‘Too Small to Succeed’: The perils of owning a lower-division pro soccer team
Photo credit: Robbie Mehling/Soc Takes
The lower divisions of American soccer are a tumultuous place. Whether it is the collapse of individual clubs, irresponsible behavior toward players or the death of an entire league, the stories of instability are as commonplace as a PBR at your local dive bar.
Yet, there is one narrative we — certainly I — do not often pay attention to.
The owners.
The current status of lower-division American soccer, specifically Division II and Division III men’s professional soccer, means that owners don’t stick around. Not because they don’t want to. Not because they don’t care about the sport. They simply cannot afford to.
And this probably isn’t news to you.
As things stand currently, teams are losing millions every year. And no, I’m not just talking about a team owned by everyone’s favorite lower-division braggadocios billionaire who claims to have lost $18 million. I’m talking about responsible owners, who are consistently finding themselves in the red year after year, with no real respite in sight.
And unless you believe there is an infinite pool of investors worth $20 million who are interested in investing in lower-division soccer, something has to change. Soon. Or else, all of this is simply “Too Small to Succeed.”
THE NUMBERS (please read the caveats at the end of this article)
In researching this article, I spoke to eight owners and/or GMs who were at an American DII club within the last twelve months. They consistently revealed that their teams have lost between $2-$5 million every year.
According to the aforementioned individuals, between 33-60 percent of their expenditure goes toward wages for players, coaches and front office staff. Other areas of expenditure include stadium costs, travel budgets and workers compensation. This cost can range from 20-40 percent of expenditure according to information provided to Soc Takes. Game day production, charitable events, marketing and sales efforts are the other areas of significant expenditure for lower-division teams. Finally, owners pay a security bond each year amounting to between $250,000-$750,000 and a non-refundable participation fee of $150,000 each year.
In terms of revenue, ticket sales bring in between 30-50 percent of revenue, corporate sponsors bring in between 40-50 percent, while merchandise and concessions provide the remainder of the revenue.
And that revenue is nowhere close to meeting the expenditure.
THE CONSEQUENCE
The obvious consequence of all this is that owners dip their toes into the frigid, unforgiving pond of lower-division soccer, and simply walk away. The evidence is in the numbers. I analyzed the shelf-life of current ownership in lower-division professional soccer. Per the analysis, the average amount of time current owners have been primary investors in their teams is 2.46 years. The median is 2 years. The range is 0.25-8 years. 21 out of the 29 (72.4 percent) teams have had ownership groups invested for three years or less.
There are currently only eight (27.6 percent) ownership groups that have committed to their team for four active years: Indy Eleven’s Ersal Ozdemir, OKC Energy FC’s “Prodigal LLC,” Tampa Bay Rowdies’ Bill Edwards, Ottawa Fury FC’s “Ottawa Sports and Entertainment,” Pittsburgh Riverhounds’ Terry Shallenberger, a subset of Phoenix Rising FC’s ownership and Charlotte Independence’s Queen City Soccer Club.
Of the eight, Independence ownership recently brought on additional investors, while Bill Edwards has been rumored to be looking for the same. Also, the future of Ozdemir’s commitment to Indy XI seems equivocal after it was revealed that Ozdemir may have lost around twenty million dollars on the club.
The major outlier is the Richmond Kickers ownership who, per a team spokesperson, has invested in the club since 2010. Per our analysis, that makes them the most committed owners in lower-division soccer.
There seem to be three ownership models currently in the USL. The early teams, who are trying to decide between selling and finding additional investors to mitigate losing millions each year. And MLS dreamers, who are investing heavily in their teams in order to attract the roving Eye of Garber. And finally, there has been a recent influx of owners in the USL who happen to also own baseball teams. By investing in soccer, these owners are able to drive more tickets and schedule more dates into their baseball stadiums.
This triumvirate set of owners are using disparate methodological solutions to the problem.
THE SOLUTIONS
There are a few solutions that this author can think of. None of these solutions manage to immediately bring teams into financial balance. However, perhaps the implementation of one or more of these solutions would incentivize owners to stay with their teams for longer than a couple of years by reducing the magnitude of their losses and increasing revenue.
1. Wait for organic growth
This is the conservative option that all of us assume is happening and want to believe in. There is some evidence supporting it. Per the USL’s franchise agreement provided to Soc Takes by a source, the expansion fee for the USL has increased from $3 million to $5 million. Therefore, an owner can simply hope to recoup his investment by eventually selling his team at an appreciated dollar amount. Yet, unless the value of USL clubs increases significantly, it is difficult to see an offset of annual losses amounting in millions.
The other ways organic growth can help mitigate costs are rising attendance and increased corporate interest in lower-division soccer. Currently, it is an open secret that teams are vastly over-reporting their attendance numbers. These attendance numbers are providing a false sense of security to lower-division fans.
The truth is, teams are not generating enough gate revenue to offset costs. Perhaps that will change as the USL continues to strengthen, but we are nowhere close to that reality. Certainly, upcoming USL teams are promising expansive stadium seating of 15,000.
The USL and its teams (such as Las Vegas Lights FC) have made some strong moves in the corporate sponsor market of late. Most notably, the USL’s partnership with ESPN+. But here’s the thing with the ESPN+ deal. Per the USL franchise agreement, teams will have to pay the league a “television participation fee” now that the league has a national television contract. Moreover, teams are responsible for producing and financing their own TV production. So unless the league is, in turn, paying out to USL teams, this will mean more of a financial burden for owners. And this isn’t a partisan issue. The NASL had a similar clause in its contract and presumably functioned the same way — placing all the financial burden of TV production onto owners.
Bananas isn’t it?
Perhaps if the USL, as a league, is able to attract larger sponsors — and they really should given they are in dozens of markets — that money could filter down to teams and make this sustainable.
But we aren’t there yet. And I’m not certain we will be soon enough to stop losing owners.
2. The MLS + soccer-specific stadium carrot
An early stadium rendering of Cashman Field. Credit: USL
“Oh, we’re halfway there. Oh, oh, living on a prayer,” are the immortal words of Mr. Jon Bon Jovi, once himself an owner of a lower-division professional team.
If owning a team is halfway there, teams such as the Tampa Bay Rowdies, FC Cincinnati, Indy Eleven, San Antonio, North Carolina FC, St. Louis FC, Sacramento Republic, etc., are living on a prayer.
That prayer is that they spend a few years in the lower division, and then get to enjoy the golden (financial) shower of MLS expansion. With MLS expansion comes an increase in TV revenue, spendthrift sponsors and the chance to join Zlatan’s league.
But in order to achieve that dream, these teams need to secure a soccer-specific stadium. The premise of this argument is accurate. Owning your own stadium cuts your operational cost — particularly rent — significantly. It also brings tickets and concessions straight to your pocket and gives you more control over your financial destiny. But, you are still relying on the organic attendance growth required in solution 1. And is it difficult to convince a taxpayer to set aside 0.0000002 cents of his or her tax bill towards a niche sport? You bet it is. Especially when you come to them with this pitch:
“If you help us, we might be awarded with MLS expansion.” To which most of them respond, “What is MLS?” To which you respond, “Soccer.” To which you are laughed out of city meetings.
So, in lieu of taxpayer subsidies, where is the money for stadiums coming from? The owners, thereby increasing their investment further.
Oh, and in case you hadn’t heard, within the next 3-4 years, the MLS carrot will also have disappeared. Also, it is clear that you could spend years working toward an MLS bid (Sac Republic/San Antonio) only to see a city that had yet to play a pro soccer game be awarded an MLS bid ahead of you (city rhymes with Smashville).
3. Promotion-relegation
Don’t get triggered, the following section will annoy both sides of the argument.
Let me start by saying this — I genuinely believe that promotion-relegation is the best solution to the hemorrhaging money. Prima facie, it will cease the blood flow and lead to an influx of fresh, oxygenated blood. Even if you believe pro-rel is a communist concept started by the Illuminati to control Alex Jones’ brain, you have to admit this:
A person/company is more likely to invest in a lower-division professional soccer team if they know that that team has the possibility of being in MLS someday soon. The possibility of hypothetical Team X joining MLS every season would result in investors and sponsors viewing Team X as a commodity with tremendous growth potential.
“But what about the possibility of relegation, wouldn’t that drive away potential investors, ya idiot?” At this point, outside of Soccer Twitter, nobody knows the difference between the USL, NASL, NPSL, PDL, UPSL, MSNBC, etc. Therefore, it is difficult to imagine that the few investors interested in lower-division soccer would turn away on the possibility of relegation.
Based on that simple premise, promotion-relegation is the best solution for the constant turnover of owners and teams due to financial losses. I’m not talking about sporting merit, I’m not talking about player development, etc. Simply money.
Money earned by owners, as a result of the possibility of promotion would include the aforementioned investors, but also the possibility of revenue generated by gaining promotion. As things stand, there is no financial incentive (see solution 6) to winning. That should change in concert with promotion-relegation.
However, it must be stated that not all the aforementioned owners believe in the viability of pro-rel as a mechanism to help their financial situation. Owner of Team E told Soc Takes, “I am not convinced that a magical pool of sponsors exists that is waiting for promotion-relegation to happen. I just don’t think we’re there yet.”
Moreover, convincing MLS owners of promotion-relegation is arguably more difficult than convincing taxpayers to provide subsidies for soccer.
Therefore, while I believe promotion-relegation to be the best option for the financial health of lower-division soccer, I also believe that is very unlikely to happen soon enough to abrogate the loss of owners/teams.
4. Keep dropping player/staff and/or their wages
This is the easy one. And given wages are occasionally half of all expenditure (see Table 2), it is one that owners seem to focus on. In a separate article, I’ll show that players are being offered relatively low wages for joining USL. The need to cut wages has lead to lower-division clubs behaving in irresponsible ways, potentially resulting in unfair treatment of players and staff.
In other words, this is happening and will continue to happen until owners can find ways to increase revenue.
5. The USL heel-turn
The idea that eventually the USL will compete with MLS for Division I sanctioning is popular on Twitter. There is one circumstantial piece of evidence, the fact that Chicago might have a USL team with a soccer-specific stadium that would compete with the Chicago Fire. Yet, in all my conversations with a plethora of USL personnel, none of them have given any credence to this idea. Moreover, given the close business ties between the USL and MLS, I believe that this idea is completely without merit.
Will USL finally turn heel? (Huge thanks to @Jeremyya for generously designing this GIF for us).
6. Prize money
Professional soccer involves professional soccer players. Professional soccer players are remunerated for doing their jobs. Incredibly, in America, professional soccer teams are not remunerated for success.
In 2017, how much did the San Francisco Deltas win in prize money for winning the NASL? Zero dollars. How much did Louisville City FC win in prize money for winning the USL? Zero dollars.
That’s absurd. Currently, winning an entire league — on the back of 20-plus games, a season of travel and salaries — is worth only bragging rights. Yet again, absurd.
Given the $3-$5 million expansion fees for the two leagues, given they earned millions when teams joined MLS due to their “upward mobility fees,” it is shameful that neither league provided any financial remuneration for their best teams. By my estimation, (See Tab 3 of table), USL has earned over 60M in fees between 2017-2018. While it is indisputable that the league has a healthy and professional front office, at this point, some of that income must be directed towards a winning purse.
This should be low-hanging fruit. Professional leagues must provide a sliding scale of winnings to winners, runners up, semi-finalists, etc. And based on the consistent income of expansion fees and upward mobility fees, the NASL and USL should have been doing this for many years.
CONCLUSION
In the absence of promotion-relegation, lower-division soccer will continue to be a turnstile for owners who have no means to curtail ugly financial losses. It is indisputable that from a financial standpoint, Major League Soccer is a success story, yet that success is not translating to the other realms of professional soccer.
While many of us hope that lower-division soccer will continue to grow organically, that growth has been bradycardic under the current system. In order to retain and attract owners, novel solutions will need to be found. Or else, the successes we are experiencing in lower-division soccer will someday merely be remembered as “The Golden Era,” an era of immense potential, but one which — in spite of all the masturbatory celebration on social media — remained “Too Small to Succeed.”
CAVEATS
The longevity data in Table 1 is missing antecedent data, such as stable ownership of the Charlotte Independence (which would push the average upward) or data from now-defunct NASL clubs such as the Deltas, Rayo OKC, Fort Lauderdale Strikers, etc (which would push the average downward).
The financial data in Table 2 is messy; some of it is estimated and all of it is self-reported without independent verification from Soc Takes. There is also a potential issue of biased sampling; it is likely a story such as this would attract owners who are unhappy at the current state of U.S. Soccer, thereby over-representing the financial problems at hand.
It has also been pointed out that investment in lower-division anything is designed to fail. But if you’re sitting around analyzing everything through the lens of “nothing will change, so why bother pointing it out,” perhaps you need a snack.
Follow Nipun on Twitter: @NipunChopra7.
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