Putting a Price on MLS’ Next Jersey Contract: TWC

Last week I said that Major League Soccer’s three-year-old “Jersey Week”, where every club unveils one new jersey in the week before the new season, was an event that was entering a decline into obscurity. Just as was the case last week, this past week has given me little optimism for the future of what has become my favourite MLS event.

This past week, leaked pictures of jerseys for the LA Galaxy and the Vancouver Whitecaps emerged, and both are taken from what seem to be club documents. The Portland Timbers unveiled their new away jersey on Thursday, while D.C. United will be unveiling their new home jersey this coming Saturday.

But a quick glance across the pond shows that the jersey business could still be big business for Major League Soccer. In an article titled “The Most Valuable Shirt in the World,” Spanish newspaper Marca reported that Adidas and Real Madrid signed the biggest jersey contract in soccer history. The deal, beginning next season, will net Real a mind-boggling $1.51 billion in U.S. dollars over the next 10 seasons.

MLS’ current league-wide jersey and athletic apparel deal, also with Adidas, doesn’t expire for another three seasons. But seeing as this year’s jersey unveiling process has been lacklustre, why not look ahead?

Putting A Price on MLS’ Next Jersey Contract

It’s time to use technology to solve a money problem. Cue Patrick Star and the GIF of the Week:

1. The current deal

MLS’ current contract with Adidas, which began with the 2011 season and runs until the end of the 2018 season, is roughly worth $200 million, or $25 million per season. Similar to Real Madrid’s reported extension with Adidas, MLS’ current deal was signed with time left on the old deal. That deal, which was supposed to run for 10 seasons (2005-2014), was worth $150 million, or $15 million per season.

This kind of contract is an important one for the league, in no small part due to its visibility. For that reason, I would expect a new agreement, in whatever form it may come, to be reached sometime between May and August of 2018.

2. The field

Though brands like Under Armour, Puma, and New Balance are staking their claims in soccer’s merchandising landscape, Adidas and Nike are probably the only two names that should be considered for a league-wide deal.

While Adidas has a long history with MLS and is has been an official partner of FIFA since 1970, Nike is an American company and has been the supplier for U.S. Soccer since 1995.

Other options, such as teams breaking away from the single-entity mold and seeking out their own partnerships, are possible. A while back, Last Word SC’s own Ned Joyce advocated for this model, saying that it would help teams build a more individualized brand and have a better chance of tapping into their fanbases.

While I agree that Adidas has at times gotten too generic in their designs for MLS teams, I still feel that the whole “greater than the sum of our parts” argument outweighs the benefits of letting teams go about their own jersey business. The Portland Timbers, as Ned alludes to in his piece, could get a lucrative deal with Oregon-based Nike by snapping their fingers. A Columbus or a San Jose though? Maybe not so much.

The smart money is still on single-entity and a league-wide deal, just like the other major North American pro sports leagues.

3. The valuation

According to Forbes, Real Madrid was the most valuable sports team in the world in 2015, coming in at $3.26 billion. In similar valuations for 2015, the sum value of Major League Soccer’s teams was $2.83 billion. And that was excluding the 2015 expansion sides in Orlando and NYCFC, as the valuations relied on 2014 data.

Throw those two in at a rough $100 million expansion fee and the sum value of all of MLS’ clubs rises to $3.03 billion, or 93 per cent of Real Madrid.

Assuming single-entity, MLS’ next jersey contract will be more lucrative than the current one. But even though the math may say it, don’t get your hopes up for a 10-year, $1.4 billion juggernaut. Logic still says that Real is Real, and MLS is MLS.

That said, when MLS’ last jersey deal was agreed to in 2010, there were only 16 teams and a total attendance gate of just over four million people. In 2015, the 20-team league’s total gate passed the seven million mark. Depending on how much you trust Don Garber, MLS will be at 24 teams by 2020, with teams 25-28 now very much in discussion too.

So don’t expect another eight year, $200 million small fry contract either.

4. Anywhere else to look?

Last season, two significant new deals took effect: the CBA and the three U.S. television contracts.

The CBA was signed at the eleventh hour and runs for five seasons, from 2015 through 2019. The television contracts are a bit more telling though. Those deals, with ESPN, Fox, and Univision run for eight seasons, from 2015 through 2022. According to SportsBusiness Daily, those deals pay Major League Soccer an average of $90 million per season.

By comparison, the previous U.S. television contracts MLS held were paying them $18 million per season, a fifth of the payout of their current deals.

MLS probably hasn’t become five times as valuable as it was back in 2010 when pen was put to paper on the current Adidas contract, and TV ratings don’t always correspond to jersey sales. So again, I would keep expectations in the millions, but do expect the average annual value to rise substantially.

5. Putting it all together

In summary, here’s what I think you should expect from a new jersey/athletic supplier contract for Major League Soccer:

– Signed sometime in Spring/Summer 2017

– League-wide deal, every team wears the same brand

– Significantly higher average value, potentially buoyed by a Nike-Adidas bidding war

– Another long deal, running from 2019 and likely including the 2026 World Cup year season

Taking that all into account, here’s my prediction for MLS’ next jersey contract: Adidas, eight years (2019-2026), $400 million (Average annual value of $50 million)

Maybe it’s ambitious, considering Adidas’ deal with the National Hockey League that starts in 2017-2018 will be worth $70 million per season. But the numbers show that MLS is on the rise, and to play with the big boys MLS needs to get paid like them too.