MLS is humming right along according to Forbes

Stands on soapbox

Forbes released their increasingly annual estimates for MLS club revenues, operating profits and valuations on Wednesday, and for the most part things look great for the owners of MLS. The average value of 2014 franchises was up 13.5% in 2015 over the prior year which is well above the -2% loss seen by the S&P 500 over the same two years. Nothing can stop sports these days. Including the two expansion franchises in Orlando and New York, the average value of an MLS franchise now stands at $185 million, which is close to the $200 million new franchise fee just announced by Don Garber a few weeks back. These numbers would suggest that MLS and owners feel very confident in the overall financial health of the league and expect similar growth rates for the foreseeable future.

There are many out there that like to trash the efforts of Forbes without much defense of their stance. It must be hip to do so. The reality is that valuing any company is a difficult task and never has a real answer. Valuations are based on estimates of future cash flows and will never be correct. Google's stock is trading 18% higher than it was two and half months ago. Is yesterday's valuation of Google the correct one? Many an investor has paid the price for inaccurately assessing the value of an asset over the years. So why pick on Forbes? Forbes is making a consistent good faith effort to provide fans with a view of the financial side of the game. Are these numbers right? No. Are they reasonable and can they give us insight over time? I think so.

Gets off soapbox

Here's how the valuations look and the growth rates over last year.

The total value of MLS according to Forbes is now $3.7 billion, which for the first time tops the valuation of Real Madrid at $3.6 billion. Let that one sink in.

At first glance it appears good to be an upper echelon team. The top ten teams from a valuation standpoint saw their valuations grow by 18%, while the lowest ten teams only saw a 9% increase.

For Union fans the news isn’t as great. The franchise value is currently $152 million up just 5% over the prior year’s estimate of $145 million. Even worse, Forbes estimate of their revenues in 2015 of $24 million is down by $1 million. Only one other team observed a revenue decline and that was FC Dallas, which has closed a portion of Toyota Stadium for renovations.

Reinvesting in players

As far as fans are concerned they just want to be sure their owners aren’t pocketing more than their share of profits and not investing in the players. Forbes’ estimates can help provide some insight into that question even if the results aren’t perfect. Here’s a comparison of team revenues and player salaries published by the MLSPU. Teams above the best fit line invest more than average in players relative to the revenues they bring in. Teams below the line underinvest.

Obviously Toronto FC and New York City FF are investing the most in players relative to team revenues. On the flip side the Seattle Sounders and Portland Timbers are currently underinvesting. A bunch of the teams form a big blob in the lower left portion of the chart and don’t differentiate themselves. The Philadelphia Union are in that cluster and close to the average of the league from a salary point of view. The fact that the Colorado Rapids create significantly less revenue than the rest of the league makes their player spending even more impressive.

Overall the financial world of MLS appears very healthy, much like the rest of the sports world. Things don’t appear to be going as well for the Union which could impact their willingness to invest in players, however the recent signing of Alejandro Bedoya hopefully provides confidence that is not the case.