The economic approaches of the two leagues in question are starkly different. This distinction primarily stems from their respective ownership models, whereby the MLS operates as a single-entity structure and the CSL operates as a privately owned corporation with participating clubs acting as shareholders. Both approaches are accompanied by positive and negative impacts on the respective leagues and provide interesting models to investigate. This section will provide an overview of both leagues’ economic models and an assessment of their relative strengths and weaknesses, prior to arriving at a conclusion detailing the more efficacious approach between the two.
The CSL has adopted many features of the top European soccer leagues such as the promotion / relegation system and the Winter / Summer transfer formats (Humphreys 2015). The ownership structure of the league, however, is a model unique to the CSL and has resulted in a consistently strong performance on the international transfer stage in addition to impressive financial growth. Teams in the CSL are owned by both private investors and conglomerates directed by the government, which continues to control segments of a host of industries across the country (Humphreys 2015). On the one hand, this financial approach has resulted in the attraction of world class players in their prime playing years, such as Oscar and Paulinho, which is something the MLS has largely failed to achieve. On the other, an increasingly large gap in performance between many state and privately owned teams has begun to appear – indicating a failure by the league to establish a more balanced competition.
While there is no set benchmark for a ‘successful’ economic approach, one strong indication is the progression of the value of league sponsorship deals. From the 2018 to the 2019 season, Nike doubled its existing shirt sponsorship contract for the CSL to $50 million per season – indicating the exponential increase in perceived value of the league (SoccerX, 2019). Similarly, the CSL was the “world’s highest-spending league” (Doyle, 2017) in 2017 and began to be seen as a competitor by top-flight European leagues, as it was beginning to attract top talent from around the globe (Liu et al.,2017). That the league managed to obtain this status within 14 years of its inception demonstrates the vast amount of progress the CSL has made as a result of having relaxed spending policies associated with its financial model.
When assessing the impact of the CSL’s economic approach on the quality of play, a global study from June 2018, provided by the Research in Sports Medicine Journal, demonstrates the CSL had higher performance statistics from the 2017 season than the MLS. These performance statistics include, but are not limited to: average distance run per player, team passing accuracy, average sprint speed and shot accuracy. This study would indicate that the quality of play in the CSL has benefitted from the vast amount invested in the league to date, which despite being impossible to quantify an exact amount, is expected to be approximately 30% larger than the net investment in the MLS from 2004 onwards (Smith, 2018).
Given that the CSL was founded in 2004, the success it has had to date of attracting world class players, sustaining positive growth in annual audiences and across its balance sheets, indicates that its economic approach has been largely successful. The nature of financial spending demonstrated by the CSL demonstrates an adherence to the O-ring economic concept.This concept states that the value of a sporting franchise is directly proportional to the quality of the players it possesses. The CSL appears to have prioritised strong investment in its early years in order to garner credibility as a serious competition. The degree of success it has had thus far in obtaining this credibility has been reflected by the threat it now poses to international leagues in the transfer market.
While the CSL adopted many economic features from European leagues, the MLS carved its own path by forming an LLC and sought operational inspiration from other North American sports leagues, such as the National Football League and the Major League Baseball (Pyne,2017). Because the MLS operates as an LLC (Limited Liability Company), the league owns the participating teams, however, individual investors operate these teams and are all financially bound to and responsible for the ‘company’ (Krasny, 2017). This means that profits are distributed on a pro-rata basis (provided there are profits, which has not always been the case) or, in the event of negative share performance, investors must all provide liquidity to cover the losses.
The relative successes of this economic structure depend on what one perceives to be the ultimate goal of the MLS. Unlike the CSL, which President Xi clearly stated was intended to develop the sport in China to the point where the country could win the World Cup and become a global soccer powerhouse, the MLS was not established with an objective as specific as this in mind (Gibson, 2018). That 56.4% of the total number of players in the MLS are foreign, whereas the CSL only has 15.6%, would substantiate President Xi’s aims while demonstrating a lower degree of importance ascribed by the MLS to the development of American born players. In light of the lack of one clear objective of the MLS, this assessment assumes the overarching aim of the MLS is to develop a domestic league that can eventually rival the popularity of the top European leagues.
One primary benefit of the MLS’s single-entity structure arises in the form of a collaborative business model, which mitigates competitive risk as anyone investing in a team is also investing in the prosperity of the league. Given the centralised nature of the MLS, transfers and wages – a team’s two largest expenditures – can be kept under control and are not as correlated with inflated external markets as the CSL or European leagues. Thus, the prices paid by MLS teams for players are significantly more economical, which consequently saves the league money in addition to increasing its profits and ability to re-invest these profits as retained earnings. Furthermore, there is a requirement for collaboration among teams and investors meaning that during a transfer window, no team can spend more than its competitors unless every team agrees on increasing the spending amount for the window in question. This means that the league can promote unanimous growth for teams, which is something the CSL is failing to achieve. This collaborative business model does, however, make it difficult for MLS teams to compete for world-class players in the international transfer market because of the financial restrictions brought about by the single entity structure of the league.
Aside from sponsorship deals, broadcasting rights and ticket sales, the MLS derives a significant portion of its operating income from expansion fees, collected from newly annexed franchises. This aspect of the its economic structure provides some cause for concern given the unsustainable nature of relying on one off payments required by new franchises in order to join the competition. Due to the fact that the MLS is a private company that does not choose to disclose its financials, it is difficult to predict the economic growth the league will experience in the future, particularly once it stops expanding (Krasny, 2017). What we can assume, however, is that the MLS will have to find additional revenue streams to cover the inevitable loss of the one received from expansion, upon which it has been largely reliant to date. This demonstrates the potential of future instability within the MLS’s economic model and the need to establish additional sources of revenue – demonstrating the existence of a cloud of uncertainty surrounding its economic structure.
One interesting and unique approach taken by the MLS to diversifying revenue streams was its creation of Soccer United Marketing (SUM) in 2002. SUM is a company partly owned by the MLS that organises and promotes matches for visiting soccer teams to play in the United States. In 2011, the MLS sold a 25% stake of the company for a reported $200 million, which subsequently demonstrates the vast financial reward realised by this particular venture (Bloomberg, 2017). The existence and success of SUM exemplifies two noteworthy factors in the assessment of the MLS’s economic approach: Firstly, its financial model has successfully facilitated the monopolisation of the soccer market in North America, as evidenced by its ability to create companies like SUM. Secondly, it demonstrates the need to find additional sources of income, external to those directly derived from the league, which in turn suggests that the league cannot sustain itself through its own revenues.
The financial approach of the MLS reveals a host of benefits, many of which arise from shrewd spending strategies that are the product of its collaborative business model. The approach also sheds light on a plethora of weaknesses, namely that of an unsustainable (in its current form) revenue stream, which indicates the need for some form of change if the MLS is to attract bigger names, larger audiences and establish a competitive (performance) balance with other global leagues.
In light of this investigation into the economic approaches of both leagues, the majority of the evidence gathered indicates that the CSL has developed a more sustainable and effective (to date) financial model than the MLS. This assessment is based upon the CSL’s superior sustained annual revenue growth, a stronger presence on the international transfer market and marginally higher average player / club performance statistics. The evidence does, however, demonstrate that the MLS’s economic model facilitates the possibility of financial innovation, which reveals its ability to promote growth through unrealised gains. Therefore, while this conclusion provides an assessment of the success of the two leagues’ economic approaches to date, it does not take into account the potential of future windfall for the MLS (created by its monopolisation of the market), which the CSL will not be able to access through its current economic structure.