Expansion

Major League Soccer

The cost of entry into MLS has increased exponentially in the last decade. In 2007, Toronto FC paid a mere $10 million to join the league. NYCFC paid $100 million to enter the league in 2015, while MLS charged FC Cincinnati (2019) and Nashville (2020) each $150 million. MLS currently has 26 teams and will have 30 teams in two years, with the addition of Austin FC and Charlotte in 2021 and St. Louis and Sacramento Republic FC in 2022, which each paid MLS expansion fees of $200 million apiece.[1] The league may continue expand to 32 teams in the coming years.  The following graph displays the J-curved shape of MLS expansion fees from 2004 until 2018.[2]

In 2019, the average MLS club was valued at $313 million, which suggests that the high amounts paid in expansion fees may be reasonable. However, 16 of the league’s 24 clubs had a negative operating income in 2018.[3] These clubs, therefore, only are profitable on paper because they share the spoils of MLS expansion fees. Some have suggested that the MLS is a bubble, or a Ponzi-like financial scheme where income from new investors keeps the league afloat increased of organic revenue growth. However, having more teams in the league does add value, for with each additional team comes a new accessible market. More markets will only increase the league’s ability to produce richer broadcast contracts, sell more merchandise, and create more chances for marketable moments and players, which are key in growing organic revenue. It is also important to consider the youthful age of the MLS. In general, sustainable companies only became profitable after five to ten years. Thus, it is logical to assume that as long as demand for soccer in the United States persists, the newer teams could become profitable in the next decade.

The following YouTube video, produced by Forbes, clarifies some of these insights above and answers the question: why do clubs continue to pay high entry fees if only 7 teams are currently profitable?[4]

This video argues that the investor-operators are willing to engage in this speculative bet because they believe MLS is only the beginning of soccer in America and thereby will produce significant returns in the future. Furthermore, the video explains that it is necessary to build MLS franchises across the nation in order to foster and sustain demand for the sport.

Chinese Super League

The CSL exhibited 12 teams in its inaugural year and has had 16 teams competing each year since 2009. There are rumors that the CSL may expand to 20 clubs in the coming years, but the CFA has denied these speculations.[5] The CSL does not have to expand like MLS because it operates under promotion and relegation. Chinese soccer is a tiered system composed of the CSL, China League One, China League Two, the Chinese Champions League, and Member Football Association Leagues. The CSL and China League One each have 16 teams, while China League Two has 32.[6]Therefore, high-level soccer in China actually involves more players and parts of the country than MLS. Promotion and relegation creates lower-barriers to entry into Chinese soccer, but it also concentrates talent. With the support of promotion and relegation, talent concentration may not necessarily be harmful to Chinese soccer. Instead, it sets the bar higher for clubs in China League One or China League Two, who are motivated by this system. That is, making the 16 CSL teams as robust as possible may have ripple effects on the entire Chinese soccer system.

Although the one-tier system of MLS does distribute talent and provide each club equal opportunity every single season, the extremely high expansion fees may create a sustainability issue as salaries did in the CSL. MLS cannot keep expanding forever, and thus cannot rely on expansion fees to keep it afloat. Eventually, MLS will have to decide which teams to invest in and which players receive high salaries, or it will become one mediocre league that nobody watches. It is not necessarily problematic that MLS is continuing to expand its number of teams, for it will stimulate an interest in soccer across the country and thus develop more domestic talent. However, MLS may need to convert to a promotion and relegation system in order to stay afloat in the long term; running quality teams is costly and operating too many could jeopardize the health of soccer in the United States.

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

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

[3] “M.L.S. Announces,” The New York Times.

[4] “MLS Expansion,” video.

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

[6] “Chinese Super,” Chinese Super League Football.