SBJ/March 21 - 27, 2005/SBJ In Depth
Playing to Win
Published March 21, 2005
In 2003, Madison Square Garden CEO Dave Checketts went to Europe to look at international opportunities for the NBA. But while he was there, he was struck by the global passion for a different sport. Less than two years later, Checketts invested in the future of that sport in the United States by buying a Major League Soccer expansion franchise that will begin play this season in Salt Lake City.
Checketts, in essence, is trying to do exactly what MLS has tried to do on a larger scale for its first nine years: take the world’s most popular game and turn it into a successful U.S. business. No one is proclaiming that the job is done, and plenty of obstacles remain, but as the league celebrates its 10th anniversary this year, MLS supporters can recite a litany of reasons to believe in it. Among them:
The addition of two new teams, Chivas USA and Real Salt Lake, has brought the total number of franchises to 12. Another round of expansion in 2007 will boost the ranks by two.
Billionaire owners and experienced entrepreneurs continue to support the league, not least of all because of an expected rise in franchise values. Even though the cost of buying expansion franchises has remained constant at $10 million, that number is expected to increase for the next round of expansion. MLS Commissioner Don Garber said current franchises are worth $20 million-plus. Tim Leiweke, president of Anschutz Entertainment Group, which owns five MLS teams, said he believes the Los Angeles Galaxy could be worth $50 million.
Major corporations have been willing to attach their names to MLS. Most notable among those deals: a $150 million contract with Adidas.
Soccer-specific stadiums are in either the construction or planning stages in four key markets. If every one gets built, the number of teams with a soccer stadium to call home will rise to seven.
The outlook isn’t all rosy. The league’s to-do list still includes some toughies, such as finding a way to increase television ratings, improving the bottom line and keeping momentum moving forward on stadium construction.
Still, Leiweke and others like what they see.
“This is the league that everyone bet against and the sport that everyone bet against,” Leiweke said. “And here it stands, going into its 10th year, and it’s never been healthier.”
Homes for soccer
For Garber, it’s inconceivable to settle for having a professional sports team without a stadium of its own.
“Unquestionably, our goal is to have a soccer-specific stadium or owner-controlled and -operated stadium in every market,” he said, calling that initiative one of the sport’s “biggest priorities.”
Major League Soccer’s Dallas franchise, FC Dallas, in August will open a $65 million, 117-acre complex in Frisco, Texas, that will include the new corporate headquarters of US Youth Soccer, a 21,193-seat soccer stadium and 17 full-size, tournament-grade soccer fields. That stadium will become the third soccer-specific stadium in the country, in addition to those in Columbus and Los Angeles.
The Colorado Rapids have broken ground in Commerce City, Colo., for a similar complex scheduled to open in 2007. And the first entirely publicly funded soccer stadium, now valued at $85 million, will open next year in Bridgeview, Ill., as the new home of the Chicago Fire.
The MetroStars are negotiating with the state of New Jersey, the city of Harrison and the New Jersey Sports and Exposition Authority regarding funding for a soccer-specific stadium in Harrison.
If all of the teams now building or planning stadiums actually get them, then seven teams will have their own facility, meaning that most of the league’s teams will become “close to a break-even or better proposition” within the next three years, said Leiweke.
The AEG-owned Los Angeles Galaxy is the only team so far to turn a profit in a single season, Garber said, and it’s no coincidence that team has a home in the $150 million Home Depot Center in Carson, Calif.
Jonathan Kraft’s team, the New England Revolution, plays in a football stadium that was designed with soccer in mind. While he wouldn’t offer details of his team’s financials, he did say that his company “does not stay with businesses that either aren’t profitable or we don’t feel have the potential to be profitable.”
The drive for soccer stadiums certainly isn’t advancing unhindered. Last month, for example, New Jersey state officials told the league and the MetroStars that they wanted a written guarantee that the league and the team’s owner, AEG, would pay for the $84 million stadium if either entity folded.
“We think soccer has a bright future,” said Jim Debosh, a spokesman for the New Jersey Sports and Exposition Authority, “but we also have an obligation to the taxpayers.”
Garber noted that the league didn’t have to guarantee money in other cities and said he’s willing to move the team if a solution to the stadium problem isn’t found in New Jersey or New York.
Moving teams also appears to be an option in San Jose and Kansas City. Both franchises are for sale after the failure of attempts to get public funding for new stadiums.
Lamar Hunt, investor and operator of the Kansas City Wizards, said he doesn’t think the team “can really succeed like it needs to long range” without a new stadium. And the fact that Kansas City taxpayers recently rejected a stadium proposal that would have helped Hunt’s NFL franchise, the Chiefs, has pushed the Wizards even further down the food chain.
“Our No. 1 priority in that market has to be to solve the long-range problems for the Chiefs, which are at Arrowhead Stadium,” said Hunt, “and that didn’t allow the flexibility to seemingly get a soccer-specific stadium built.”
As for the Earthquakes, most observers think it’s a foregone conclusion that they’ll be moving after this season because of AEG’s unsuccessful attempts to get financing for a stadium. Leiweke said suitors from other cities have expressed interest in the team, mentioning as possibilities San Antonio, Houston, Seattle, Toronto and Cleveland.
How important is it really for a team to have its own place to play?
Jamey Rootes, former president and general manager of the Columbus Crew and now senior vice president of the NFL Houston Texans, has seen firsthand the value that soccer stadiums can provide.
“It was night and day the way the Columbus Crew were perceived in Columbus between being a tenant at Ohio State University, in a 100,000-plus-seat stadium, to now having your own home and really being recognized as a major player in the community,” Rootes said.
Garber said the stadium has helped the Crew come close to breaking even, pointing to the lack of a naming-rights deal as the main reason it hasn’t already done so.
Oliver Luck, CEO of the Harris County Houston Sports Authority, said his organization is in serious talks with the Houston Independent School District about building a soccer stadium in the heart of the city in hopes of landing an MLS franchise.
Luck, whose government group has funded the construction of Minute Maid Park, Reliant Stadium and the Toyota Center in Houston, said the city would be ready if a local investor bids for the Earthquakes or the Wizards.
Hunt, Garber and Leiweke all said that the sale of these teams would be a positive sign for the league.
Leiweke predicted that by the end of the year, AEG would own only the clubs in New York/New Jersey, Chicago and Los Angeles. D.C. United, though not yet for sale, has already had two groups approach AEG about purchasing the team, Leiweke said.
Looking for viewers
Garber leans back on the couch in his office on 42nd Street in Manhattan, remembering with a smile the excitement of the 2002 World Cup, the tournament in Korea in which the U.S. men’s national team reached the quarterfinals for the first time since 1930. In particular, he remembers that an average of 3.77 million U.S. households tuned in to watch the June 21 match between the U.S. team, made up mostly of MLS players, and Germany, a match that started before thousands of Starbucks coffee shops had even opened on the West Coast.
A 7:30 a.m. Eastern start time, and still the game was the network’s most-watched and highest-rated soccer telecast ever. It was also ESPN’s most-viewed program ever in the second quarter of a year.
A patriotic event, sure, but it also showed that there was plenty of interest in the sport. The goal since then, and leading to the 2006 World Cup, is to capture that international excitement and translate it into interest in domestic play.
One possible way to do that: make the broadcasts more interesting. In other words, make them, as much as possible, like the coverage of World Cup or English Premiere League games.
In 2002, MLS signed a deal with ABC and ESPN, granting the networks exclusive broadcast rights through 2006. MLS pays for production but has the right to sell all ad inventory. It’s not a rights fee package, but it’s an agreement that appears to be working, at least for now.
The 2004 season saw ratings increase 11.1 percent for the league’s 25 ESPN2 broadcasts. The 1.3 rating, with a 4 share, for the sole ABC broadcast was a 30 percent increase compared to 2003. Progress, yes, but household numbers in the hundreds of thousands is still a far cry from what the league is shooting for.
Randy Bernstein, chief marketing officer at MLS for the league’s first six years and now CEO of Premier Partnerships, an international sports and entertainment, sales and marketing firm, said the league’s focus should indeed be on television.
“As MLS is working on soccer-specific stadiums and building sponsorships, they should also look at making the game more exciting in the way it is communicated to the American public,” Bernstein said. “And obviously they can’t stay with the status quo because it is evident at this point that it is not good enough.”
Michael Cohen, executive producer of FIFA World Cup and MLS, said the league, along with its broadcast partners, has spent the offseason tackling that exact issue.
“What we are looking to do, in an overall summary, is increase the level of production,” he said, “so that when people watch our telecasts they know they are watching the big game.”
This season, the league and its broadcast partners will enhance their presentation by:
Using the “Super Slow Motion Camera,” which in the past was reserved for the MLS Cup and All-Star Game, for half of all regular-season games.
Using the “StroMotion Camera,” which displays still images at different points in an object’s trajectory, whether a ball or a player’s movement, in as many as half of the games.
Adding two game cameras, including the “Jordan Cam,” used to follow and isolate key or star players.
Adding two, six-channel EVS machines that will allow the telecasts to choose from six digital replay angles.
Burying microphones in the field and placing them on coaches for better audio options.
Cohen said the league and the networks will try out “SkyCam” as well in select games after appropriate changes are made to the rule book regarding the possibility of the camera’s interference with the play. The above-the-field camera could be used in the league’s opener on April 2 on ABC.
To free up two additional minutes for the halftime show and, maybe more important, to provide the league with more commercial inventory, this year’s ESPN2 broadcasts will air continuous coverage of games during commercial breaks, through a split screen that will include both an advertisement and a live feed from the game. Leah Buhl, senior director of programming and acquisitions for ESPN, is calling it “ESPN Side-by-Side.”
Garber said the ABC opener will also experiment with a split screen.
David Sternberg, executive vice president and general manager of the newly titled Fox Soccer Channel, said the absence of the National Hockey League could provide a big opportunity for MLS and its broadcast partners.
“There is a marketplace opportunity … that MLS hopefully, along with its media partners, can take advantage of this year,” Sternberg said.
Buhl said three of MLS’ five prime-time events will take place in April as a direct result of NHL windows opening when the league canceled its season last month. In addition to prime-time games on April 15 and 22, ESPN2 will feature a prime-time television event on April 23 at 10 p.m. Eastern, using the NFL draft as lead-in programming.
Sternberg is realistic about the sport and where it sits among the nation’s sports offerings, but he said the potential for TV growth excites him.
“We think there is a lot of upside,” Sternberg said. “It’s going to take time, and it’s not going to happen overnight, but the indicators are pointing in the right direction.”
That direction could eventually include MLS having its own network.
“I think we have several possibilities,” Checketts said. “Partnering with current sports networks, or maybe even potentially launching our own soccer channel.”
Selling the sport
Soccer United Marketing, MLS’ marketing arm, has become a one-stop shop for soccer that has allowed the league to build a solid sponsorship base that includes corporate giants Pepsi, Honda, Kraft, Anheuser-Busch and Adidas, among others.
|Major League Soccer profile|
|Turnkey Sports Poll|
|MLS fan demographics|
|MLS corporate support|
|MLS through the years|
Part of the increased interest from corporate America comes from SUM’s, and therefore MLS’, ability to offer grassroots programs that target the youth and Hispanic demographics.
MLS’ Futbolito, the four-on-four tournament that targets the league’s Hispanic fan base, is one of those programs. Brad Rothenberg, principal partner of the BRC Group, a San Francisco-based sports marketing firm that created Futbolito, said the program will be expanded this year to Salt Lake City and perhaps Houston, San Antonio, San Diego or Phoenix, among other possibilities.
SUM also has a partnership with various domestic youth soccer entities that allows sponsors to reach out to the millions of youth soccer players in America, an audience that is attractive to companies like Pepsi.
John Galloway, vice president of sports marketing and media, Pepsi-Cola North America, said the company has remained a sponsor of MLS since its inception in 1996 because of the league’s ability to deliver to those exact demographics.
“For us and [Sierra Mist], it is about reaching out to youth,” he said. “It’s about reaching out to 13- to 24-year-olds, which really is a strong suit for the soccer market.”
In addition, Galloway said, “It’s about reaching out to an emerging multicultural demographic in the United States. And, of all sports, soccer is a melting pot in terms of the audience that it delivers.”
Bernstein, whose firm has the Hunt Sports Group and Kroenke Sports Enterprises as MLS-related clients, said the ability to offer companies exclusivity on the league, team and television broadcast level differentiates MLS from other sports properties.
That is not to say that sponsors haven’t come and gone. MLS games, because of their relatively low attendance and ratings, present problems for companies that are looking solely for mass awareness.
But the sponsors looking for an integrated, single-entity structure that allows them to have the rights to the league and every team in it have found a successful platform with MLS. And that, along with the affordable price tag, appears to be enough to keep a majority of the sponsors around year after year.
MLS does not publicize details of any contracts, but industry insiders said league sponsorships range from $3 million to $5 million a year, while corporate partners pay between $1 million and $1.5 million.
“Certainly, we get a lot of bang for the buck from our MLS relationship,” Galloway said. “We have a ton of assets that are very flexible. The league is always willing to work with us on it.”
Garber said corporate interest is at an all-time high, helping cut losses in half since the league started 10 years ago. In fact, Garber is more focused on long-term investment than on short-term profits, or, in this case, short-term losses.
“It’s important to have a profitable business, but it’s more important to have a valuable asset,” Garber said. “We look at this process as investing and building the sport so that our teams are worth hundreds of millions of dollars in time.”
MLS does not release any financial numbers and refused to comment about the league’s current revenue levels.
Hunt said the league needs more investors who are willing to take a risk that has the potential for a huge reward.
“If people are going to sit back and wait until soccer is as successful as the NFL, what do you think the franchises will sell for?” Hunt asked. “They will be very, very expensive.”
Foundation in place
“For the first nine years of MLS, and Soccer United Marketing the past two years, all we’ve been doing is building a foundation to kick off what we’re doing today,” said Doug Quinn, executive vice president of MLS and president of SUM Enterprises.
Heading into its 10th season, MLS is coming off one of its strongest years ever. Average attendance was up 4.4 percent last year to almost 15,000 fans a game, a number the league can live with but hopes to improve upon.
And in a time when it seems like every professional league in the country is experiencing labor disputes, MLS has guaranteed labor peace through the 2009 season. The first collective-bargaining agreement in league history, signed late last year, included graduated minimum salary increases, a 401(k) plan, guaranteed health benefits paid by the league, improved life insurance and a neutral arbitration system.
Maybe even more important than increased attendance and a labor deal was the league’s ability to use its stars to grow. Wunderkind Freddy Adu exploded onto the scene last year, increasing attendance at every market he visited while taking the sport to a more mainstream audience.
Leiweke said that making sure Adu is just the first of many stars to build on should be a goal of everyone involved in the sport.
“What the league has to develop is, it has to be more than a Freddy Adu,” Leiweke said. “We not only have to have some great American stars, we have to have some great international stars, as well.”
Rothenberg, whose father, Alan, founded the league, said MLS has positioned itself nicely and is simply waiting for the soccer version of hockey’s “Miracle on Ice.”
“These things are forces of nature as they are anything else, and lightning just hasn’t struck yet,” Rothenberg said. “But they are setting the table so that when lightning strikes, I think they will be able to capture it.”
Bob Contiguglia, president of U.S. Soccer, said that, lightning or no lightning, the sport will probably never reach the levels in the United States it has in Europe. But he remains confident that it can carve out its own place. “We’ve had a steady growth and increased recognition,” he said, “but where we will end up, I have no idea.”
Garber has a much more refined prediction of where the league will be in another 10 years. In addition to having 18 to 20 teams in soccer-specific stadiums, he believes each team will have its own local television deal, with the league having secured its own national deal.
“We will have guys talking about us on talk radio and on ESPN ‘SportsCenter,’” he said, “and our teams will be greeted at the White House when they win the MLS Cup. This sport will be one of the dominant major leagues.”