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MLS in negotiations to sell part of SUM to equity firm
Published September 12, 2011, Page 1
The talks have been going on for several weeks and those close to the discussions say that Providence is interested in obtaining up to a 25 percent stake in SUM for $125 million to $150 million. Such a deal would value SUM at between $500 million and $600 million.
Neither MLS nor Providence Equity would comment for this story.
MLS could use the influx of cash in a couple of ways.
The league is likely to distribute at least some of the proceeds among its shareholder-owners, who, as a group, have experienced hundreds of millions of dollars in losses since MLS’s inception in 1996, sources said. The league also could use some of the money to create a fund to help attract better players. Inside MLS team circles, there’s been a constant call to improve the state of play, which ideally would lead to greater interest in the league from soccer aficionados, who still view MLS play as being of lower quality than other international leagues.
SUM has considered using this cash infusion to subsidize MLS clubs as they try to convince known soccer stars to come to the league as designated players. While such a move has been discussed, it runs contrary to the league’s move in recent years toward team independence on business and competition matters.
MLS created SUM in 2001 soon after acquiring the broadcast rights for the 2002 World Cup. The agency, fully owned and operated by MLS, quickly became a successful and profitable part of the league, acquiring rights to various soccer events and serving as the marketing, media and promotional arm for most of professional soccer in the U.S.
For Providence Equity, a private equity firm that most notably has investments in YES Network and Univision Communications, the deal allows it to get further into sports content, which has been bringing in record levels of rights fees in the last two years. Providence is making its move for SUM at a time when sports properties’ media rights are doubling and tripling.
Just last month, NBC signed a three-year, $30 million deal for an MLS package that had been with Fox Soccer Channel, up from the $3 million a season from the channel’s previous multiyear contract.
Providence several years ago examined investing in the nascent Philadelphia MLS franchise, but instead turned its focus to the league level.
“Providence understands the MLS structure and finds that structure to be an attractive one from an investment standpoint,” said Bob Caporale, chairman of GamePlan, which advised Providence on the Philadelphia team, but has not been involved with the SUM talks. “They see an opportunity for the continued growth of that business.”
Private equity investment in sports, while not rare, is uncommon because most team and league economics do not generate the types of returns sought in private equity. Several firms looked at buying the Arena Football League before bowing out, and Bain Capital once looked at buying the entire NHL.
However, media companies that revolve around sports have attracted private equity; witness Providence’s one-third stake in YES Network. It also has an investment in the World Triathalon Corp.