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MLS Juggle Expansion With Losses

Major League Soccer got its start twenty-three years ago with ten teams and a small handful of owners. Visiting the MLS website today, there are thirty teams listed, six of which are yet to kick a ball in the league. While MLS grew in fits and starts over its first twenty years, the pace of recent expansion has been dizzying.

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MLS Juggling Expansion With Financial Losses

By Greg McKay 

At times, Commissioner Don Garber’s plans for growing the league have appeared to match the improvement in quality on the field, increases in attendance and growing fan engagement. Still, there is a growing chorus of, if not outright concern, wariness of the league’s recent efforts to make inroads into new cities.

First and foremost among the questions raised is that MLS is becoming a league of have’s and have not’s. For every LA FC and Atlanta United, well-run clubs with dynamic fan bases, there is an FC Cincinnati or Houston Dynamo, expansion clubs that look not quite ready for the bright lights of top flight professional soccer or more established clubs that have failed to keep up with the rest of the league.

While MLS headquarters were busy announcing the 30th team from Charlotte would join the league in 2021, Inter Miami fans were bemoaning the fact that the ownership group headed by David Beckham hasn’t appointed a manager with barely two months until the club plays its first game.

Meanwhile, NYCFC fans were critical of the club’s decision to play multiple games next season at another baseball venue, Citi Field, an even worse soccer facility than Yankee Stadium. Any sports league around the world is bound to have some level of discrepancy between teams but the gap between clubs does at times seem more extreme in Major League Soccer.

Level Field

From a business perspective, Garber will rightly be applauded for convincing owners to buy into the league, but the challenge going forward will be creating a platform that looks more level in terms of ownership commitment, facilities and on-field quality.

Looking at what may be behind the rapid expansion of the league in the past five years is the fact that the United States, along with neighbors Mexico and Canada, will be hosting a World Cup in 2026. This allows investors across all areas of soccer in the United States to tell a convincing growth story, driving up advertisement pricing, TV revenue and, most significantly, the value of ownership stakes.

Taking one example, the value of MLS teams has skyrocketed according to a recent report from Chris Smith at Forbes magazine, up an average of 30% year-over-year. According to Smith, Atlanta United is worth nearly $500 million. For all the headline grabbing attention of that number, however, Smith’s article goes on to say, “Major League Soccer’s surging expansion fees and sales prices are not being driven by financial performance.”

Club Values

In other words, most Major League Soccer teams still lose money, making it difficult to rationalize the bubbling valuations of clubs. Valuing an organization like Toronto FC that lost almost $20 million in 2018 at nearly $400 million requires investors to be able to tell themselves a story of strong, consistent growth in the future paving the way for franchises to ultimately be profitable entities.

Though there is likely more nuance to the finances of MLS teams than Forbes reports, the numbers make the league look more like, in Silicon Valley parlance, a WeWork than an Amazon, with regular injections of capital at rising valuations supported by hopes of strong growth, rather than solid financial metrics.

For fans of the league, growth driven by tall tales rather than fundamentals is concerning if and when growth slows and ownership groups tighten their belts. While Garber has been largely disciplined in his approach to expanding the size of the league during his tenure, the recent burst of expansion suggests a commissioner who is looking to capitalize on the position of the league heading in the 2026, notwithstanding the sizable gaps between clubs and significant risks presented by such an aggressive strategy.

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