#32 MLS Season in Review: TV Viewership, Attendance & Team Valuations

December 3, 2018

With the MLS Cup Finals between Atlanta United FC (defeating NY Red Bulls by 3:1 on aggregate in the Eastern Conference) and the Portland Timbers (defeating Sporting KC by 3:2 on aggregate in the Western Conference) all set after Thursday's semi-finals, it’s an opportune time to dive deeper into the league’s television viewership and stadium attendance during the 2018 regular season as well as the most-recent franchise valuations:

 

  • Increase on league-wide team valuations was driven by expansion franchises and catch-up of small-market teams.

  •  MLS - owned Soccer United Marketing has become a financial lifeline for a loss-making league in investment mode, but faces serious business challenges itself and becomes less valuable to the individual franchises every time another team joins the closed-league system.

  • TV Viewership benefitted greatly from increased coverage on FOX broadcast channel as both ESPN and FS1 experienced declines on a stand-alone basis.

  • Stadium attendance remained flattish compared to last season despite all expansion franchises boosting above-average audiences.

  • Revenues from domestic media rights are expected to double in 2023 since "FLAT" being the new "UP" in today's media landscape is a common narrative anyways.

 

 

Finally, I share two final thoughts regarding efforts to measure a more complete audience (Linear + Out-of-Home + Streaming) and which role newcomer DAZN could play when it comes to the MLS, or soccer in the United States in general. Before, please check my preview of the MLS from March in which I tackled the league's expansion, first internationalization efforts, and the (delayed) roll-up of the league's subscription-based OTT service "MLS Live" into ESPN's direct-to-consumer streaming service: Verizon's Pivot-to-Video & MLS Season Preview (German-only).

 

 

According to Forbes, the average MLS franchise is now valued at +/- $240m, up from +/- $223m (+ 7.6%) last season. However, excluding the three most recent expansion teams that have joined the closed-league system since 2016 (Atlanta United, Minnesota United & Los Angeles FC), the average valuation only grew by +/- 3.6% to +/- $232m compared to the previous year. In fact, Atlanta United, who just joined the MLS in 2017, is already considered to be the most valuable franchise at a lofty valuation of +/- $330m, largely driven by the largest EV-to-Revenue multiple (10.33x) among all 23 current franchises. The average multiple, instead, has virtually stayed flat across the league (7.18x in 2017 vs. 7.17x in 2018) and even compressed when recent expansion franchises (think: higher expected revenue growth from a smaller base) are excluded (7.18x in 2017 vs. 7.02x in 2018). The average revenue per team has increased by +/- 7.5% to +/- $34.6m in 2018.

 

 

Atlanta United’s lofty multiple, in particular, is driven by higher forward-looking revenue for 2018 as the team played half of its inaugural season in 2017 - on which the current valuation is based on - in another stadium (Georgia Tech’s Bobby Dodd Stadium) before moving in its multi-purpose retractable roof stadium (Mercedes Benz Stadium, 70,000 seats), leaving some revenue on the table during the last season. Having accounted for +/- 25% of all MLS merchandise sold via MLS’s Official Online Store during the team’s inaugural season and by far the highest average attendance during the 2018 regular season (+/- 53,001 fans) to show for make the two-year-old franchise the odds-on favorite for topping the league’s revenue table next year, resulting in a more reasonable multiple going forward.

 

(Admittedly, being an expansion franchise certainly positively impacted sales as the team’s kits and merchandise rarely change from year-to-year in contrast to European soccer and it was their fans’ first opportunity to buy that new merchandise.)

 

The franchise’s immediate on-the-field success while heading into the MLS Cup Final as a heavy favorite (-500, or betting $500 to win $100, via Westgate Superbook) should provide another boost for the team’s valuation and, maybe even more important given the ongoing expansion of the league to 26 teams by 2020, it provides evidence for potential investors in new franchises that not just an attractive team valuation but also success on the pitch can be achieved immediately - normally a rarity in North American major leagues for expansion franchises. What has Atlanta United done differently compared to other franchises? Many have attributed both their on-the-field and following off-the-field success to a refreshing attacking playing style that has rarely been seen in a league dominated by more conventional game plans.

 

On a more macro level, there are at least three other overarching takeaways from the most recent team valuations: First, small-market teams (think: Columbus Crew SC, Colorado Rapids, Vancouver Whitecaps FC, Real Salt Like) seem to have caught up to larger-market teams with each of them boosting above-average increases in valuations (> 10%) compared to last year. Second, absent of significant multiple expansion (unlikely) and one-off events (think: new or renovated soccer-specific stadiums), there seems to little potential grow revenues in-between media rights cycles with nine teams having showing little or no revenue growth (think: below 5%) and league-wide revenues only modestly up (+/- $2.4m) - providing more evidence for the reliance on media rights revenue which is cyclical in nature. 

 

Important to note that franchise valuations by Forbes usually underestimate the transaction value of respective franchises (think: premium to investors due to scarcity, branding, publicity value): Case in point, a controlling stake in D.C. United including their soccer-specific stadium named Allianz Field changed hands for +/- $435m (+/- 64% premium) earlier this year - actually supporting these lofty valuations.

 

 

Howie Long-Short [View of Financial Analyst] on MLS Team Valuations

With the FIFA World Cup being played on North American soil in 2026 and the addition of new (think: United D.C., +15.2% to $265m) or renovated (think: Portland Timbers, +4.5% to $280m) soccer-specific stadiums (think: higher average ticket prices), there are more catalysts for further revenue growth and, by implication, higher valuations for MLS teams on the horizon. However, the MLS continues to be a league in investment and expansion mode (think: salaries for “Designated Players” such as Chicago's Bastian Schweinsteiger (+/- $6.1m in 2018) going far above the league-wide maximum salary of $504,375, new state-of-the-art facilities / training grounds): For this reason, it relies heavily on cross-financing of its loss-making operations (accumulated operating loss in 2018: +/- $63m) through the redistribution of the reliable cash flows from Soccer United Marketing (SUM), which has proven to be vital for the long-term investments thesis in MLS teams. The for-profit marketing and commercial arm of MLS, in which all franchise owners hold an equal share, started out in 2002 to serve as an in-house unit to market the league’s intellectual property (think: media rights, sponsorships, licensing), but has evolved into a dominating marketing and media powerhouse for soccer properties across North and South America including exclusive commercial partnerships the Mexican Football Federation (FMF), US Soccer Federation (USSF) and CONCACAF in addition to the MLS. Most recently valued at +/- $2bn, the teams’ respective share in SUM contributes significantly to the individual franchise valuation. However, with every additional expansion franchise further diluting the ownership stake in SUM, currently sitting at +/- 4.35% per team, more pressure is put on franchises to evolve into profitable operations to compensate for any further dilution going forward to keep up with the ambitious valuations. After years of tremendous growth, however, the soccer-dedicated marketing agencies potentially faces serious challenges for its business as well: Relevent Sports, a new agency backed by Miami Dolphins owner Stephen M. Ross and organizer of the annual International Champions Cup (ICC) with 18 of Europe's biggest soccer clubs as, certainly aspires to take a larger share of the commercial soccer market in the United States going forward - effectively challenging the monopolistic position of SUM for one of the country's fastest growing sports. (see Twitterpost)

 

 

Coming back the impact for the individual MLS franchises: Just over the last two years, the stake in SUM for every team has been diluted by 0.65 percentage points with three additional franchises joining the ownership pool, resulting in a hypothetical loss in valuation for every team of +/- $8m since 2017. Nonetheless, banking expansion fees of at least $150m for any new franchise joining the closed-league system should continue to mitigate any potential opposition by existing owners: FC Cincinnati (2019) and a yet-to-be-named franchise in Nashville (2020) are set enter the MLS shortly - in exchange for $150m each on top of the cost for the mandated soccer-specific stadium that could touch the billion-dollar mark.

 

 

 

Howie Long-Short [View of Sports Fan] on TV Viewership and Stadium Attendance

The league's three most recent additions actually ended up with above-average attendance figures during the 34-game regular season: Atlanta United (1st place, +/- 53,001), Minnesota United (5th place, +/- 23,902), and Los Angeles FC (8th place, +/- 22,042) ranked all among the Top-10. Overall, average attendance during the regular season in 2018 (through 33 out of 34 weeks) has been slightly down to +/- 21,803 compared to last season (- 1.4%). If you are not into the in-stadium experience, domestic soccer fans will have to rely on the league’s broadcasting partners ESPN and Fox Sports (+/- $75m per season) as well as Univision (+/- $15m per season) through 2022 to get their weekly dose of MLS games.

Total viewership for the 2018 regular season was up +/- 5.7% from 26.3m to 27.8m viewers across all broadcasting windows and networks, via Sports Business Journal. At first glance, these viewership numbers are tremendous given today's on-demand culture when it comes to media consumption. Although a similar year-over-year increase for the NFL through week 12 across all broadcast networks and windows (+/- 5.0%) makes even great headlines currently and the previously high-flying NBA is actually down one month into the season (TNT: - 26% & ESPN: -6%), there are some caveats for the MLS which is supposedly still in major growth mode: MLS viewership is probably somewhat inflated by the carriage of six games on the FOX broadcast channel (+/- 988,000 viewers on average) during the FIFA World Cup 2018 in Russia, benefiting greatly from highly-watch lead-in programming in addition to the broader over-the-air distribution (+/- 120m TV households) instead of the rights holders’ pay-TV channels (max. +/- 90m subscribers). In fact, linear viewership numbers on both ESPN (-8%) and FS1 (-15%) were actually down compared to last season on a stand-alone basis.

 

 

The problem going forward: Being right in the middle of its current domestic media rights deal (2015-22) without a FIFA World Cup on the horizon until 2022, the MLS will probably face a slight pull-back in TV ratings until the next rights cycle be negotiated around 2020/21.

 

It should still be expected that the MLS will be able to at least double its domestic media rights revenue, exceeding the NHL’s current deal with NBC (+/- $200m per season) and, therefore, challenging ice hockey in yet another category for its fourth place among US major sports leagues. However, non-monetary aspects should also be considered given the league’s overall objective: turning the United States and Canada into soccer-nations. Prioritizing increased broadcast coverage on over-the-air channels over slight differences in revenues might be a reasonable approach in order to penetrate the North American market beyond the hardcore soccer fans (think: EPL’s breakthrough thanks in part to broader coverage on NBC). Such considerations could certainly be an obstacle for digital-only player DAZN, in particular, who I consider a dark horse candidate (read: front-runner) for an MLS package starting 2023: DAZN Chairman John Skipper is a vivid soccer fan and probably losing out on any NFL package in 2021 (ESPN) and 2022 (CBS, FOX & NBC) could quickly shift their focus to the MLS. However, we might not even have to wait much longer until we see some more soccer programming on DAZN as I recently pointed out on Twitter. (see: Twitterpost)

 

Another positive note from the media side: According to Forbes, MLS Commissioner Don Garber said the MLS has actually done better than expected during the league’s first year on the newly-launched ESPN+ platform, after the league-owned OTT service called “MLS LIVE” was rolled up into ESPN’s new streaming platform before the season. In addition to ESPN being one of two rights holders for the English-language broadcast, both entities were already tied up on the technological side as Disney-owned BAMTech Media provided the backend infrastructure for MLS LIVE since its launch - making ESPN+ the exclusive home of Major League Soccer’s out-of-home streaming package an obvious decision. Important to add that total viewership on ESPN (Linear + Out-of-Home + Streaming) was actually up by +/- 13% compared to last season, which comes to no surprise given these changes. ESPN has been at the forefront of trying to measure a more complete audience that goes beyond the traditional ratings by signing up to Nielsen's new measurement as the first major television network at the end of last year: Although "The Worldwide Leader in Sports" saw immediate returns with a significant uptick in total viewership (+/- 23%) for October 2017 and a broader adoption by other networks over the last few months, establishing this new measurement as official currency in the advertising market will be another discussion going forward. (see: Twitterpost)

 

Then there is the recently discussed merger with the Mexican Liga MX. Although the scenario of a "North American Super League" across Canada, the United States, and Mexico should remain a pipe-drive of a few executives (think: Enrique Bonilla, President of Liga MX) for several reasons (think: MLS's closed-league system and opposition of promotion/relegation, total league size of 50 teams, franchise vs. association - model), the two leagues at least entered a formal partnership (think: Campeones Cup) for the first time in order to compete together with leagues in Europe and the rest of the world. But even in absence such drastic measures, in which, at least from a fan interest's point of view, the MLS would actually be "the little brother," media revenues for the MLS should continue to rise: Being located in the world's biggest sports media rights market (+/- 40% share of $49.5bn global market volume) should certainly help in this regard.

Other challenges such as the quality of the on-field (or -pitch) product and limited integration with the rest of the soccer world (think: anti-cyclical season schedule, salary cap, closed-league system) will keep MLS executive busy, nonetheless. 

 

Next Saturday (12/9) at 8pm ET, the MLS will return to the FOX broadcast channel with its all-deciding MLS Cup Final taking place in the Mercedes-Benz Stadium. Since 2012, the finals have been hosted by the participant with the highest point total during the regular season instead of a predetermined neutral-side venue. Fifth-seat Portland Timbers (54 pts.) will have to relish the underdog role (+375, or betting $100 to win $375, via Westgate Superbook) one last time against Atlanta United (62 pts.) that finished second in the West Conference during the eight-months-long regular season running from March through October. An interesting thing to watch will be whether this match-up will become the most-watched game of the season: Atlanta United against Seattle Sounders, immediately following the FIFA World Cup Final on July 15, averaged 1.59m viewers on FOX, the best figure for any MLS match since 2004. Another record that might be broken on Saturday: With the more than 70,000 seats at Mercedes-Benz Stadium, it will be the highest attendance to date for an MLS Cup Final. Despite the great ticket supply, even the average resale price on the secondary market could be the most expensive in nearly a decade, currently hovering around +/- $300 per seat, according to The Atlanta Journal-Constitution.

 

Editor Note: This column was published in an edited, shortened version on JohnWallStreet.com, a daily newsletter covering the intersection of sports and finance. If professional teams & stadiums, television networks, and companies in the area of apparel/footwear, equipment, ticketing, or content trade on Wall Street, and have a sports angle, it’s in their wheelhouse. Get your daily dose of sports business with Howie Long-Short (financial analyst) and Fan Marino (sports fan) each providing their expert opinions on the day's top stories: Subscribe here to the JWS Newsletter. You can also follow me (@yannickramcke) and the friends over at JohnWallStreet (@JohnWallStreet) on Twitter.

 

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