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Monday, March 19, 2007
MLS financial landscape seems relatively healthy

Steve Davis, ESPNsoccernet

A report that Red Bull New York dropped $14 million into a financial sinkhole in 2006 certainly isn't the kind of happy news the MLS prefers trumpeted as it merges into a season of big TV bucks and the David Beckham PR bonanza.

But the North Jersey Herald News, citing sources familiar with the club, said Red Bull New York did indeed lose that amount last year, as the Austrian drink maker charged brazenly into MLS ownership waving huge wads of cash.

Ultimately, the Red Bull organization failed to turn their marketing efforts into anything close to profit, as the handsome crowds never materialized despite a few flashy (read: expensive) sideshows attached to MLS contests. The Red Bull averaged a 14,570 per game, a number skewed by a couple of big crowds. Most matches attracted fewer than 10,000.

Team officials have declined to comment on the report. Losses, of course, are nothing new in the MLS world. Only one or two clubs have managed to turn a profit in a given season, and even then the term "profit" is subjective.

But the amount of money New York may have squandered last year, assuming the report is accurate, does set apart the effort as an exercise in extreme fiscal futility.

It would be the single largest loss ever for an MLS club over one season.

So, just where does such an eye-popping figure fit in the bigger MLS puzzle?

And how does that compare to other teams?

Generally speaking, when you start examining the MLS and its financials, it's all as foggy as a Westminster morning. So much of the true financial picture is obscured by a multi-layered corporate labyrinth. AEG, for instance, now owns three teams and two buildings. So it is tough to pin down how much is coming and going, and into which sock drawer it's all being stashed.

The Kraft family owns its stadium in New England, so some office and operating costs are effectively defrayed. The Colorado Rapids are part of the Kroenke Sports Enterprise, which overseas the Pepsi Center, the NHL's Colorado Avalanche and the NBA's Denver Nuggets. A certain amount of the company's staff crosses over, making it difficult to create A to B connections when it comes to revenue and expenses.

So gaining a true picture of the league's financial health is never easy, and league or club officials have rarely been forthcoming. From the players' union law suit of the late 1990s we learned the league lost about $250 million over its first five or so years.

Later, sources said the league's losses were closer to $30 million a year toward the latter half of that period, with enormous startup costs accounting for the remainder of the reported red ink.

It's safe to assume the amount of yearly losses has declined since the league shed weaker franchises in Tampa and Miami, collected expansion fees and made money by selling clubs in Denver, D.C., New York and Kansas City. So, a $14 million hit to one club would indeed represent a dreadful performance.

Where did the RBNY money go? Giants Stadium has always been a huge financial drain, and last season was certainly no different. The club pays somewhere around $100,000 per contest in rent. That's before other operating costs are factored in, which makes for a huge hit for more than 20 home games. And that's not even beginning to factor in the colossal costs attached to Ringling Brothers-type gambits that the Red Bull used in an effort to attract big crowds -- attempts that proved only marginally successful, at best.

Even if the losses don't represent a huge problem for the flush energy drink makers, it doesn't look good for the soccer club, especially as more clubs are passing financial muster these days. Just west of New York, Toronto FC has sold out its allotment of 14,000 season tickets. That's a first for an MLS club, and it stations the league's newest entry on a solid fiscal foundation right away.

Other clubs are beginning to dam up the steady flow of losses that have afflicted the league since its 1996 birth. Hunt Sports Group officials reported a small profit in 2006, although they never elaborated. The Los Angeles Galaxy already turns a profit, Chivas USA can't be far from it, and Columbus is among the clubs that keeps its losses to a minimum. It's all about stadium ownership, obviously.

Of course, in all those cases, "profit" or "profit-potential" comes with an asterisk. When HSG officials discuss profit and loss for 2006, they aren't factoring in the construction costs for Pizza Hut Park. Their financial stake in the suburban Dallas facility, which opened in 2005, was about $85 million. And that amount won't be quickly recouped.

RBNY's losses underscore an important point, which transcends soccer and the MLS: The business of sports is rife with tales of financial woe. This side of the NFL, the NBA and a few select franchises in Major League Baseball, the P&L ledger sheet can be downright ugly, often awash in red ink.

Before the NHL began tidying up financially (after a prolonged lockout), that league was hemorrhaging money at alarming rates. The league claimed collective losses of $273 million for the two years up to and including the 2002-03 season. (The amount of NHL losses was highly contentious at the time, with the players union and the league varying wildly on reports of financial distress.)

Back to the MLS: There's an important element of timing here. When is the good time to toss $14 million into the Hudson River? The answer, of course, is never.

Then again, the MLS is in a decent position cash-flow wise, thanks to new TV deals. Recently signed broadcasting agreements with ABC/ESPN, Fox Soccer Channel and Fox Sports en Espanol, HDNet, and Univision have the MLS flush with cash -- at least by its standards.

And the highly successful energy drink makers get something, at least, for all their money spent. Every time somebody writes "Red Bull New York", says "Red Bull" during a TV broadcast or flashes an image with the Red Bull brand likeness, it's another "ka-ching!" on the ol' marketing cash register. Red Bull, after all, is a brand, not just a soccer team.

It's just that the soccer team is proving to be an awfully expensive exercise in branding these days.

Steve Davis is a Dallas-based freelance writer who covers MLS for ESPNsoccernet. He can be reached at BigTexSoccer@yahoo.com.


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