Thursday, March 22, 2018

Fee-Fi-Fo-Fum, I Smell a Corporate Stew, It’s MLS, And It’s Grinding You

Illustration by: Arthur Rackham, 1918
From: English Fairy Tales
By: Flora Annie Steel

By: Vidda Grubin

When a corporation owned by many investors, who also own the corporation’s individual franchises, has a franchise underperforming in terms of profitability, steps are taken to find ways to save money where there are inefficiencies, while simultaneously finding new revenue streams and improving existing revenue streams. If changes have no material effect on profitability, then franchises are usually closed or moved.

Maximization of profits for modern professional sports leagues in North America is married to signing of monetarily significant national broadcasting contracts and national sponsorship deals. And the ultimate goal is to maximize the profitability of the corporation, thus enriching the owners of said corporation.

A hypothetical: The best way to maximize profitability for the owners of the franchises of Major League Soccer, who also collectively own the corporation, is to have a greater won/lose discrepancy between franchises at the top of league standings and franchises at the bottom of league standings.

Overall losing teams would more than likely experience revenue contraction from reduced ticket sales, weaker merchandise sales and less valuable sponsorship deals. Yet, if having a handful of so called “Super Teams” or dynasties increases the value of national broadcasting contracts enough that it more than offsets the potential loss of revenue experienced by the underperforming franchises, then helping create these “Super Teams” would make financial sense.

If the above scenario is generally true for corporate run Major League Soccer in North America, then it would stand to reason that taking steps to ensure that the above situation takes place would be a priority for the owners of the league.

Underperforming franchises (in terms of ticket sales/merchandise sales/local sponsorship deals/etc) can ultimately be moved, while not effecting the profitability for the owners of the corporation. Franchises, despite consistent losing records, that continue to make good profits for their owner through ticket sales, merchandise sales and local sponsorship deals will not need to be moved.

Let’s apply this hypothetical to the Columbus Crew SC and it’s role as a franchise within Major League Soccer. Could the Crew franchise be a “Super Team,” which significantly boosts the league’s ability to sign more lucrative national contracts? Is the Columbus franchise capable of being a franchise which makes significant money for its owner from ticket sales, merchandise sales and local sponsorship deals, even in losing years?

While the Crew were losing consistently in the years prior to 2008 (missing the playoffs from 2005-2007), the assumption would be that the team was losing revenue as ticket sales lagged, along with merchandise sales and local sponsorship deals struggling. (to be fair, I do not know this to be the case) As a test of the market for Major League Soccer in Columbus, putting a winning product on the field should have, theoretically, improved the local revenue streams. The effect Columbus as a winning franchise would have on national revenue streams for the corporation as a whole could also, possibly, be measured.

The fact that the Crew had three winning seasons in a row starting with 2008’s championship season and saw little movement in ticket sales, local sponsorship deals and merchandise sales was a red flag for both the franchise owner (at the time the Hunt family), and more importantly, the corporation, Major League Soccer. 2011/12/13 saw a drop in on field performance and ultimately a sale of the franchise to Anthony Precourt and Precourt Sports Ventures. The years 2014 through 2017 saw another general uptick in on-field performance with the one exception of 2016’s losing season and missing the Major League Soccer playoffs.

So, if the Columbus Crew franchise did not help increase national revenue streams (television/online/sponsorships) for the corporation and did not see significant increases in local revenue streams even during winning seasons, the case is certainly made for the corporation to move the franchise for the potential enrichment of both the corporation itself, Major League Soccer, and the franchise owner, Anthony Precourt.

All of this is theoretical. A similar argument could be made that having all teams look and perform identically, with little differentiation in league standings, would be the most profitable way to sell the corporation’s product, and thus lead to signing highly lucrative broadcast contracts. Another argument would be to attempt to create a situation where success circulates from franchise to franchise throughout the league.

As the ultimate goal of a corporation is to make money, the more the better, it does make sense for Major League Soccer’s owners to find the most profitable recipe. What ingredients go into that recipe? Are fans and communities the meat and vegetables or just a spice which can be removed and replaced with something a little hotter? Specifically, as relates to the Columbus Crew, there is a legitimate argument to be made that lack of local ownership, a very meaty ingredient, has been a heavy burden on the franchises ability to be delectably profitable through both winning and losing seasons.

What matters most to league/franchise owners? The bottom line and future billions? Or working as closely as possible with the local communities and supporters who make the corporation’s franchises possible? A truly successful corporation would focus its attention on community and people, while stirring their stew with a sturdy and fiscally responsible spoon.