In the first part of my article (read it here), we got to the stage of owners divesting their stake in a single-entity and being granted ownership of their individual, and now independent, club and also retaining a stake in MLS as a league. The next step is how to carve up the overall league revenues in a manner which enables two main concerns to be covered. From a league perspective, they want healthy clubs to be part of their set-up and from a club perspective, they want to ensure that the revenues they receive are commensurate with the contractual liabilities they must cover.
Central Revenue versus Club Revenue
At present, there are two main deals that are centralised – media and kit supply. With many leagues around the world, the concept of a centralised broadcast deal is not unusual; Spain being a notable example where the vast majority of the money goes to the leading two clubs who are obviously in demand.
For the purposes of this exercise, I believe that the league selling the rights to its product is a better solution. This approach not only provides the league with a significant amount of income, which should, in reality, be far more than enough to cover its operating costs. It also allows the league to control any distribution of surplus funds in a controlled manner. I will come back to this later.
For kit supply, I would argue that is it better to allow each team to form its own relationship with a manufacturer. Not only will this finally allow a more diverse product range between teams, but it will also drive up the overall revenue streams into the clubs, although, not necessarily in equal benefit. Saying that, I would find it difficult to believe that any team would struggle hugely to find the right partner and whilst some teams will likely find themselves the subject of a bidding war there will be others who have to accept what’s on the table.
All other streams of income, including ticket sales, corporate hospitality, promotional work, sponsorship, and advertising, will be directly for the benefit of each club. These revenues should certainly be sufficient in most cases to cover much of the running costs.
At this point, let’s return to the media deal revenue. The distribution methods for these funds, after deduction of league expenses and a reasonable profit margin being applied for the shareholders, are twofold. The first stage will be in the form of payments made to loss-making and less-profitable clubs.
However such payments will not take into account expenditure on playing staff, it will merely be a mechanism by which the league assists in the stable administrative running of a team. By ensuring that there is stability off the field, it should help to ensure that the clubs can continue to operate as a business and, therefore, fulfil their obligations in each season.
The second part will be prize money, which will not take into account any financial measures but be purely down to the success over the course of a season by each club. This part of the distribution will assist clubs to retain and recruit talent, and should be seen as a return on investment rather than something that will allow stronger clubs to become even stronger.
As the league grows stronger and the revenues become higher, the split of centralised distribution can then become more geared towards prize money than stabilisation funds. Of course, the league can structure this in whatever way it sees fit, so the gap between prize money for the first and last teams can be whatever they choose.
Player Acquisition
Wherever you go in the world there are buying clubs and selling clubs. Selling clubs don’t necessarily end up suffering if they are clever enough with their youth policies so they can continue to pull high-level talent through their ranks and profit from the sales. In the new structure, I allow clubs a lot more freedom to acquire talent. While there will still be a cap in place, I would completely restructure it.
The existing rules mean there is effectively a blank cheque for up to three players, but very strict rules for the rest. This would be replaced by an overall much higher ceiling which would allow clubs the freedom to choose what balance of playing talent they’d prefer. One team might find that having three or four very high profile and expensive players in the team worked well for them, other teams might find that having a lot of players who all earned reasonably high salaries was a better fit.
Right now you could almost argue that a salary cap would need to be around the $20m mark. Some teams might simply not need to spend it – the 2015 Red Bulls and Dallas squads are a testament to what can be done with limited funds, but Toronto took a very different approach. Regardless, since the wages and transfer fees are solely the responsibility of the individual clubs, then it is up to the owners of them to find a level of investment they’re comfortable with.
In addition, clubs would be free to invest their transfer fee proceeds into either more acquisition, or to fund the ongoing operation of the club. The more savvy a club is, the more of both of those it should be able to achieve.
Profitability
At this point, both the league and the clubs should each have sufficient revenue streams to be able to operate. The low-risk league has first calls on the biggest revenue stream of all and, therefore, has a very low-risk profile. Once it has settled its own finances then the clubs get their share and this distribution along with all their individual revenue streams should get everyone to a point not particularly different from where we find ourselves today.
It is entirely possible that some teams may end up in the hands of owners who are more interested in investing for glory than financial return, some may build themselves up as property companies who play football – an approach which has worked incredibly well for Arsenal and more recently has been the model of choice for Manchester City. Either way, the freedom for owners to choose their own path whilst also operating within some restraints and factors that try to ensure there is some level of sensibility built in, means that the league can continue to grow.
So Where From Here?
Throughout this article, I have avoided the dreaded subject of opening up the pyramid in the US. This solution does, of course, make it possible. If the leagues beneath MLS follow a similar plan then we might find it is possible to start opening up the system but it is neither essential for this plan nor entirely discounted.
Leagues are always made stronger by having better teams in them, so from that perspective who wouldn’t want to see stronger and better teams coming in and replacing those who couldn’t maintain a challenge? Remember at this point that the original investors got their club for free and if it was becoming too risky for them to own they could always sell – whatever they got would be automatically a profit, assuming they have not racked up years of operating losses beforehand.
Not only that, but if the league itself becomes stronger then they’ll benefit from still owning their stake in MLS itself whether their own club was part of it or not. So it becomes a win-win situation.
I believe this plan can achieve a number of outcomes in a manner that is consistent with many diverse aims and simultaneously attempt to allay the fears on those who have risked their money to allow football to grow. We thank them of course, but we should also realise that they shouldn’t be allowed to hold progress back through fear.
