MLS in negotiations to sell part of SUM to equity firm

[kodiakTFC]

http://www.sportsbusinessdaily.com/Journal/Issues/2011/09/12/Leagues-and-Governing-Bodies/MLS-SUM.aspx

I'll just post the two important parts..

1. "The talks have been going on for several weeks and those close to the discussions say that Providence is interested in obtaining up to a 25 percent stake in SUM for $125 million to $150 million. Such a deal would value SUM at between $500 million and $600 million."

2. "The league is likely to distribute at least some of the proceeds among its shareholder-owners, who, as a group, have experienced hundreds of millions of dollars in losses since MLS’s inception in 1996, sources said. The league also could use some of the money to create a fund to help attract better players. Inside MLS team circles, there’s been a constant call to improve the state of play, which ideally would lead to greater interest in the league from soccer aficionados, who still view MLS play as being of lower quality than other international leagues."

My view. $150 million split amongst the 19 owners seems like the best thing to do, a lot of the lower teams could use the influx of cash after losing so much for years. Furthermore, it would value the product very highly and increase future expansion fees.

[[NBF]]

I don't know about this move. $125 million seems a bit low, and considering the losses that the article is referring to I seem to remember Lamar Hunt, the KC Chiefs(NFL), KC Wizards and Columbus Crew owner saying that he and several investors had personally lost alot of money in the soccer league, but it was an investment in the future considering the success of the World Cup in 1994. The only people in my opinion that might be worried about recouping their money would be new owners that have not been around since 1996 or the originals owners in the league who are willing to seek some money in return from this deal and are willing to sell their franchises in order to get out of the business all together.

It might also be that the "2nd and 3rd DP Rule" has gained interest amongst all of the teams and the league want to have the money in hand in order to pay for a maximum of "3 DP's" per team in the 2012 season. If that's the case, we seem to be going up a notch and the league goes up a notch, its sort of like going up an escalator thats heading down and we want to go up. L-O-L

[rocker]

I wonder though if the original owners should take the money.

I mean, yeah, Kraft spent a shitload of money propping up the league. But he's a rich bastard who probably doesn't have an bank loan sitting there that he now has to pay off. He probably covered those losses with his NFL money. So morally, it's nice to toss him some millions now as a gift, but $7-10 million isnt going to make a big difference to him.

What would be smart would be to continue investing every cent of this money and then using it to improve the quality of play (which is improving already, but needs to get better faster.... #1 thing in my mind now that we have solid owners and most have stadiums and academies).

They could take the whole 125 million, invest it @ even 5% and get $6.2 million just in interest payments every year. Divided by 19 teams, that could be an extra 320,000 per team increase in the cap without even touching the principal -- if they cut into the principal, imagine what they could add over time? (although you'd worry about what'd happen if the principal ran out and the league revenues weren't enough to continue the higher cap number). If you raise the cap 320K, you could add the equivalent of two solid MLS players next year. Or you could get one of these new "young DPs" and still have money left over. That doesn't take into account the normal cap increases that MLS does based on revenue increases.

[kodiakTFC]

They could take the whole 125 million, invest it @ even 5% and get $6.2 million just in interest payments every year. Divided by 19 teams, that could be an extra 320,000 per team increase in the cap without even touching the principal -- if they cut into the principal, imagine what they could add over time? (although you'd worry about what'd happen if the principal ran out and the league revenues weren't enough to continue the higher cap number). If you raise the cap 320K, you could add the equivalent of two solid MLS players next year. Or you could get one of these new "young DPs" and still have money left over. That doesn't take into account the normal cap increases that MLS does based on revenue increases.

Very interesting idea. I like it a lot, 320k is a 10% increase on the cap and would be great for further depth.

[Yohan]

personally, I think the original owners/investors who have kept the league going since the beginning deserve a little money back

[ensco]

1) Providence are huge hitters. Any deal with them would be a feather in MLS' cap.
2) SUM is not worth anything close to that amount, imho. They are a rights holder with no distribution, who have to compete to renew rights in the open market.

[Pookie]

2. "The league is likely to distribute at least some of the proceeds among its shareholder-owners, who, as a group, have experienced hundreds of millions of dollars in losses since MLS’s inception in 1996, sources said. The league also could use some of the money to create a fund to help attract better players. Inside MLS team circles, there’s been a constant call to improve the state of play, which ideally would lead to greater interest in the league from soccer aficionados, who still view MLS play as being of lower quality than other international leagues."



This is the tidbit that we don't seem to really grasp as supporters of a team in this league.

As a single entity owner, there is really no check and balance as to where these better players would end up. It is in the league's interest, read: shareholder-owner interest, for them to end up in big TV markets.

Which is fine from a business standpoint but from a fairness/competitive perspective, it smells a lot like "fixin'"

[Oldtimer]

1) Providence are huge hitters. Any deal with them would be a feather in MLS' cap.
2) SUM is not worth anything close to that amount, imho. They are a rights holder with no distribution, who have to compete to renew rights in the open market.

According to Duane Rollins, its whispered that SUM paid TFC $10 million in one year alone. That's just one team. If that kind of money is true, then the sale price actually looks kind of undervalued.

[ensco]

According to Duane Rollins, its whispered that SUM paid TFC $10 million in one year alone. That's just one team. If that kind of money is true, then the sale price actually looks kind of undervalued.

BS is full of rumours like that. My recollection from the Portland expansion document is that the SUM distribution was $1.5 million per team in 2008 or 2009, which implies $30 million league-wide, which is worth maybe $150-300 million total (I would argue it's towards the lower end of that, given the short term nature of SUM's contracts). This article above is implying something 4x that number.

Strategically, I just don't understand how SUM's business can be that interesting/attractive/defensible, so that it can earn a multiple higher than 5-7x earnings. By contrast, MLSE is worth 15-20x earnings, and I completely understand why.

Last I checked, MLS itself doesn't have ratings worth talking about, and they haven't changed much over the years. For the World Cup and other big events SUM do, that's where the bulk of the SUM earnings are (ABC drew NFL playoff type numbers for big WC games) but....they have to rebuy those rights every time. Those are highly competitive bid processes and, generically, rightsholders lose money on big sports events all the time (eg every single Olympics is a money loser). TV networks aren't idiots.

Where's the growth in SUM? As soccer grows, they'll have to pay up for rights.

I know enough about that business to say, I just don't get it. I could be wrong about how someone else might see it.

[prizby]

According to Duane Rollins, its whispered that SUM paid TFC $10 million in one year alone. That's just one team. If that kind of money is true, then the sale price actually looks kind of undervalued.

and according to duane rollins, the red patch boys were no where to be found in the 2nd half of the may 25th match against vancouver in the rain...