenix as an example. That city may be a "tough" one to expand to because the city "is probably no more than a two- or three-team city; it's got four teams in it, and there would probably be little sponsorship money or other kinds of discretionary income to sustain a Major League Soccer team." Meanwhile, Logan thinks there are a couple cities that could work for the league. "Minneapolis is certainly a viable location to expand to," he said. "And Las Vegas is a city with a lot of sports fans almost in search for a team. It's a very, very good market with a significant population of Hispanic-Americans." Logan is not so high on Sacramento and Indianapolis, but added St. Louis is particularly viable given the city's 100-year-plus history with the sport. Marks thinks that San Antonio is more viable than some may think at first blush, given the city’s demographics and lack of major pro sports teams aside from the Spurs. He added, “San Antonio is a great market: Latinos, not a lot of sports franchises in that marketplace. And the demand is definitely there. Their NASL team has been doing great; they have some corporate support. But an owner has to step up.” Rothenberg acknowledged Minneapolis "might be a good idea because it’s a big city." However, he added, "Once you start growing beyond 24 teams -- is there a reason to go to smaller cities like a Sacramento, even if there are (deep-pocketed) owners there? Is it worth going to Oklahoma City or other cities that don’t really increase the value of your media deals? MLS has really captured the country when they hit 24 teams. I don’t think they need to (expand beyond that).”

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