Today's American soccer Twittersphere was rocked to its very core with allegations by Soccernomics author Stefan Szymanski that MLS is a pyramid scheme -- and he's got the numbers to kind of prove it!
Let's start from the beginning of Szymanski's article. He quotes MLS Deputy Commissioner Mark Abbott, who says that in 2014, "on a combined basis, MLS and its clubs continue to lose in excess of $100 million per year."
OK, let's assume those numbers are true and not an MLS ploy to seem poor for union CBA negotiations. With 20 clubs, that would work out to in excess of $5 million of losses per club per year. For MLS ownership groups with billions of dollars, for whom $5 million is basically an accounting error or what they spend yearly on catering, this is not that grand of an expense. (If you have just $1 billion, as an example, $5 million is 0.5% of your wealth. You can make that up in the final analysis through accounting tricks or switching to one-ply toilet paper.)
But Szymanski goes further than that. He says, "Thanks to the help of an anonymous source with an intimate knowledge of MLS finances, I have constructed an approximate income statement for the league to demonstrate just why MLS loses money." (Not sure what "intimate knowledge" of MLS finances entails, but since this is a family blog, I sure hope it's G-rated.)
Szymanski then takes us on a wild ride of guesstimates, "probablys," and "must be"s when calculating his imaginary MLS financial books. With a Deep Throat-esque anonymous source like he has access to, you'd think he'd have more concrete numbers. Nope.
But my favorite part is where Szymanski at one point says he will "ignore" certain stadium costs and revenues (revenues like concerts and other sporting events that are quite lucrative) because they depend on whether a club owns their stadium or not. That's a hefty chunk of ownership value that Szymanski just, uh, throws out of the equation.
Ultimately, in Szymanski's final construction, he estimates MLS has $233 million in revenue and $392 million in costs -- netting a $159 million yearly loss, or $7.95 million per club. This isn't that far off from what MLS itself contends its losses are ("in excess" of $5 million a year per club). So what is the grand reveal here?
The grand reveal, in Szymanski's mind, is that this means MLS sounds "like a pyramid scheme." The only problem is that Szymanski isn't correctly using the term "pyramid scheme."
If MLS were taking large amounts of money from investors and putting that money directly into current operations of an entity with no underlying value -- with investors just praying they're not the ones left holding the bag at the end of the day -- that would be a pyramid scheme.
But MLS investors DO want to be left holding the bag. That's the point! There's a lot in that bag. There are stadiums and land, domestic and international TV deals, major corporate sponsorships, growing fan bases -- not to mention owners are placing a first-division foothold investment in the most popular global sport, growing yearly in the largest economy in the world, for relatively paltry amounts compared to other American leagues.
There's a reason rich people are tripping over themselves to buy into MLS. And it's not because they're being fooled (somehow) by numbers that MLS has already publicly announced. It's not because they're just throwing their money after bad like idiots with a gambling addiction. It's because they stand to make vast sums of cash a decade or two from now. They're buying into a market with a short supply of teams in a country with voracious demand for sports.
George Steinbrenner bought the New York Yankees for $8.8 million; today, they're worth over $2 billion. The Clippers were bought for $12.5 million in 1981; they themselves sold for $2 billion in 2014. Even American sports teams on the lower end of their respective leagues' totem poles -- the Milwaukee Bucks, the Buffalo Bills -- have shown astronomical rates of value growth in the past 15 years. Lowly Chivas USA was sold for $70 million back to MLS, after an initial $35 million investment by owner Jorge Vergara. That's a doubling of value in 10 years for a team with the worst attendance and revenue in MLS.
These owners are not idiots. MLS is not a scam. And the business model Soccernomics author Stefan Szymanski lays out in his article is not one based on lies and losses. It's based on investment and improvement built upon a strong foundation at the top of the American soccer pyramid. The sturdy Egyptian kind, not the scheme kind.