ACCA - The global body for professional accountants

David Beckham’s dream of setting up a soccer team in the US appears to be getting closer. But where does Beckham fit into the bigger picture of the Major League Soccer (MLS) business plan and does the league need less financial regulation to achieve its goals? Alex Miller reports

da-beck


David Beckham has an agreement with Major League Soccer (MLS) to create and enter a new football team in the US at a discounted rate of £15m before the end of 2013 – and is on course to achieve his aim, according to sources close to the former Manchester United star.

But even if Beckham does miss the 31 December deadline and the price of his entry rises (New York City FC paid £61m to join the league and Orlando City around £43m), he seems certain to continue his quest to set up a team, with Miami reportedly the favoured location.

MLS league commissioner Don Garber says he could imagine Miami being introduced into the MLS in 2017 or 2018, affording ample time for the project to get off the ground. Meanwhile, Beckham needs to attract sponsors and investors, find a site to build a stadium and complete a business plan.

Attracting Beckham to the MLS again – this time as an owner – would be a significant coup as the league attempts to boost its brand value among domestic and international supporters, players and commercial parties.

The likely reintroduction of Beckham into the MLS fold comes as part of rapid MLS plans to expand the number of clubs in the US to 24 teams by 2020. The MLS has already added 10 clubs since the beginning of the 2005 season and the recent addition of New York City FC – who begin to play in 2015 – will bring the league to 20.

The business aims of the MLS are simple… to aggressively grow the number of markets (cities) and geographic reach of the league by increasing club numbers, while at the same time growing the game’s fan base.

The MLS has also revealed a bold aim to be considered among the best leagues in the world by 2022. This seems an extremely ambitious aim due to the vast TV and sponsorship revenues on offer across the major European leagues, plus the massive income generated from Champions League participation.

From a revenue perspective in the US, the critical aspect is to boost revenues from television rights deals. The current deals run to 2014 and are worth £11m from both ESPN and NBC, but sources indicate the league is looking to increase that figure to £30m a year for the joint package of MLS rights and US National Team games. FC Dallas owner Dan Hunt calls these negotiations the most important in league history.

TV revenues are low because people are not watching and that is so because the product is not as good as other established leagues. In order to boost the sport, US clubs need to be able to recruit top players. This, in turn, is crucial to attract more fans to the stadia and encourage bigger TV ratings and encourage larger sponsorship deals.

A number of US clubs feel they could compete better if they were allowed to spend more money on player transfers and wages – but current legislation won’t seemingly allow it.

Financial governance in the MLS appears unnecessarily complicated, but at the same time is understandably aimed at ensuring clubs are financially prudent, the direct result of a previous US league – the North American Soccer League (NASL), which featured legends such as Pele – that went bankrupt as clubs overspent on salaries without enough income to cover them.

As a result, the issue of player wages is particularly contentious. But while MLS rules continue to limit player wages, many argue the MLS will be a business with a sensible plan, but a second rate league from a global perspective.

Currently the league enforces a wage hierarchy that includes a salary cap with a litany of rules, designated players, younger designated players (differentiated by two age groups; one consisting of under 20s and the other 21–23 year olds), budget players, off-budget players (not counted against salary cap) and a minimum salary for budget players and lower minimum for off-budget players.

The 2013 salary cap is £1.8m, although this ceiling only counts against players designated as salary budget players occupying playing spots one to 20.


Players occupying roster spots 21–30 are designated as ‘off-budget players’. They include homegrown players and Generations Adidas signings and players on minimum salaries. The minimum salary for players in spots one to 24 must be £28,500.

However, a club may buy out one guaranteed player contract and free up the corresponding budget space. The club must pay for the buyout itself and do it before the season starts.

This is how the Seattle Sounders bought US international Clint Dempsey from Tottenham in the summer for an MLS-record £5.5m transfer fee, paying him a base salary of £20m over four years – the largest sum in MLS history.

But the club and others want to be allowed the freedom to capitalise further in order to strengthen their club and the appeal of the league generally. In the land of the free, that desire seems ironic.

Meanwhile, the Beckham effect is likely to play a major part in raising the MLS profile… again.

Last updated: 4 Jan 2014