Posted by John Vrooman on Monday, September 11, 2017 in Major League Soccer.

Interview with ESPN FC. 

What’s the optimal size of the league for the number of teams? In terms of supply and demand and market support, should it keep expanding?

This is a trick question, because there are two different league expansion optima. The first is based on the league size that would maximize internal total league profit or value, whereas the second size optima would max out the total satisfaction of owners combined with players and fans.

 The major economic problem is that the latter social optimum is always sacrificed at the expense of the former because of the artificial monopoly power of sports league cartels. The owners always max out the internal optimum (and pyramid scheme expansion fees) at the expense of the external social optimum (and fan and player welfare).

 The internal optimum league size maxes the expansion fees that can be charged to a select few of several competing franchise hopefuls in a monopoly MLS franchise auction that currently pits 10-12 markets against each other for 2-4 artificially limited franchises. It is easy to show that the winners of a monopoly franchise auction systematically overpay a franchise fee that exceeds the present value of the club’s cash flow by 25% to 30%. 

 The current MLS franchise fee is arbitrarily determined and has absolutely nothing to do with the real cost to the league of adding new members. In the current case the expansion fees will exceed the ability of the new clubs to pay the fee from future cash flow. The cash flow numbers just don’t add up to the inflated cartel expansion fees, and the winning franchises will probably seek a heavy public subsidy, or live off future fees in the MLS expansion pyramid scheme.

 The socially optimizing league would be comprised of teams from all markets that could generate a positive profit and the expansion fee would only cover the real cost of league expansion to the existing members. So in the case of the MLS (or for that matter any of the Big 4 NA sports leagues) the internally optimal size could be 26 or 28 MLS clubs, compared to the socially optimizing size of 36 to 40 new clubs.

 This is especially true for an isolated MLS league that relies on mediocre talent drawn from an extremely limited or nonexistent player development pyramid, without the promotion and relegation of clubs among multi-tiered leagues as is found throughout the rest of the unified football universe.

 The most obvious suggestion would of course be to have 40 clubs or more (even 60) subdivided into two (or 3) tiers naturally separated in quality by promotion and relegation between seasons. There are no expansion fees in European football where the clubs reach the top flight through the quality of their play.

Instead of artificially inflating the expansion membership fees from an artificially scarce number of slots, the MLS should probably expand to at least 36 to 40 teams and merge with the NASL and USL (which is already happening) to form a multi-tiered North American soccer pyramid.

 This is the only way to merge the internally and externally optimal league sizes, and to develop NA soccer talent on a level to consistently play the beautiful game on par the rest of the football world.

V