After a four month, COVID-19-induced hiatus, ‘MLS is Back’ (on Wednesday) with a new three-week tournament. Regular season points and a spot in the 2021 Concacaf Champions League will be on the line when play resumes behind closed doors at the Walt Disney World Resort in Orlando, Fla. (All 54 games will be televised by the ESPN, Fox Sports and Univision families of networks.) On the surface, holding games sans fans wouldn’t seem to make a whole lot of sense for a league whose teams generate 40% to 50% of their revenues from the live gate. But the ‘MLS is Back’ tournament (and the prospect of continuing their regular season at a later date) enables the league to retain relevance in a crowded U.S. sports market and should result in a net-positive on team financials, in both the short and long term.
Our Take: The sports calendar is relatively bare right now, so MLS should have an opportunity to capture the spotlight over the next few weeks. While it remains to be seen if the league can attract the casual fan who is simply craving live sports programming, by resuming play the league can be sure—at a minimum—that it maintains the momentum and fan base it has worked so hard to establish over the last 25 years.
Canceling the season—at a time when nearly every other sports league in the world has returned or is planning to return—would have also been damaging from a future-revenue perspective. One well-respected media executive said that if MLS had called it a season, “questions about the economic soundness and long-term viability of the league” would have arisen. That would be especially problematic with their domestic broadcast rights coming up for renegotiation in 2022: “Any media property that takes a year off is out of sight and out of mind. It’s good business [with its rights coming up] for the league to retain fan engagement and awareness.”
MLS clubs currently rake in less than $3 million/year in broadcast revenues (their national deal is worth between $65 million and $70 million), so they lack the obvious financial incentive to play games in a bubble that teams in leagues with billion-dollar television deals have. But there are money-savings to be realized by participating in the ‘MLS is Back’ tournament. While “every team is going to lose $20 million to $30 million this year in un-captured revenues [even if the games are played], annual losses would likely be between $30 million and $35 million per team if the league were to cancel the balance of the season now.” One high-ranking team executive (granted anonymity as club financials are not available to the public) explained that costs would roughly be the same in both scenarios, assuming the owners aren’t prepared to blow up labor negotiations after recently agreeing on a new CBA and would likely pay the players even if the season were canceled. Getting back on the field gives teams the opportunity to scrape back a portion of lost revenues. It’s also believed that by playing games and keeping the fans engaged, teams should benefit from a season ticket–retention perspective, which is important when you consider issuing full season-ticket rebates for 2020 would cost “$10 million to $15 million higher [per club].”
MLS has deep-pocketed owners (or consortiums of owners capable of making capital calls), so it’s not as if clubs need to play this season to avoid bankruptcy, but with many teams carrying considerable stadium debt and record valuations being assigned to franchises across the league, minimizing losses remains an important factor in the league’s decision-making process. The ‘MLS is Back’ tournament should positively affect team P&Ls as the game inventory gives teams a hook for sponsorship fulfillment. Remember, the category is responsible for +/- 40% of all revenue clubs bring in.
It’s going to be a challenge for teams to come up with creative solutions to replace all of the lost in-stadium activation opportunities (think: digital channels, white spaces in venue, carve-outs within the national broadcasts). But the team executive we spoke to said most of his club’s partners have committed to paying “all of the money owed this year and are treating [the season] as if [the team] is fulfilling its end of the contract.” That’s likely because if you look at team partner portfolios across the league, they’re mostly comprised of regional or local businesses, and “those companies don’t want to be seen as bad business people within the community.”