What's behind the rapid inflation in the value of MLS franchises?

Yahoo Sports

What is a Major League Soccer franchise worth? The answer, of course, is dependent on the measures used and, naturally, the franchise. By most yardsticks, though, a place in the division is more valuable than at any other point in its 25-year history, underlined by the recent swelling of LAFC’s worth to $700 million.

The sale of Malaysian businessman and Cardiff City owner Vincent Tan’s 20% stake in the California club generated this new valuation, putting LAFC above Atlanta United (valued at $500 million by Forbes last November) as the most valuable franchise in MLS history. It’s a symbolic surge that represents a wider trend.

A record expansion fee of $325 million was paid by David Tepper, owner of the Carolina Panthers, last December for an MLS franchise in the city of Charlotte. Just five years ago, City Football Group paid a then-record fee of $100 million for NYCFC. The fact that a franchise spot in Charlotte, a much smaller market, commanded more than triple that fee highlights the remarkable inflation in MLS.

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So what’s behind it? And are MLS franchises really worth the numbers being touted? Is this indicative of a league destined to become one of soccer’s very best, or the early signs of a bubble that will one day burst? 

An investment in an MLS club is an investment in the future and a bet on what the sporting landscape in Canada and the United States might look like in decades to come. Soccer is no longer considered a fringe sport, with the Premier League and Champions League now mainstream. The game, and MLS by extension, is here to stay. 

LAFC is the most valuable franchise in Major League Soccer, which has seen club valuations skyrocket in recent years. (Photo by George Walker/Icon Sportswire via Getty Images)
LAFC is the most valuable franchise in Major League Soccer, which has seen club valuations skyrocket in recent years. (Photo by George Walker/Icon Sportswire via Getty Images)

According to Forbes, the average MLS franchise was worth $313 million in 2019, representing a 30% year-over-year increase. With Inter Miami and Nashville SC joining the league this season, and with Austin, Charlotte, Sacramento and St Louis all joining within the next couple seasons, MLS will balloon to 30 franchises. No other American major sports league is currently expanding, so MLS presents an opportunity that might not come around again for a generation. Even at a third of a billion dollars, this is still the most cost-effective way to establish a sports team in the United States and Canada right now.

That said, most MLS clubs remain unprofitable. Forbes estimated that 16 of the league’s 24 franchises had a negative operating income in 2018. The success of clubs such as Atlanta United, LAFC and the Seattle Sounders, teams with big-name players and big-time crowds, are largely masking the losses still being charted by franchises in smaller media markets. At some point, this will have to change, and owners with deeper pockets might have to be attracted to the league.

Jorge Mas, the Cuban businessman who has partnered with David Beckham to establish Inter Miami, fits the bill. “I think the MLS will be one of the top sports leagues in the United States,” Mas said at a media event before the season. “I think it’ll be on par or exceed the best leagues in the world, be it Premier League or Serie A or La Liga. I think the success of the MLS will be global, it won’t only be in our country because soccer is a global sport. So I think of the MLS 25 years from now, we’ll be Premier League-ish, if we want to call it that on the metrics that leagues are measured by.”

Such sentiment was echoed by Ian Ayre, the former Liverpool chief executive who is now Nashville SC CEO. “Every metric you see almost, it grows every year,” he said. “If you continue on that track, you have to believe you catch up with those bigger leagues in Europe.” This belief has driven the rapid rise in the value of MLS clubs.

There is still a lot that MLS has still to figure out. Television audiences, for instance, remain modest at best. While viewership for Premier League and Champions League matches have been strong for some time, MLS games are drawing smaller audiences on average and traditional media remains an arena MLS has struggled to conquer.

The league’s salary cap also presents a challenge. MLS has no shortage of lopsided rosters as clubs, restricted in what they can spend, favor attackers over defenders. There’s no way MLS can match the Premier League and Europe’s best leagues in terms of quality with this structure still in place. MLS must loosen the purse strings to achieve its long-term goals.

Many believe MLS’s expansion has in fact diluted the sporting standard of the division. That the introduction of so many teams in such a short space of time has made an already shallow talent pool even shallower. The counter argument, however, is that stretching MLS’s map will help activate previously untapped sources of talent.

The outlook for MLS is undeniably bright. Last month, the Soccerex Football Finance 100, an annual report which ranks the financial health of the sport’s top 100 teams, featured no fewer than 17 MLS clubs. Only the Premier League (18 teams) had more. This season marks MLS’s 25th, and the strides made over that time have been remarkable.

But the next 25 seasons will determine whether bullish predictions of continued growth were justified or over-exaggerated.

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