Posted by John Vrooman on Wednesday, September 10, 2014 in Major League Soccer.

Interview with Florida Trend. 

Everyone’s talking about the World Cup and that now is professional soccer’s moment to rise to the top tier of spectator sport in the U.S. Do you agree or are we all drinking the Kool-aid? I think you’ve spoken in the past about the World Cup giving a boost for a few years that fades away after a time.

The US is probably drinking world cup kool-aid, but that is how the growth spurts occur in bringing European football to North America. This is really our only contact with the outside world where football means soccer and the beautiful game is the world’s most popular sport.

 

If we are seeing soccer ascendant, what are the contributing factors?  Is it generational, a result of immigration, of ESPN buying TV rights and marketing it heavily?

The evolution of soccer in the US is similar to the evolution theory of punctuated equilibrium where gradual evolution is punctuated by sudden jumps or leaps. The French call it reculez pour mieux sauter (recoil for a better leap). The World Cup and Olympics are external mega-events that cause sudden pressure for change which punctuate these longer period of slow growth.

The gradual continental drift forces are of course the changing demographics and increased competition among cable sports channels desperately seeking inventory. NA is becoming younger and immigration is bringing appreciation of the world’s game along with it.

The evolving force is not necessarily coming from ESPN but more from the new competition among NBC, FOX and ESPN (ABC). This competition is also a derivative of NBC’s deal with EPL and FOX’s outbidding NBC for current MLS rights and future World Cup rights.

This increases NA exposure to soccer and artificially inflates (4X)  the rights fees necessary for survival. It was after all the coevolution with TV that allowed the NFL to becomes Americas pastime.  Unfortunately MLS games have lower ratings in the US than the EPL and are on par with WNBA.

Florida is poised to see an expansion of professional soccer here. Orlando is moving up to the MLS. Beckham wants to bring MLS to Miami, etc. But as recently as 2001, MLS contracted two Florida teams out of existence. Has the demand for soccer increased enough to lead to a different outcome this time?

The location of sports franchise in the formative years is very unstable and the teams often resemble traveling barnstormers. The necessary immigrant demographic are obvious more present along the two NS coastlines. Orlando City is an economically rational move for other reasons. Orlando-Dayton is the 20^th largest TV market in NA (1.5 TV households) but before the MLS expansion it only had the Magic as it professional franchise.

Compare Orlando to Miami the 17^th largest market with 1.67 million TVHLDS with 4 existing pro franchises before Beckham’s new expansion which is still dependent on a new venue. Orlando City makes sense because of the wide-open market demographic whereas Miami ‘s market is currently saturated with four + 1 clubs. Miami will do fine if they can get a suitable venue.

In terms of demographics, what is the fan base for soccer in the U.S.? Ex-pats from other countries or is it home grown? Would Florida be different?

Florida has the immigrant demographic necessary for success but the age demographic may not be optimal. It is an age old riddle why Florida is baseball heaven and yet its professional MLB franchises are consistently in the lower quartile (regardless of ownership ;-).  The explanation may in fact be the same retirement heaven tourism demographic that may challenge (and already has challenged) the success of MLS

I’ve seen various suggestions for how to market soccer in Florida that seems to break into two camps, one suggesting the best success would be found in trying to sway immigrants to switch allegiances to a Florida team and heavily emphasizing Spanish, the other suggesting the way to go is for more mass appeal. Is there any track record out there to suggest one approach is superior to another?

Do you think soccer will be accretive in terms of fans or will it take them and their dollars from some other pursuit — MLB, NFL, NBA?

MLS is a substitute for other sports to some degree perhaps MLB with roughly the same seasons but soccer fans are relatively few in number but very sophisticated (in spite of match day outfits) and devoted.

They are similar to NHL fans in this respect very loyal in attendance and understanding of the subtleties of the game that are no apparent to the unsophisticated viewer. This beautiful game is inbred in Europeans and Latinos, and so it has a devoted following cultural following in NA but also an existing NA cultural sports barrier to overcome.

Generally speaking, what are the reasons professional soccer expansion will be successful in Florida or the country as a whole?

Fundamentally MLS success will derive from the changing and evolving youth/immigrant demographic in NA, and this is the clearly case in Florida.

What reasons for doubt about its prospects are there?

Soccer has not taken a foot-hold in NA clearly because of its cultural origins and the competition with other major sports in NA.

Is there any kind of parallel for the financial opportunity of soccer team ownership at this point in time with the traditional U.S. sports teams and leagues at a point in their past? For Beckham or the Orlando ownership, is this like getting an AFL franchise before the merger into the NFL or like the Halas or Rooney families in the early days of football?

Yes this very much like family sportsman owners in MLB up to the strike of 1994-95 and the family owned teams in the NFL slowly dying off in the last decade. The difference is of course that these other leagues are already running out of the gate with fully developed inter-generational fan bases. 

This is the adolescent growth spurt for MLS in NA but fortunately new generations of immigrants have brought their love for the beautiful game with them.

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I thought of one additional question. Both Orlando City and the NASL Strikers have at least part Brazilian ownership. I’m wondering whether international ownership is more common in soccer than in other sports? I can’t think of an NFL or NBA team with a non-U.S. owner, though I know the owner of the Tampa Bay Bucs owns Manchester United, or at least I think the family does.

Nintendo president Hiroshi Yamauchi owned the MLB Seattle Mariners and the original NHL Tampa Lightning owner was also Japanese. There are of course several Canadian owners in the NHL.

In contrast foreign ownership runs throughout European football many with cross ownership in the NFL: Jacksonville, Tampa and previously Cleveland Browns. Tom Hicks Previous Texas Rangers and Dallas Stars owner jointly owned the Liverpool EPL with George Gillett previous owner of the Montreal Canadiens from 2007-2010.

Liverpool is since owned by New England Sports Ventures which also owns the Boston Red Sox. So foreign ownership is very common in the EPL and other European football leagues and the owners range from aggressive high flying/spending sugar daddies to opportunists who leverage their respective franchises to the max. The NFL is the most due diligent of all the Leagues with fairly rigorous requirements on residency, cross-ownership and leverage ratios.

As I’m looking at your comments on the evolution theory of punctuated equilibrium, I’m getting a sense of inevitability of MLS in the United States joining the ranks of the other traditional U.S. pro leagues. But will it be a contender with the NFL — a Pepsi to the NFL’s Coke — or will it be more likely to top out at the level of something like the NHL?

It looks like the MLS will most realistically top out at the level of the NHL with similar aficionado fan bases with some cross over casual fans during good seasons and the popularity shocks from the World Cup and other international competitions. It would also be a big boost if a MLS club could win the CONCACAF Champions League (Confederation of North, Central American and Caribbean Association Football) and advance in the FIFA World Club Cup.

The key to MLS location is demographics of the two US coasts for match day attendance but the key to MLS survival is national media rights which also require a presence in mega media markets and the MLS has strategically handled location and recent expansion footprint (see below chart).

Ironically the major media competition seems to be coming from the EPL’s popularity in NA. Although current MLS rights fees have quadrupled with FOX and ESPN/Univision, EPL rights soften the competition among the 3 bidders. The EPL currently has higher TV ratings than MLS in the US and NBCSN (NBC Sports Network)has taken over EPL rights in the US and dropped the future MLS package to FOX (FS1) and ESPN/Univision.

 

NBCSN development strategy has been to focus on sports with smaller dedicated fan bases. NBCSN pays $83.3 million per year for the English Premier League through 2015 and $200 million per year for US NHL TV rights through 2021. By comparison the recent FOX Sports 1, ESPN Univsion 8-year rights package pays MLS about $90 million per year through 2022.

Table 1. Ranking NA TV Households by Designated Market Area (DMA in millions)
Rank	Designated Market Area (DMA)	TVHH	NFL	MLB	NBA	NHL	MLS	TOTAL
1	New York	7.461	2	2	2	3	2	11
2	Los Angeles	5.666	0	2	2	2	2	8
3	Chicago	3.534	1	2	1	1	1	6
4	Philadelphia	2.964	1	1	1	1	1	5
5	Toronto	2.957	0	1	1	1	1	4
6	Dallas-Ft. Worth	2.655	1	1	1	1	1	5
7	San Francisco-Oakland-San Jose	2.519	2	2	1	1	1	7
8	Boston	2.433	1	1	1	1	1	5
9	Washington, DC	2.412	1	1	1	1	1	5
10	Atlanta	2.375	1	1	1	0	1	4
11	Houston	2.289	1	1	1	0	1	4
12	Detroit	1.856	1	1	1	1	0	4
13	Phoenix	1.855	1	1	1	1	0	4
14	Seattle-Tacoma	1.848	1	1	0	0	1	3
15	Tampa-St. Pete	1.828	1	1	0	1	0	3
16	Minneapolis-St. Paul	1.748	1	1	1	1	0	4
17	Miami-Ft. Lauderdale	1.663	1	1	1	1	1	5
18	Denver	1.575	1	1	1	1	1	5
19	Montreal	1.526	0	0	0	1	1	2
20	Orlando-Daytona Beach	1.49	0	0	1	0	1	2
21	Cleveland-Akron	1.485	1	1	1	0	0	3
22	Sacramento	1.388	0	0	1	0	0	1
23	Vancouver	1.329	0	0	0	1	1	2
24	St. Louis	1.255	1	1	0	1	0	3
25	Portland, OR	1.185	0	0	1	0	1	2
26	Pittsburgh	1.182	1	1	0	1	0	3
27	Raleigh-Durham	1.165	0	0	0	1	0	1
28	Charlotte	1.158	1	0	1	0	0	2
29	Indianapolis	1.097	1	0	1	0	0	2
30	Baltimore	1.095	1	1	0	0	0	2
31	San Diego	1.081	1	1	0	0	0	2
32	Nashville	1.043	1	0	0	1	0	2
33	Hartford – New Haven	1	0	0	0	0	0	0
34	Kansas City	0.942	1	1	0	0	1	3
35	Columbus, OH	0.929	0	0	0	1	1	2
36	Salt Lake City	0.921	0	0	1	0	1	2
37	Milwaukee	0.917	1	1	1	0	0	3
38	Cincinnati	0.908	1	1	0	0	0	2
39	San Antonio	0.906	0	0	1	0	0	1
40	Greenville	0.849	0	0	0	0	0	0
41	West Palm Beach	0.81	0	0	0	0	0	0
42	Grand Rapids -Kalamazoo	0.734	0	0	0	0	0	0
43	Austin	0.733	0	0	0	0	0	0
44	Oklahoma City	0.73	0	0	1	0	0	1
45	Las Vegas	0.726	0	0	0	0	0	0
46	Harrisburg	0.725	0	0	0	0	0	0
47	Birmingham	0.719	0	0	0	0	0	0
48	Norfolk	0.719	0	0	0	0	0	0
49	Greensboro	0.705	0	0	0	0	0	0
50	Albuquerque-Santa Fe	0.691	0	0	0	0	0	0
51	Jacksonville	0.676	1	0	0	0	0	1
52	Louisville	0.675	0	0	0	0	0	0
53	Memphis	0.672	0	0	1	0	0	1
54	New Orleans	0.652	1	0	1	0	0	2
55	Buffalo	0.634	1	0	0	1	0	2
	Totals	1.482	32	30	30	26		122
Source: John Vrooman, Nieslen Media and BBM Canada .

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Do you have any thoughts on the future of the NASL and the contribution, good or bad, of Traffic Sports or Davidson to soccer in the U.S.?

The ideal model for a sports league is of course for the franchises to be individually owned with a minimum general partnership share. It is also possible that single entity common ownership may be a temporary way for an infant industry league to survive the problems of competitive imbalance and talent polarization.

But as the league matures and develops the multiple club owners like Lamar Hunt and AEG in the original MLS must ultimately divest ownership in all but one of their clubs. The ultimate steady state is for all clubs to become financially independent and separately owned.

I am not familiar enough with Traffic Sports or Davidson (although I think he previously was with AEG and Anschutz Entertainment Group (AEG) is legit) but I assume he is talking about independent club ownership business model organized as a trade association/league as opposed to the single-entity model used by MLS.

Ultimately as the single-ownership league matures it should evolve into several and separate owners. The timing problem for the evolution or switch is for the single-entity league have enough solidarity to survive the polarization and imbalance of talent that independent clubs will probably create.

A several and separate ownership league will probably by necessity be restricted by revenue sharing, equity ownership requirements and debt rules with labor markets limited by salary caps, which at the limit mimic the single-entity format. So both ownership models may converge into a hybrid league of separate owners with solidarity revenue sharing, salary caps, debt limits and ownership rules.