Expansion Derby

Posted by on Monday, December 16, 2019 in Major League Soccer, Sports Econ Blog.

Interview with Charlotte Business Journal / Atlanta Business Chronicle / Expansion Derby.

MLS is going to name Charlotte as its next expansion city with an announcement Tuesday. Carolina Panthers owner is expected to pay $300 million to $325 million for a team that will share the NFL stadium (with modifications) and likely begin playing in 2021.

I’m hoping you can discuss (or respond by email, whatever you prefer) a couple of questions related to that.

Here goes:

•What do you think made Tepper’s bid successful?

MLS expansion criteria are always in a constant state of flux. The MLS pyramid is now apparently attaching itself to the legitimacy and financial protection of NFL ownership shield. Joint NFL stadium renovation for soccer has overcome an original preference for soccer only stadiums. In the process, Charlotte has jumped from a distant 32nd to next since last Summer, when I projected the expansion fee at $250 million– $50 million more than the going rate. 

Normally the competitive expansion fee would be the expected value of net cash flow from the franchise. The monopoly power of a sports league (1 expansion slot with several bidders) usually inflates the auction price by about 20%. In Charlotte case, Tepper is paying an additional premium of $50 million to $75 million on top of that just to blow away the competition — NFL money talks and MLS listens. 

•What are the biggest challenges to make MLS work in Charlotte?

MLS success usually requires a fan base with significant corporate presence, fully developed youth soccer culture, a sports subsidy friendly local government and an abundance of soccer savvy immigrants from the rest of the European football world. 

•As you know, all but a handful of MLS teams lose money on an operating basis. When do you think that will begin to change?

MLS teams will begin to clear profits when the League quits expanding like a financial pyramid  scheme and vertically integrates with other minor Leagues to form a traditional European soccer player development pyramid with conventional promotion and relegation of teams from season to season. (At least 2 leagues of 20 clubs each). Improving the quality of play on the pitch on par with  the rest of the soccer universe would begin to internalize the current externalization of growth through expansion extortion.

•In the NFL, national TV shares and tickets/sponsorships are some of the most important revenue sources. I’m assuming it’s weighted more toward tickets/sponsorships and local/regional TV at the moment. But I believe MLS is nearing a consolidated media package as soon as 2022. All of which is a long way of asking, what will be the most important revenue sources for Charlotte, assuming the team starts playing in 2021?

The financial structure of the Charlotte MLS club will probably most closely resemble the financial structure of a Sun Belt NHL franchise like the Raleigh Hurricanes. The typical NHL club revenue is about 50 percent gate, 30 percent venue revenue and about 20 percent media. So about 80 percent of revenue will come from the strength of the local fan base and potential of BOA. TV ratings for the English Premier League are probably higher in the US than MLS.

•Lastly, with MLS, Charlotte will now have MLS, NBA and NFL while Raleigh has NHL. Do you anticipate MLB looking at the Carolinas and/or will any of the leagues already in NC look at additions in the next decade? Put another way, does this max out big league sports in NC?

That’s the social welfare problem with monopoly sports leagues. The number of viable markets always exceeds the number of available franchises regardless of the sport. In MLB potential rival league competition is effectively blocked by the minor league system.  So in a competitive market sense Carolina is still viable for a successful MLB club (as are 10 or so potential competitors), but in the reality of a monopoly sports league the market is saturated. But then when it comes to sports league cartels, everything apparently has a price.

Comments are closed.

Back Home   

Sports Econ Blog

V-Man Power Rankings

Chumpzilla Challenge

Sports Econ Publications

League Financials

Sports Econ Reference

Forbes Franchise Values

Salary Caps

Sports Econ Classics