Revenue and Expenditure Flow

Major League Soccer

MLS employs a single-entity structure as their business model, in which teams and player contracts are centrally owned by the league. MLS teams do not have owners in the traditional sense, instead, they have investor-operators that are shareholders in the league. When MLS generates a profit or losses, each investor-operator receives a pro-rata share of these profits or losses annually. Therefore, investor-operators are all financially invested in the sustainability and success of MLS as a whole, not just their individual team. This collaborative business model is intended to mitigate competitive risk and control costs.

The investor-operators control their teams as owners do in other leagues, but they share a percentage of their revenue and expenditures with MLS. The percentage of revenue that is shared with MLS varies for different items. Investor-operators are entitled to earn certain revenues directly, including revenues from selling local broadcast rights, merchandise sold in the stadium, local sponsors, and all parking and stadium earnings. Investor-operators share 30% of ticket sales and between 25% to 44% of money earned through player transfer fees. MLS directly takes all revenue from national broadcast rights, league-level sponsorships, and online merchandise sales.[1] The implications of shared revenue between the MLS oversight body and the investor-operated clubs are significant. For instance, in 2019 Atlanta United had a drastically higher average attendance per match of 52,510 than Chicago Fire’s average attendance of 12,324.[2] These statistics imply that 30% of Atlanta’s ticket sales is a larger sum than 30% of Chicago Fire’s ticket sales, yet these two clubs share the same dollar amount that is recycled through MLS and redistributed. This recycling of profits, or sharing the wealth, is socialistic. MLS is committed to the health of its body, not strengthening its individual parts. Although this strategy does protect the new, weaker teams, it restricts growth for the strongest by sharing revenue that could potentially be reinvested into the team, not the league.

Additionally, MLS owns a 75% stake in Soccer United Marketing (SUM), the company that handles media rights for American soccer. The other 25% of SUM was sold to Providence Equity Partners in 2011. SUM coordinates soccer matches, sets up venues, earning a portion of the revenue for these services. SUM also has exclusive marketing rights for any soccer match televised in the United States. It makes a large portion of its money by selling these rights to interested broadcasters. 75% of these profits are then recycled back into MLS and its investor-operators, and the other 25% go to Providence Equity Partners.[3] One of the single biggest revenue streams for MLS is their national broadcast rights, which are secured through SUM. In 2015, MLS announced an eight-year multi-network contract. The deal gives ESPN and FOX Sports the exclusive right to broadcast the 125 MLS matches that occur each season. This deal generates $90 million a year for the league, but because revenue is distributed evenly, each team only receives $3 million a year.[4] This deal further illustrates the implications of a single-entity structure. Atlanta United generated $78 million of revenue in 2018, compared to the Colorado Rapids’ $18 million.[5] Atlanta’s popularity reliably indicates that its matches are broadcasted frequently, but Atlanta receives only 4% of its total revenue through the television deal, while the Colorado Rapids’ receive 17%. This revenue flow is depicted below.[6]

On the expense side of the equation, MLS pays all normal player salaries, as well as salaries covered by allocation money. Operational expenses, however, are largely covered by the investor-operators. This includes stadium expenses, such as construction or rent, player development mechanisms like academies and training, front office expenses such as staff and budgets for marketing, sales, and coaching, as well as team travel and salaries for designated players above the salary cap threshold.[7] The clubs’ expectation to invest in player development reflects the league’s bottom-up strategy and commitment to sustainability. Further, the direct relationship between the teams and youthful players suggests that the MLS is oriented to become a developmental league. This expenditure flow is depicted below.[8]

Chinese Super League

Soccer in China is organized as a league pyramid, or the hierarchically interconnected system that consists of over 100 individual leagues which are bound together by the principle of promotion and relegation. The Chinese Super League is considered the highest level of soccer in China. Currently, the CSL is run by the CFA, which is a governmental organization that oversees soccer in China. The CFA has a controlling 36% stake in the CSL, while its 16 clubs each only hold 4%.[9] This means, in effect, the CFA directly manages the league.

In an effort to improve commercial performance, the corporate structure of the CSL is in a period of transition. Liu Wei, the secretary-general of the CFA describes the changes that are scheduled to take effect at the beginning of 2020: “A committee to manage the Chinese Super League is being formed and moving forward the CFA will not manage the league and will relinquish its shareholding of the CSL holding company. The CFA will only maintain governance over major issues and hold a single vote on the committee.”[10] The biggest adjustment will be the change in leadership for the CSL, for the league will now mostly run itself as daily operations and management are devolved from the CFA to the CSL committee. Several CSL managers explain that the CFA agreed to this restructuring because the CSL’s annual losses have been significant, and the Chinese government does not want to bear the financial burden any longer. Despite these losses, investors and owners believe that they will be able to make the CSL profitable due to their increased control over the league’s strategy moving forward.[11]

Setback by the coronavirus, the CSL in the future should operate as an independent and market-oriented corporation like the Premier League in England. The bulk of the teams’ revenue will come from operating activities, such as ticket sales and merchandise, as well as owner financing. The teams will be able to allocate their money as they please, market themselves independently, and secure local sponsorship or television deals without government intervention.[12] The majority of the teams’ revenue will be spent on player purchases, loans, and interest payments. The two charts below provide estimates for sources of revenue and expenditure for the CSL, based on data accumulated on the Premier League. [13]

Although the clubs will primarily be self-sufficient, the CSL oversight committee, with the CFA shareholder, will distribute the financial returns if the league becomes profitable. The distribution of profits is expected to model that of the Premier League. The CSL oversight committee will control domestic and international broadcasting rights as well as central commercialization. Overseas TV deal money and international sponsors will be spread out evenly amongst the 16 clubs. Domestic TV deal money, however, is split with 50% distributed evenly to the clubs 25% merit based distribution, and 25% facility fees.[15] Merit money is quite simple, for it is based solely on each club’s finishing position in the league. The more successful a team is during a given season, the more money it will receive. Facility fees are based on how many of each club’s games are selected to be aired on live TV, which is subject to change throughout the season. Thus, the teams that are broadcasted the most receive the most facility fees. The current domestic TV deal is with Chinese Sports Media (CSM), who purchased broadcast rights of the CSL for $1.5 billion from 2016-2025.[16]

Although the CSL does redistribute overseas TV deals and sponsorships like MLS, its use of merit money solidifies its commitment to producing the crème de la crème of soccer. MLS fosters parity; it prevents the gap between the best and worst teams from getting too big. With merit money, the CSL seems to do the opposite as it enables the best teams to become even better. However, the CSL does not want its worst teams to fail. Instead, it has constructed this fast-route to elite soccer for certain clubs in the hopes that even just a few star players in the league will have ripple effects on the league; The comparison of revenue and expenditure flow between MLS and the CSL exhibit the different strategies these leagues have exercised to achieve a common goal. Both clubs aspire to improve domestic soccer and produce quality, but MLS utilizes a grassroots strategy, while the CSL employs a trickle down one.

[1] Krasny, “Unpacking the Major,” Medium.

[2] Gough, “Average MLS Attendance,” Statista.

[3] Krasny, “Unpacking the Major,” Medium.

[4] Adu Gyamfi, “Next MLS TV Rights,” World Soccer Talk.

[5] Gough, “Average MLS Attendance,” Statista

[6] Krasny, “Unpacking the Major,” Medium.

[7] Krasny, “Unpacking the Major,” Medium.

[8] Krasny, “Unpacking the Major,” Medium.

[9] “Chinese Super,” The Football Group.

[10] Dixon, “Chinese FA Passes,” Sports Pro Media.

[11] Dixon, “Chinese FA Passes,” Sports Pro Media.

[12] Dixon, “Chinese FA Passes,” Sports Pro Media.

[13] Yoesting, “The Startling,” The 18.

[14] Yoesting, “The Startling,” The 18.

[15] Naz, “How Is Premier,” Novibet.

[16]  Xinhua, “Chinese Marketing,” China Daily.