Single Entity and the "Beckham Exception"--------by Section 112 Blizzard
Oct 26th 2006
One of the things that people should probably realize about MLS is that it is
set up somewhat differently from top European leagues in ownership terms. The
league operates under a single entity ownership model in which the individual
franchises are run by investor/operators who obtain a 49% stake in their own
team, while 51% is held collectively by the remainder of the league.
Revenues and responsibility for debt are shared by the I/Os, although it should
be noted that the ability of I/Os to retain locally generated revenues was
increased substantially 5 years ago, when the league revamped its economic model
in a successful attempt to entice new investors. All player contracts are held
by the league rather than by individual clubs and a salary cap of about $US 1.9
million is enforced to ensure competitive parity and majority domestic content
on team rosters.
The motivation for this somewhat unusual setup was to try to avoid many of the
problems that were encountered by the NASL in the 1970s. Despite the fact the
New York Cosmos attracted large crowds (which peaked at 47,856 in 1978) by
signing international superstars like Pele, Franz Beckenbauer and Johan
Neeskens, the league folded in 1985.
The problem was that a competitive imbalance was created along with a serious
inflation in wage bills as the other franchises tried desperately to emulate the
Cosmos by signing big name players from Europe like George Best, Johan Cruyff and
in Toronto's case Robert Bettega. Franchises soon fell by the wayside as the
recession of the early 80s intensified and eventually there were not enough left
for a viable league after several key markets defected to a rival indoor soccer
league called the MISL.
The initial thinking amongst MLS investors in the early to mid-90s was that it
was best to go for slow sustainable growth this time based primarily on American
players. Fast forward 12 years, however, and some of the league's I/Os want the
league to move out of its current fiscally conservative approach, which helps to
ensure survival but tends to deflate playing standards, and are champing at the
bit looking for ways to boost attendance in recently or soon to be built soccer
specific stadia.
In particular, Dietrich Mateschitz the Austrian billionaire owner of Red Bull,
who spent over $US 100 million earlier this year on buying the New York
Metrostars and for a 50% share and naming rights of a new 25,000 seat stadium in
Harrison, NJ (expected to open in 2008), is keen to try to recreate some of the
magic of the Cosmos in the late 70s. Prior to the World Cup he was reported to
have offered a ten year $US 120 million deal to Ronaldo. Since then the
speculation has shifted over to Real Madrid's David Beckham.
You don't need to be a rocket scientist to figure out that it would be difficult
to reconcile a $US 12 million p.a. wage with a $US 1.9 million salary cap and
that further changes to the way MLS operates must be potentially imminent.
There is currently a debate raging behind the scenes within the MLS corridors of
power over the so called "Beckham exception" which would allow franchises to
spend however much they want on a single marquee player who would not count
towards the salary cap.
The expectation of those who are in favour of the rule change is that since only
one player is involved the danger of competitive imbalance and wage inflation
will be reduced significantly and as a result most of the advantages of single
entity will be retained, while some of the disadvantages will be eliminated.
Rumour has it that this rule change was vetoed last year primarily by Lamar Hunt
who is the only holdover in ownership terms from the NASL and at that point was
the I/O of 3 of the 12 teams (Columbus, Kansas City and Dallas). It could be
different this time around, however, since Hunt recently sold his interests in
the Kansas City Wizards to local investors and MLSE are now fully on board with
the Toronto FC franchise. The decision on whether to proceed with the "Beckham
exception" next season will be made when the I/Os meet up for November 12th's
MLS Cup game in Dallas.
The bottom line then is that MLS is clearly in much better shape than the doom
and gloom picture painted by Bruno Hartrell of the Toronto Lynx last week on the
Fan 590's Thursday night Soccer Show. We could very easily be watching a couple
of really big name players at BMO Field next summer and have one of England's
most famous World Cup WAGs sitting in the expensive seats.
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