Is Major League Soccer (MLS) a good old-fashioned Ponzi scheme? That’s what many sports and financial analysts are wondering. With more incogitant governments forking over taxpayer money to finance stadiums for new franchises, it is important for supine politicians to know what they’re getting the public into.
The 2017 MLS season has come to an end, and Toronto FC is your new champion. Since the latest season is in our rear-view mirror and a new city is doling out tens of millions of dollars, now would be an opportune time to examine the league’s finances, and determine if it is nothing more than a Ponzi scheme a la Social Security or Bernie Madoff.
Television ratings are tumbling, some franchises have seen their values diminish, and the commission has conceded that MLS is bleeding red ink. So, how is MLS making its money?
Remember, a Ponzi scheme is when returns are generated for older investors by acquiring new investors. MLS meets some of the criteria.
In the end, if MLS crumbles, taxpayers will be holding a portion of the purse, which provides another lesson for governments: stop subsidizing sports!
Kicking Around the Numbers
In 2015, MLS commissioner Don Garber told the Associated Press that the league is losing money, even with attendance up and the popularity of soccer in the U.S. and Canada rising. How much money the league is losing every year has been shielded from the public.
He told the newswire:
“We’re still in investment mode. But there’s a lot of momentum for the sport of soccer in the U.S. and Canada and that is empowering.”
Garber was correct about momentum and popularity. MLS completed a $720 million television deal with ESPN, Fox, and Univision in 2014 as well as a four-year TV deal with European and Brazilian broadcasters. This past season, MLS averaged 22,000 in attendance for the first time in its history, which is greater than the average NHL and NBA game.
That said, here is another interesting comment:
“We’re still going through these unique phases that are determining what this league will look like. We don’t know what MLS will look like two years from now.”
The league’s bread and butter – TV ratings – is lagging. During regular-season matchups, TV viewers averaged fewer than 300,000. And it wasn’t great for the MLS Cup final either, which drew in 11 million viewers, a 43% decline across ESPN and Univision Deportes. This is bad news since ratings drive advertising.
Economist and “Soccernomics” co-author Stefan Szymanski generated some controversy a couple of years ago when he declared that MLS’s “collapse” is imminent. That may be a bit of a stretch – that is, as long as MLS is successful in attracting new investors (cities and governments).
A Ponzi Scheme in the Making?
In November, Cincinnati was selected to be the next expansion team. But this included several price-tags: a $150 million entry fee, $100 million worth of public money to help the city land an MLS expansion club, and Futbol Club Cincinnati owners are investing $250 million of their own cash.
The defense for spending such lavish sums of money? It’s for the children!
Jeff Berding, FC Cincinnati’s general manager, president, co-owner, and former councilman, said in a statement:
“This is a legacy investment. We are investing in this to make Cincinnati a better place for our children and grandchildren. Soccer is the only sport that really allows global promotion of your city … and as we compete in a global economy for jobs, talent, companies – we need to have soccer.”
By 2004, MLS had 12 teams. Six years later, it leaped to 16, and then to 20 by 2015. Today, there are 22 MLS franchises.
And this may be the primary problem for MLS.
Cincinnati will not be the last team to join MLS. The league plans to expand by four more clubs for a total of 26 teams by 2020, and some of the bidders include Charlotte, Tampa, San Antonio, Phoenix, and Detroit. Each team is expected to construct a soccer-friendly stadium, which means taxpayers will be on the hook for a portion of the costs.
But at least the impecunious MLS will receive hundreds of millions of dollars!
Like other sports, there are big and small markets in MLS. New York and Toronto are larger markets than Salt Lake or Cincinnati. Should MLS fail, then it’s the smaller markets that will hurt the most.
Neil deMause, an author at Deadspin, writes:
“For most big-market teams and early adopters, even if the expand-o-ganza goes south, it’s a fair bet they’ll be left with a chair when the music stops—franchises like New York and Los Angeles should be safe and potentially profitable, even if the likes of Raleigh or Nashville might be screwed.”
The big-market teams are suffering, too, though. In 2015, New York Red Bulls and New York City FC operated at a combined loss of -$6 million.
Stop Subsidizing Sports
One of the most beloved pet projects for any politician is sports-related. Whether it is a franchise or an international event, politicians are prepared with great alacrity to sell their souls to get some sports.
In Calgary, the owner of the Flames threatened to leave unless they were given $500 million in taxpayer loonies. Los Angeles agreed to take on about $2 billion of debt for the 2028 Summer Olympic Games. Minnesota taxpayers were forced to pay $498 million to build a $1.1 billion stadium for the Vikings. San Francisco, Detroit, and Miami taxpayers have fallen victim to these schemes.
Since 1995, taxpayers have been billed $6 billion to erect opulent football stadiums.
Politicians and billionaire owners regularly defend these fatuous moves in the name of economic stimulus. Just think of how many jobs will be created, how much local bars will make, and how much tourism will be generated!
Is this true? Hardly.
Michael Leeds, a sports economist at Temple University, found that economies would be affected by only 1% if a local team absquatulated. That’s not a big deal, and it certainly doesn’t justify the despoliation of tax coffers.
There are two things politicians need to do before they allocate taxpayer dollars to exorbitant stadiums: comb through MLS’s books, which can be difficult to perform because taciturn executives have kept them private, and fathom the concept behind Frederick Bastiat’s “What is Seen and What is Not Seen.”
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