Editor's note: This article contained factual errors that we have corrected since the time of original publication. We regret the errors.
One of the great ironies of American sports is the most popular game in the world, soccer, is still considered by many in this country as a curiosity, in the same league as disc golf and dodgeball. It was recently reported that more people watched the average Women's National Basketball League game on television than a Major League Soccer (MLS) match.
This week MLS announced that its new 2015 television contract is almost triple the revenue of its expiring contact. While this is no doubt good news for MLS, the $70-million-a-year contract with ESPN and Fox (NASDAQ: FOX ) is but a pittance compared to the television rights paid to the big three sports: $930 million to the National Basketball Association; $1.6 billion to Major League Baseball; and a whopping $5.9 billion to the National Football League. The National Hockey League, incidentally, just signed an eight-year, $4.8 billion deal for the Canadian market, which also includes some MLB games.
In a further indignity, the ranking of these sports worldwide, as defined by number of viewers, places baseball at number eight, American football at number nine, and basketball at number 10. Ice hockey does not make the top 10 list.
Soccer has been a running joke in American sports for a while: soccer is 22 guys in shorts running around on a field and then Germany or Brazil wins. But the joke in the long term is going to be on anyone who fails to recognize the forces lining up to give America's big three sports, especially basketball and baseball, a run for American television sports revenue. There are four reasons for this scenario.
According to the latest annual ESPN Sports Poll, 30% of American households have someone who plays soccer. Only baseball comes close to that kind of penetration.
Of soccer, Rich Luker, the researcher who has been heading ESPN's poll since 1994, notes that the U.S. avid soccer fan base is 10%, just trailing baseball at 13.9% and basketball at 14.4%.
"Based on the way it is trending, I believe global soccer will soon be four or five times bigger than it is today, and MLS's fan base will triple or quadruple," Luker said.
This assertion is supported by data from the U.S. Soccer Federation, which notes the number of youth playing soccer since 1990 has doubled to over 4 million, and stats from the Sporting Goods Manufacturing Association that the number of high school soccer players has doubled in the same time frame. Also, Latinos are the fastest-growing population segment in America and they tend to be huge soccer fans.
The English connection
Worldwide television revenue for the top flight English Premiere League (EPL) generates nearly double the revenue of the National Football League, within shouting distance of the $10 billion mark. The EPL is a powerful example for MLS to emulate, which has growing ties to the league. English players are being recruited to MLS to play out their career, starting with David Beckham in 2007 in a five-year, $50 million deal. Beckham left MLS to play on a French club in his final year where he helped the team win its league championship. Beckham, a shrewd businessman, is reportedly on the verge of exercising his option to own an MLS expansion team in Miami.
Jermaine Defoe, 31, who has played on the English national team, just agreed to a transfer to MLS in an estimated $10 million deal for the transfer fee from his EPL club and a $6 million annual salary. Other name EPL players are predicted to follow. American sports franchise owners now are principle owners of six of the 20 clubs in the EPL, including Boston Red Sox owner John Henry. All this cross-pollination will only help MLS increase its worldwide and U.S. fan base.
Big league problems
All three of the big U.S. sports have some sizable controversy in play or brewing. For football, the PBS Frontline report "League of Denial" alleges the NFL has long known of the devastating impact of concussions on its players, but has worked hard for years to deny and cover up the problem. The NFL finally responded with a nearly $756 million funding offer to the Players Association for all future medical needs of retired and former players. However, in the past few days a judge has rejected the settlement as possibly being underfunded, which now keeps the high-profile issue in the minds of America's parents for the foreseeable future. The almost certainty of brain injury cited in the documentary for football players as young as high school age begs the question: will mothers and fathers continue to allow their sons to play tackle football? The next decade will tell, but soccer stands to benefit from this angst.
For MLB, the problem is steroids. According to a recent poll conducted by The Huffington Post and YouGov, 55% of Americans think steroids is a major problem in baseball, with only 7% thinking steroids are not a problem. The record batting performances that erupted in the 1990s is widely attributed to steroid abuse, and the recent Hall of Fame voting reinforced that impression -- some of the greatest players of all time, statistically speaking, didn't come close to gaining induction. Factor in falling television viewership and MLB has its hands full.
Besides Dennis Rodman and his unpopular North Korean "basketball diplomacy," the NBA has a long record of labor dispute between the owners and players that has resulted in the most work stoppages in the last decade of the big three sports (but exceeded by hockey). Basketball also ranks last among fan loyalty for the big three sports, making it the most likely candidate to be lapped by MLS in the coming decade.
MLS is getting smarter
Average 17,872 attendance at MLS games in 2011, for the first time exceeded that of the game average for the NHL and NBA. Half of the MLS's 19 teams are making a pre-tax profit and the league is expanding with 2015 additions in Orlando and a second team in New York.
Over the last five years the average MLS franchise value, which could be bought as cheap as $5 million in the league's inaugural season in 1996, has increased in value to $103 million. MLS has spent heavily on youth development programs to grow the next superstars domestically. In addition the rise of the U.S. national team in the last World Cup and qualifying for the upcoming 2014 games in Brazil is having a residual growth impact on fan interest in MLS teams as most of the team members play in the MLS.
The league is also building soccer-specific stadiums rather than making do in football stadiums. But even so, the Seattle Sounders still attracts 44,000 fans on average per game to each of their home games in the stadium they share with the NFL's Seattle Seahawks.
And so far, the MLS teams have been able to hold the line on players' salaries, with a $3 million cap on all but designated players like American Clint Dempsey. Dempsey just signed a four-year, $8 million a year deal to return to MLS from the English Premier League. Other big international stars such as Ireland's Robbie Keane (L.A. Galaxy) and France's Thierry Henry (New York Red Bulls) are also now playing in the league.
The individual teams are going about their business with more success as well. Real Salt Lake, which lost its top-flight coach to the expansion team New York City FC (Football Club), just signed a 10-year, $30 million jersey renewal naming deal – one of the biggest in the league – with Life Vantage, a network marketing firm.
Investors might want to ask themselves: What does Life Vantage know that makes putting its name on MLS jerseys worth that kind of money? The answer is that American Major League Soccer is no longer a joke, but serious sports and business.
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