Larry Berg has spent more than three decades at private equity firm Apollo Global Management focused on building companies for the long term. He wants to replicate that model at Los Angeles FC, where he serves as managing owner and is part of a cap table of success stories from finance, tech, sports and entertainment. It is more of the same when he attends Major League Soccer owner meetings and looks around the room.
“I look at the profile of people who are writing the checks to be a part of this league because they believe in the future, and it’s pretty impressive,” Berg said in a video interview.
Minnesota United FC owner Bill McGuire echoes Berg. “There is great strength in the people that are in the business, and they have a diversified set of experiences across multiple sports and leagues,” McGuire said. “It helps inform discussion and action.”
The latest to sign on is fellow private equity veteran David Blitzer, who added to his deep sports holdings this year with the purchase of Real Salt Lake, alongside Utah Jazz owner Ryan Smith and Arctos Sports Partners. Blitzer joins eight NFL owners in the league, including three—David Tepper, Jimmy Haslam and the Wilf family—who bought teams over the past four years.
While the NFL is the richest and most powerful sports league in the world, MLS arguably offers a stronger and deeper roster of owners.
Sportico spoke to more than 60 people in and around MLS over the last six weeks, including eight bankers and lawyers involved in team transactions, as well as owners from 10 clubs, to gauge the finances of the league and the next steps it will take to support the frothy valuations people are paying ahead of a historic 10-year streaming pact with Apple.
The average MLS franchise is worth $582 million, up 5.8% over last year by Sportico’s count, with LAFC on top for the second straight year at $900 million. Collectively, the market value of the 28 current franchises, including team-related businesses and real estate held by owners, is $16.3 billion. For a full list of the rankings, click here.
No More Discounts
It is not just billionaires snapping up MLS teams. Smaller investors are buying slivers of clubs at valuations that often exceed what a control sale might fetch. It flips the script on the historical norm where LP team stakes are sold at a discounted price.
Last year, D.C. United sold small stakes in the club at a $710 million valuation, and it is in the final stages of raising additional resources at an enterprise value just over $800 million for the club, its training ground, sports betting business and mixed-use development around Audi Field. Sportico values the enterprise at $700 million, sixth in MLS. Cincinnati FC already closed LP investments this year at a $700 million valuation, according to multiple sources, and is now looking to raise funds at levels close to $800 million, nearly 50% higher than our $550 million estimate.
In January, Blitzer paid less than $400 million for RSL but is selling LP stakes for at least $500 million eight months later. Blitzer replacing Dell Loy Hansen is an upgrade as a sports operator in the owners’ suite, while RSL has a top-level academy and an NWSL expansion franchise slated to start play in 2024. But the LP sales highlight the current disconnect between control and non-control sale prices. RSL is worth $430 million by Sportico’s count. Other clubs are exploring going to market after seeing these transactions.
A $5 million or $10 million check used to be able to get you in the door of the NBA or even NFL as an owner on a small scale. Those days are over. The average NBA franchise is worth $2.6 billion, while the NFL is a steep $4.1 billion. Yet, there is still an appetite from investors with seven figures to commit and be a sports team “owner.” Most MLS owners don’t need the funds, but some have been open to diluting their stakes from local investors willing to come in at high valuations.
PE Jumps In
Like every major U.S. sports league outside of the NFL, MLS has opened its doors to institutional investors. They can own up to 20% in a single franchise, but no franchise can have more than 30% of its equity held by funds. Currently, there is an investment limit of four teams per fund. Sportico is aware of three investments so far from private equity firms, and each has secured favorable terms.
Arctos has invested in at least 18 sports teams and was part of Blitzer’s group that bought RSL. Last year, the private equity firm was part of an unreported 15% sale of the Portland Timbers and NWSL’s Portland Thorns that also included other investors. It was the first time that Merritt Paulson sold a stake in the club his family launched in 2011 after paying an expansion fee of $35 million. The investment was at an enterprise value of $600 million with Arctos securing a more traditional minority discount on its piece. NWSL valuations have soared over the last 12 months, and the Timbers and Thorns both rank among the strongest businesses in their respective leagues. The combined Timbers-Thorns business is worth $685 million, up 8%, and ranks eighth in MLS. Arctos and the Timbers both declined to comment on the Arctos investment.
Ares Management invested in Inter Miami at a valuation of more than $600 million when brothers Jorge and Jose Mas, along with David Beckham, bought out two of their partners, Marcelo Claure and Masayoshi Son in 2021. But the $150 million investment by Ares was for preferred equity, which typically carries better terms than a common equity investment. Inter Miami is worth $585 million, up 11%, and jumps four spots to rank 10th overall. Its value is set to surge higher, as it moves forward with its new $1 billion stadium complex, Freedom Park, that will include a luxury hotel, retail center and office park.
“The future of stadiums is to have them anchor or be part of a bigger development that has life and activities 365 days a year,” Jorge Mas said in a phone interview. “Stand-alone stadiums don’t work anymore.”
I Love LA
After two COVID-19 disrupted seasons and huge operating losses across the board, MLS is on pace to post record attendance of nearly 10 million in 2022, breaking the previous mark of 8.6 million set in 2019. Almost every club is still losing money—losses at NYC FC, Toronto and Inter Miami are all expected to top $20 million this season—but many have pared losses as revenues expanded. The 28 teams are projected to generate $1.6 billion in revenue during the 2022 regular season, after bottoming out at $468 million during 2020 when there were few or no fans in stadiums because of COVID.
LAFC and LA Galaxy ($870 million) are the two most valuable teams in MLS. Both clubs generate ticket and sponsorship revenues that rank among the best in the league, but the two teams have also ramped up their non-MLS businesses.
In 2019, LAFC held three concerts at Banc of California Stadium, but it is on track to host at least 20 this year. The club has a digital billboard business that has the potential to generate more than $10 million annually. LAFC is also expected to announce a new stadium naming rights partner in the coming months to replace Banc of California.
The Galaxy runs a lucrative business putting on soccer matches outside of its home field, Dignity Health Sports Park, including international matches it has promoted this year at Allegiant Stadium and the Rose Bowl featuring Chelsea, Club America, Barcelona, Real Madrid and Juventus. In addition, the team has hosted cold-weather MLS clubs for preseason training on its 125-acre campus for years. In 2022, it expanded the program with the launch of the Coachella Valley Invitational at the site of the music festival operated by AEG. The Galaxy ran it as a pilot program in 2020 for teams to train and play games before a full launch this year. Sixteen clubs have committed to attend in 2023 before the season starts.
The Galaxy’s revenue will also get a bump next year when its jersey sponsorship renewal with Herbalife Nutrition kicks off at an average annual value of $7.25 million. NYC FC has the richest jersey partnership in the league with Etihad Airways at just over $9 million annually.
A Bite From the Apple
The Premier League is the undisputed top soccer league in the world for both its talent and wealth. MLS is knocking on the door of the top 10 leagues by talent and matches up with most non-Big Six EPL teams for sponsor and ticket revenue. But when it comes to TV, there is no comparison. Norwich City finished 20th in the EPL last season and earned $107 million from TV, while Manchester City at the top of the table received a $175 million distribution from the league. MLS teams pocketed roughly $3 million apiece this year from their national media deals.
The league is betting on the most valuable company in the world to move that needle.
In June, MLS and Apple reached a 10-year media deal to stream every match globally on a new subscription service from the tech giant. The deal is worth a minimum of $250 million annually, with upside based on subscription signups. It is four times the league’s previous rights deal, although the gain drops to 3x when you factor in that teams no longer control their local TV rights. Most teams don’t generate any local media revenue of note, outside of a few, like the Galaxy, Seattle Sounders and NYC FC. It is a sacrifice by the well-heeled clubs, similar to when the Mara family acquiesced in the early 1960s as NFL commissioner Pete Rozelle wanted to share TV revenue equally between the New Yorks and Green Bays of the league.
“MLS needed to grow in a different way, and they needed to do something else,” Patrick Crakes, a sports media consultant, said in a phone interview when pointing to low ratings on existing providers ESPN and Fox.
League owners and execs acknowledge there will be growing pains with the transition to full-time streaming. But they are bullish on the potential after hearing Apple veteran Eddy Cue talk at an owners’ meeting this summer about how the company is going to integrate MLS into its entire ecosystem, from Apple Fitness to Apple Watch to Apple News. The company has 1.8 billion active devices globally that it can tap. Everyone around MLS stresses it is a "partnership" and not a rights deal.
“They know a thing or two about being a successful enterprise across multiple decades,” McGuire said. “And they know about innovation and responding to needs of the consumer, which is vital to building a business.”
MLS games right now are a hodgepodge of days and times across ESPN, Fox, Univision and local channels, creating challenges for fans. The Apple deal will bring more uniformity, with all the games on Apple and almost entirely on Saturdays with select Wednesday games. The MLS audience is younger and has adopted streaming more than fans in other U.S. leagues, giving league execs hope those fans will easily migrate to the new service.
“You get judged by the company you keep, and Apple is among the most powerful and innovative brands on the planet,” Larry Freedman, LAFC president, said. “They do things with a view towards winning.”
MLS valuations have exploded during the past 15 years as expansion fees rose from the $10 million Toronto FC paid in 2007 to Tepper’s $325 million entry fee for Charlotte FC, which has been a huge success in its first season with 24,000 season-ticket holders and an MLS record 74,479 fans at its opening match.
Charlotte follows other recent expansion success stories in Austin, Nashville and Cincinnati. St. Louis City SC starts play next year and has already secured 60,000 season ticket deposits. St. Louis will bring another billionaire family into the MLS ownership fold with the Taylors, the founding family of car rental giant Enterprise.
Last year, Sportico valued MLS clubs at an average of 12.2 times their 2019 revenues. Those multiples have contracted to 10.2, based on 2022 revenue and are now closer to other U.S. sports leagues, albeit still rich.
There are a couple of paths for MLS to unlock another wave of value gains. The first involves the Apple deal panning out so well that the next media deal can be another 4x bump.
The other requires the league fixing issues in big markets. New York, Chicago, Houston, Dallas, Boston and the Bay Area are all huge markets with clubs punching below their weight and ranked among the 12 least valuable teams, with the exception of NYC FC. This is unheard of in other sports leagues where big market teams generate the most revenue and carry premium valuations. It is arguably MLS’ biggest weakness and biggest area of opportunity.
Boston, Chicago and New York have less than ideal stadium situations and are sleeping giants if they can figure those out. Valuations for Houston ($475 million) and Dallas ($470 million) are both up more than 10% but sit in the bottom eight of the league and have room to grow. The Dynamo have rebooted under new owner Ted Segal as fans rediscover the team. The club got a boost ahead of the expected arrival of legalized sports betting in Texas. The Dynamo signed a pact with Fubo Gaming that could be worth nearly $180 million over 10 years. The NWSL’s Houston Dash are also part of the organization.
Chicago has tapped an underserved sports audience in the Windy City. Half the fan base does not follow any other Chicago sports team, and 70% of the team’s fans are Hispanic, according to team president Ishwara Glassman Chrein.
Dallas has turned its academy and selling players into a lucrative business, copying a model used by many European clubs. Soccer teams outside the U.S. showing interest in MLS players is a sign of the league’s growth. Last month, the Chicago Fire sold goalkeeper Gabriel Slonina to Chelsea for a minimum of $10 million and the total could reach $15 million.
The Philadelphia Union, Dallas and RSL have the top academies in MLS, by most accounts. The Union cashed in when they sold Brenden Aaronson and Mark McKenzie after the 2020 season when it won the Supporters' Shield for the best regular season record in MLS. Both were brought up through the Union Academy and attended its school, YSC Academy. The school was founded by Union investor Richie Graham. The club cashed in for a second time this spring when Leeds United acquired Aaronson from FC Red Bull Salzburg for $30 million, with $5 million earmarked for the Union. The losses haven’t slowed the team on the pitch, as its 46-goal differential is the second best in the history of the 27-year-old league.