SBJ/April 9 - 15, 2007/SBJ In Depth

New faces, new ideas

Major League Soccer looks primed to score in 2007. The league is getting paid TV rights for the first time, two new stadiums are set to debut, and superstar David Beckham has put the league on the front of sports pages worldwide.

Jorge Vergara is among seven ownership groups
that have bought MLS franchises since 2003.

But it’s the league’s ownership group, the most diverse in its history, that is one of its key strengths as MLS moves forward.

Over the last two years, four new investors have joined the board of governors, taking it from a low of three owner-operators in 2002 to 10 today. Investors, league executives and marketers say that diversity has infused the league with new perspectives and the expertise necessary to succeed.

“It used to be you’d go to a Major League Soccer meeting and look around the room and half of the 10 owners were stand-alone owners of their team,” said AEG CEO Tim Leiweke. “They didn’t have the breadth of knowledge, the experience, the context and, most of all, they didn’t have the vision. You go to the meeting now and you’ve got guys who can play.”

According to people familiar with the meeting, Anschutz told them that he was willing to increase his investment in the league, but only if they joined him.

As a result, Anschutz took on ownership of two additional teams, pushing his investment from four to six clubs, Hunt added Dallas to his Columbus and Kansas City teams, and Kraft pledged to stay committed to his team in New England.

Each investor also committed more than $50 million to secure the World Cup broadcast rights for 2002 and 2006, which were turned over to the newly created Soccer United Marketing. They also adopted an austerity program for the league to control spending over the next five years.

“Once we did that, we could tell a better story to new investors,” said D.C. United President Kevin Payne. “It was then we could move forward.”

In 2003, Anschutz sold the rights to his team in Denver to Stan Kroenke, who also owns the Denver Nuggets and Colorado Avalanche. A year later, Dave Checketts, the former president of Madison Square Garden, and the team of Antonio Cue and Jorge Vergara, owner of Club Deportivo Guadalajara (Chivas), bought expansion franchises.

Maple Leafs Sports and Entertainment followed in 2005. Red Bull, a group of private equity investors in Kansas City, and Victor MacFarlane, a successful real estate investor, joined them over the last year.

Collectively, the group has helped balance the workload once shouldered by three owners. Over the last two years, the board has gone from two committees to five, adding business development, new media and technical committees.

The original committees — audit and finance, and competition — still exist, but the new committees have helped the board make strategic decisions about the league’s future, board members say.

Last year, for example, the business development committee pushed forward the concept of selling corporate sponsorships on jerseys. Since being approved by the board, it’s brought in more than $6 million to three teams.

The committee also redesigned the system for local TV production, so that local teams pay for it rather than the league. All MLS games will be televised this year as a result.

“We’ve been able to do those things because of the extra hands,” said John Wagner, president of Hunt Sports Group.

The new owners have expanded MLS’s footprint internationally, as well. Checketts formed a partnership with Real Madrid last year, and Kroenke’s group partnered with Arsenal in February, giving the league more exposure in Europe and offering it the chance to share best practices with two of the sport’s pre-eminent clubs.

Here in North America, Cue threw his weight behind the idea of an international tournament pitting Mexican club teams against MLS teams. When Vergara committed his Mexican Chivas team to the venture, he helped push the idea forward. The resulting SuperLiga debuts this summer.

Diversity delivers

The diverse ownership also has been cited as the primary reason the designated player rule, which will allow Beckham to join the league, was approved last fall.

When there were only three owners, the board benefited from the group’s common vision and commitment. But the group’s size meant it had to carefully balance any difference of opinion. Estranging one investor could spell the end for the league.

While the Hunts were fiscally conservative and counseled patience, Anschutz’s camp generally believed the owners would have to spend money to make money. The Krafts held some of Anschutz’s openness to spending but tempered it with a more fiscally conservative position.

Considering Anschutz held the dominant position in the league, he could have forced any vote, such as the designated player rule, forward. But knowing the disharmony it would create, people close to the board say, he chose not to.

“He’s a consensus seeker,” said former Commissioner Doug Logan, who left the league in 1999 when Anschutz held two teams. “I never saw him exercise the power he had or leverage it.”

The new board members offered balance that allowed the league to increase spending on players without Anschutz’s teams pushing it through alone. The resulting “David Beckham rule” allows each team to sign one player whose salary would count only $400,000 against the team’s $2.1 million cap.

The vote was close, but a supermajority (two-thirds vote) prevailed, following some last-minute politicking by AEG and Commissioner Don Garber. The key was that there were other owners such as Kroenke, Vergara, MLSE and Red Bull that backed the idea.

“That’s what’s changing with the league,” Leiweke said. “We’re not the only ones who think outside the box.”

But the newly diversified board has not been without challenges.

In early March, Checketts’ company, SCP Worldwide, bought soccer channel GolTV. The channel’s soccer programming could put one of the league’s owner-operators in direct competition with its official broadcasters — ABC/ESPN, Fox Sports, HDNet and Univision.

It’s not the first issue of competing interest the league has faced. When AEG secured the marketing rights to the Mexican national team in the United States, the company did not want to give them up to SUM. If they had held onto the rights, they would have become SUM’s competitor.

Garber argued that AEG keeping the Mexican rights would hurt the league. At the end of the day, he prevailed and the rights were turned over.

According to people close to the league, the GolTV investment has become similarly contentious. Some wonder how Checketts can sit in a room where media partners review their financials while he owns a competing media company. Ultimately, Garber and the league office will determine whether or not Checketts can own and operate an MLS team and GolTV.

Rising value

Despite the GolTV challenge, the MLS board has stabilized and franchise values have risen 200 percent in three years. When Checketts joined the league in 2004, he paid $10 million for Real Salt Lake. Future investors will likely pay $30 million.

Leiweke said a recent, independent appraisal of the Los Angeles Galaxy put the team’s value north of $100 million, and he believes by the time AEG is done with the team it will be worth as much as an NHL club.

“Guys who came in and spent $20 [million], $25 million buying into this league made a helluva buy,” Lewieke said. “Their asset has doubled and, in one case, tripled in a very short time.”

The board is confident that trend will continue with TV rights in place, six soccer-specific stadiums and Beckham’s arrival. And for the first time in the league’s history, they feel positioned to chart that course.

“We’ll be far more engaged in broad strategic thinking as opposed to managing the business on a day-to-day basis,” said Payne, who’s been on the board since the league’s inception. “I hope that will lead ownership groups to spend more time on their own teams, which will help us all grow.”

The current board features businessmen with deep knowledge of sports and marketing, and as the league reviews ownership groups in Seattle, Portland, Philadelphia and elsewhere, it’s looking for similarly strong pedigree.

In the early days, finding potential owners and investors was a major struggle.

In mid-December 2001, MLS investors and league officials gathered at Phil Anschutz’s ranch in Colorado. On their second day there, Anschutz asked everyone to leave the room except for Lamar Hunt and Robert Kraft.

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