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Saturday, August 20, 2011

Is the $750,000 NASL Start-up Franchise Fee Priced Right?

The Price Is Right Host Drew Carey must have felt the pricetag for the Seattle Sounders was close enough without going over, as he partnered up and ponied up to lead that franchise to MLS and beyond.  But, would he do the same for an NASL franchise, in other words, are there more big pocket spenders out there ready to take a chance on the NASL?

It is confirmed by sources that NASL is peddling franchises for $750,000.  Currently, the NASL has the provisional status as American Soccer's Division II.

The label 'provisional' is the biggest hurdle for NASL right now as it tries to sell more franchises.  Things could change by the start of next season. 

Investors are not able to definitively conclude their money will go towards the Second Division of pro Soccer in the U.S.  The United States Soccer Federation will consider all aspects of Division II after this season due to the turmoil of what transpired among competing Soccer leagues from one season ago and because of the repercussions of how any failed league might look like to fans and investors.

If trending is how people are following news and sports, than the NASL has some momentum on its side.  Though it only has provisional status, the NASL has done as much as possible to look the part this year and take on the reputation of Second Division.  In the eyes of the public, who are generally ignorant to all of the recent past squabbles among team owners and varying leagues, NASL appears to have what it takes to carry on forward as Second Division.  Don Garber, commissioner of MLS thinks so, as he has on several occasions referenced NASL as Second Division in press conferences or talks with media personnel.


So, if $750.000 is not the right price, than what is the right price?

It's hard to say.  It could be more or it could be less.  At this point, no one can predict the future and say exactly what will happen with Division II next year, so everything remains speculation.

In the last few years, MLS has been able to cherry-pick minor league teams (Seattle, Portland, Vancouver and Toronto-Montreal for next year) and turn them in to their own successful franchises.  MLS took advantage of the branding that was already accomplished and the organizations that were already built, even though each of these teams were only drawing on average 3,000 people or so to their games.  MLS convinced investors for each of the teams to pay start-up franchise fees between 25 to 40 million dollars.  This coup by MLS has allowed it to gain much more traction in the U.S. sports world due in large part to the fact that these particular former minor league teams are now attracting some of the biggest and boisterous audiences per game and in local TV ratings, too.

Unless it is a big city/area and investors with big pockets (including building a Soccer-specific stadium), like a Philadelphia, getting into MLS is not a certainty.  It appears that building a team at Division II is an alternative that could generate enough steam to attract more investors and eventually be a path to MLS.

So, why is it so important to get into MLS?  Because the value of the franchises are skyrocketing.

Sporting KC is a perfect example.  Their new stadium has lifted their franchise value exponentially.  In fact, all teams from MLS are worth much more than what they were paid for.

Amazingly, all of the growth from MLS has been done without the help of national TV ratings and sportstalk radio.  When these two factors come around to show good numbers, imagine then what the worth will be for franchises.

The other big aspect to acquiring a team in Division II is the possibility of Relegation/Promotion in the future.  If Soccer in the U.S. ever decides to incorporate all divisions so teams that win their division move up and teams that lose the most move down, than being in Division II has that advantage also.  The topic of Relegation/Promotion is fascinating to discuss, as it is generally the rule for leagues of all other countries, but it is only talk and it could be a very long wait before it is ever put into place in the U.S. 

At this time, any new franchise team heightens expectations for NASL and for that reason alone, the price seems right.  The league's profile enhances greatly with every additional team.  Barring any changes in terms of status of the league, a franchise would be coming in at the right time because new franchises will increase the worth of the league and of all individual franchises.

Building a franchise is not an easy task.  It requires heavy investment in the beginning and a lot of worries.  This is the case for any new franchise of any sport.

It always comes down to risk vs. reward.  For an NASL franchise, the reward can be much greater than the risk lost, thus, $750,000.00 appears to be a fair offer.

4 comments:

  1. A franchise is often equated to the stability of the league. MLS has a decade and a half of building and shaping the success of its brand.

    The NASL is still hoping to build on the legacy of its 1970's namesake. Without the stabilization of several of the clubs, the values of the NASL franchises will remain uncertain and at best a gamble.

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  2. USSF also requires a $750k letter of credit and an owner (who holds at least 35% of the company and holds a controlling share) that is valued at at least $20m.

    My feeling is that together this puts the price tag WAY to high for a league with 0 profits, 0 television exposure, 0 broadcasting revenue, massive past instability, and the HUGE risk that once a team becomes popular the MLS will come in and kidnap them. Unless and until USSF caps Division I (MLS), investing in NASL will be unreasonably risky.

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  3. The NASL is a great start for teams trying to get into MLS or if eventually the NASL merges into the MLS. Tampa Bay Rowdies, New York Cosmos, Atlanta Silverbacks, San Antonio Scorpions and Minnesota FC, All MLS ready clubs

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  4. American soccer (football) is a joke because it's all about deep pockets. the hell with all these $750k to $30M franchise fee, just going to a few persons' pockets. Put in the promotion/relegation system like the rest of the nations of the world, let that system filter out who's the best and worst. make every team starts at the same starting line. it's no wonder even American football is more popular than soccer in America, even though soccer is an international sport more popular than the national sport of a nation. Let the free market (open competition) into America's soccer pyramid, free market economy made America the #1 country in the world so let it work for soccer in America too.

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