MLSE has committed $220 million to bolstering Toronto FC, boosting the club's value while telling fans the company will spend big to win.
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MLSE chairman Larry Tanenbaum says he hopes Toronto FC’s $220-million soccer spending spree sends a strong message to fans that winning trumps short-term profit. “Our fans truly deserve world-class teams,” says Tanenbaum, who owns 25 per cent of MLSE.
When Toronto FC committed $100 million in transfer fees and salaries for three superstar players last month, Maple Leaf Sports and Entertainment CEO Tim Leiweke acknowledged that the club wouldn’t come close to recouping that money in the short term.
And even though the soccer team hasn’t posted a winning record in any of its seven seasons in Major League Soccer, MLSE followed that expenditure with another, pledging $120 million to expand and upgrade BMO Field.
For MLSE chairman Larry Tanenbaum, the $220-million soccer spending spree is about rebuilding brands — both the soccer club’s and the company’s.
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Tanenbaum is sharply aware of a the perception among Toronto sports fans that MLSE can live with losing teams as long as the clubs generate revenue. He hopes TFC’s winter transactions send a strong message to fans that winning trumps short-term profit.
“Our ownership group are unbelievably committed to winning at all levels, (including) winning our fans back and winning in our community. Our fans truly deserve world-class teams,” says Tanenbaum, who owns 25 per cent of MLSE.
“Winning does drive value up — value in the team and value in the league.
Tanenbaum stresses that when the Ontario Secondary Schools Teacher’s Pension Fund owned MLSE, winning still mattered. But generating revenue for the company’s owners mattered more, whereas the Rogers-Bell partnership that bought 75 per cent of MLSE two years ago place greater emphasis on wins.
Experts say splurging on three stars — Englishman Jermain Defoe, American Michael Bradley and Brazilian Gilberto — will help TFC meet its owners on-field and financial goals.
During its first season, TFC averaged 20,130 spectators for home games, a figure that trailed only two MLS teams, each with significantly larger stadiums than 20,000-seat BMO Field. But after several lacklustre seasons, TFC slipped to 10th place in overall attendance, averaging 18,131 in a stadium that had been expanded to seat 25,000.
And infusion of high-profile talent and the prospect of making the playoffs could quickly boost sales of TFC merchandise and tickets. And sustained success would add value to luxury suites at BMO field when the makeover is complete.
“Their franchise value is much more heavily driven by pure attendance than other factors,” says Drew Dorweiler, managing partner at the valuation firm Dartmouth Partners.
“I would think they would upgrade the luxury boxes. Assuming you’re selling out, half your revenues come from regular season tickets or walk-up, and half are coming from premium seats and luxury boxes. You really want to maximize those.”
But the “ML” in MLSE stands for Maple Leafs, so if company leadership wants to repair its relationship with local fans, why not start with the NHL’s only billion-dollar franchise?
The simple answer, Tanenbaum says, is a salary cap.
Major League Soccer doesn’t have one.
“You have more constraints with the Raptors and the Leafs than with TFC,” Tanenbaum says. “We have given our general managers our ability to spend to the cap.”
Another answer, experts say, is upside.
Major League Soccer has plenty.
The league’s level of play still lags behind top European leagues, with each overseas superstar joining the league making an immediate on-field and marketing impact with the team signing him. Ohio University professor Norm O’Reilly says the effect is more pronounced than in the NBA or NHL, where the sport’s biggest names move from team to team within the league.
“You can spend to build a winner and spend to create attention very quickly. It’s harder to attract attention to the Leafs,” says O’Reilly, chair of Ohio University’s Sport Management program. “Major League Soccer is an open market and a growth area.”
Dorweiler highlights the rapidly rising values of Major League Soccer franchises.
MLSE paid the league a $10-million expansion fee for Toronto FC in 2005, but last November, Forbes estimated the club’s worth at $121 million. In May, the New York Yankees teamed with Manchester City to commit $500 million to Major League Soccer franchise, a figure that includes a $340 million stadium and $100 million expansion fee.
“If you have the money, it (Major League Soccer) is one of the greatest growth prospects in pro sports in North America,” Dorweiler says.
O’Reilly points out that bringing higher-profile players to Major League Soccer also enhances the value of the league’s media content. Last month the league agreed to a television rights deal with Fox and ESPN that will double its TV revenue to $70 million annually.
While the entire league benefits from that deal, O’Reilly says the effect is amplified in Toronto.
“Market has a huge market, as soccer-supportive market and an ownership group that’s community focus,” O’Reilly says. “You add the winning piece to that puzzle, franchise value is going to continue to go up.”
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