Over the next few months I’ll be publishing a series of articles covering what I see as fundamental knowledge for MLS fans. MLS is a bit of an oddity and without an explanation many fans are simply unaware of the environment within which their teams exist and operate. With Sporting KC on the up, and thousands of new fans crawling out of the woodwork it seemed to be a good time to get going on some basic MLS knowledge. This first bit isn’t ‘fun’ – but its the essential thing that everything in MLS is impacted by.
One of the fundamental rules about understanding MLS is forgetting what you know about other leagues and other sports and accepting that MLS is unique. The game on the field may be the same as football around the world however once you get behind the scenes thing get very different.
For example, Manchester City were purchased by a billionaire a few years back, who having to win no matter the cost has allowed the Manchester City management to spend with impunity, bringing in world renowned talent no matter the cost. The rich ownership and strong revenue that Manchester City generate have a direct relationship to the quality of the team on the field. Similarly when Portsmouth ran into financial trouble a few years ago they were forced to essentially sell players (they never could afford to pay when they signed them) quickly to generate revenue to survive.
There are no limits to what clubs can spend in most leagues whether they can afford to do so or not. And why should their be? Teams in leagues around the world are independent entities, businesses and they live or die by the business decisions they make as well as the players they put on the field. This is not the case in MLS, the structure here is designed to bring stability and financial control to the league and ensure that it survives as whole without the extremes that we see demonstrated by Manchester City, Portsmouth and throughout the world of football.
MLS as a whole is one business (in simple terms). Each of the teams that make up MLS are essentially franchises owned wholly by the league. Owners as they are commonly known are essentially granted the right to operate that franchises. The teams fundamentally do not belong to them, however the owners essentially become stakeholders in MLS. This unique approach to league setup puts all of the league owners in the pool with each other, and the business interests of one group are too an extent the business interests of everybody else. Because of this structure, and the focus of MLS towards stability and growth, and with one eye on the past failure of the NASL (North American Soccer League) the freedom of the franchise owners to do what they will with their teams is limited.
The initial and most fundamental part is financial control, owners are essentially operating an MLS business within their own designated territory. If they turn a profit it is theirs however a chunk of all ticket sales are kicked back to the League so that MLS has cash to operate. MLS uses this money to sign players for the teams, and pay their wages. All players are contracted to the league, not to the teams they play for. On top of this the league has a strict salary cap, so that teams cannot spend to excess – after all it is MLS paying the players not the teams.
What this means is this:
If Bill Gates bought the San Jose Earthquakes and decided to turn them into a super team by outspending the rest of the league … he can’t. He would have the same $3.2m salary cap to spend as everybody. This means that the most commercially successful teams in MLS have no more cap space than the remainder of the league with a caveat. Teams which have the means to do so can spend extra money bringing in Designated Players. The first (approximate) $350k for these players is levied towards the salary cap and reduces the pool for the remainder of the squad. Anything above the MLS paid portion is privately financed, which is why the LA Galaxy can have a $6m a year player, and Sporting Kansas City can pay Omar Bravo over $1m a year. Each Designated Player takes a fairly large chunk of the salary cap meaning there is a trade off between the quantity of DPs a team can have long term and the quality of the squad behind them. The onus is therefor on finding a player or two at most who can really add to your squad without taking away your ability to have substantial depth in reserve. (We’ll cover DPs properly in another 101 — next week).
If a franchise is struggling, losing money like many do, they still have the same $3.2m to spend on players that everybody else does. This keeps teams at the lower end of the economic scale competitive and has allowed teams that suffer poor attendance or circumstances to remain floating while not having to worry about player wages. Before you sneer that was probably the Wizards from 1996 through 2010. Sporting Kansas City would not be here without these controls and the single entity.
Costs are firmly controlled in terms of playing staff, however individual owner-operator groups have a fairly free reign when it comes to other aspects of their team business. Soccer specific stadiums when constructed are seldom paid for by the owners, LIVESTRONG Sporting Park cost our ownership group here in Kansas City something in the region of $50m with the remaining approximate $150m tab being paid by sales taxes generated in and around the stadium and the Legends complex. As we have seen appropriate venues in good locations that are properly marketed and feature a product on the field will draw in crowds, and it is through high attendance and leveraging facilities like LIVESTRONG to host exhibition games, concerts, corporate sponsorship and through the sales of merchandise and concessions that the owners ultimately can make money. The stadium is not owned or operated by MLS, but Sporting Club.
The owners of Sporting Kansas City, if they play their cards right should start bringing in revenue from their journey into MLS now that LIVESTRONG Sporting Park is open however it is worth remembering that during the prior years of their journey from Arrowhead to LIVESTRONG via Community America Ballpark they were unlikely have done so. As more stadiums come online, as more television revenue is untapped and as soccer grows in the USA the single entity structure may eventually go away, but for the foreseeable future it is here to remain and it is fundamental to understanding how almost everything works in MLS.
For example, we currently have a playoff system that includes ten teams. While many fans have complained that having more than half the league play in the system cheapens it, the reality is that when teams are out of contention do not sell a lot of tickets. When a large percentage of ticket sales are kicked back to the league, and the owners are all essentially shareholders you can understand how a compromise between quality and quantity comes about.
The single entity affects everything from who manufactures the team kits, to the font that is used on the back of shirts, and even sponsor logos on the front of them have a mandated minimum sponsorship amount and involve a hefty kickback to MLS. At times it all seems a little like the Cosa Nostra have setup a structure to win territories and supply the Don and his allies with bundles of cash, however the reality is the MLS lost $350m in first 8 seasons and is only know starting to approach overall profitability. In the mean time the various owners have had to foot the bill.
The future is certainly looking bright, but it will be a long long time before the ultra-rich Arabs turn up and are able to assemble a world beater, if ever. The single entity structure will likely be here for as long as MLS is, accepting this fact and learning to think of all MLS teams being partners in one enterprise will help you understand MLS forevermore.
Next up …. Assembling a Squad …

