Major League Soccer is close to changing its ownership rules to allow investment funds to take minority stakes in clubs, a move that should make it easier for teams to access cash at a time when revenue is down for all U.S. sports.
The league is currently exploring the change, which is expected to be adopted, according to two people familiar with the plans. MLS would join the NHL and MLB as major U.S. leagues that allow private equity ownership.
The final rules are expected to impose limitations on how much of a given team can be owned, and how many teams can be included in one portfolio, according to one of the people. Both were granted anonymity because the discussions are private.
Traditionally, MLS owners have been wealthy individuals, and teams looking for cash have generally had two options—find more wealthy minority investors or perform capital calls on existing partners. Private equity may provide a third solution. MLS declined to comment.
That’s more important today than it has been in the past. Like all U.S. sports leagues, MLS was forced to disrupt its 2020 season due to the global pandemic. The league started play of a three-week tournament without fans on Wednesday at the Walt Disney World Resort in Florida. Nashville FC and FC Dallas have both withdrawn from the competition due to a number of positive COVID-19 tests. If possible, MLS plans to continue playing games across the country once the tournament is over.
Though it’s not ideal—MLS clubs typically generate 40% to 50% of their revenue from ticket sales—the league is one of the first to resume games domestically, and all of the tournament’s games will be broadcast through its TV partners. Regardless, each MLS team will likely lose $20 million to $30 million this year in uncaptured revenues, one team executive told Sportico.
The change will be welcome in some private equity circles. Earlier this year, former Madison Square Garden CEO Doc O’Connor and private equity veteran Ian Charles launched Arctos Sports Partners with the mission to invest in major U.S. leagues and European soccer. Another firm, Kapital Football Group, is planning to build out a portfolio of soccer properties around the world.
The major U.S. leagues differ in their approach to private equity money. While it’s permitted with some restrictions in the NHL and MLB, it’s not currently allowed in the NBA or NFL. The NBA is working on is own related approach and earlier this year named Dyal Capital Partners, a division of investment management company Neuberger Berman, to oversee interest in its teams. Details haven’t been finalized.