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'Soccernomics' author says MLS' collapse is imminent. His argument is awful.

There's a lot of missing information in Stefan Szymanski's calculations.

By Kim McCauley

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Cindy Ord/Getty Images

On Thursday, economist and Soccernomics co-author Stefan Szymanski put up a blog post on Major League Soccer's finances, using information he obtained from a source inside the league. It's caused a major stir because of its conclusion.

MLS starts to sound like a pyramid scheme. You can fund a loss-making enterprise from the entrance fees of new buyers for a while, but without making money, the only reason for doing this would be glory, not profits. Americans constantly tell me that owners of sport franchises in the US will insist on making money. If that really is the case, then I predict that MLS will collapse, and probably sooner rather than later.

When someone makes a bold claim like that, a lot of people are going to attack it. There are very good reasons to attack it.

I've admittedly used the term "pyramid scheme" to describe MLS colloquially and jokingly, but MLS can't actually be a pyramid scheme unless the original investors -- people like the Hunt, Kraft and Anschutz families -- are getting rich while leaving the new guys with nothing. Szymanski implies they're losing money, too.

Some of Szymanski's work is very easily refuted, while some of it just requires a few questions to be answered. I'm not going to take issue with the accuracy of his source's information or his calculations, just his argument. Though it should be noted that many are taking issue with the numbers in the first place.

With that in mind, let's look at the things seriously wrong with Szymanski's argument.

Franchise scarcity and appreciation

At some point, there won't be any expanding left to do. If MLS stops expanding before potential buyers dry up -- which looks likely -- that's very good! It means existing teams will appreciate in value and rich people will want to pay existing owners more than their initial outlay for the team. There's also no reason to believe MLS owners are unlike other sports owners, who are willing to accept small losses in an attempt to win accolades.

Here's Peter Wilt, president of NASL side Indy Eleven and former president of the Chicago Fire. He also has run a WPS team and led an effort to get Milwaukee an MLS expansion team.

These things happen in every sport. MLS might be different, but assuming it definitely will be takes a serious leap of faith.

Missing revenue streams

Here's a quick list of revenue streams that Szymanski totally neglects to mention.

Merchandise sales
Concessions
Parking
International TV rights
Local TV revenue
Soccer camps
Stadium naming rights

It's possible that he included stadium naming rights under 'other sponsorship', but it seems significant enough to warrant its own specific mention.

Are these as big as the revenue streams Szymanski does point out? No, but they definitely amount to seven figures per team, comfortably. It's unlikely that these things totally make up for his projected $7 million in losses per team, but they soften the blow quite a bit.

There's also this sentence.

I will ignore other stadium costs, as well as other stadium revenues, given that this depends on ownership and is not strictly soccer related.

Other stadium revenues obviously outstrip other stadium costs when teams run non-MLS events at the stadiums they own. If they didn't, teams wouldn't run them. It's clearly an important revenue stream for a lot of teams.

The elephant in the room: Soccer United Marketing

Soccer United Marketing is the marketing arm of MLS, which promotes various soccer events. They have a partnership with U.S. Soccer where they get a cut of TV and sponsorship money generated by U.S. national teams. They had a partnership with FC Barcelona where they promoted their games in the U.S. for five years.

No one knows how much money they make because they don't have to tell us, and it's not advantageous for them to do so. Whenever MLS Commissioner Don Garber -- who is also SUM's CEO -- is asked about their finances, he does a really good job of deflecting.

ESPN FC: You told The Associated Press [Tuesday] the league was losing $100 million combined every year. How much of that is at the team level and how much of that at the league headquarters level?

Don Garber: Good for you for asking, but I'm not going to break it down.

...

ESPN FC: To confirm, those numbers don't include revenues from Soccer United Marketing?

Garber: I'm not going to talk about it in any way other than to say the losses of MLS and our teams are in excess of $100 million.

Translation: those numbers don't include Soccer United Marketing. Seeing as 25 percent of SUM was sold for $125-150 million in 2011, valuing the company at over $600 million at the time, it stands to reason that SUM is more than a minor, irrelevant offshoot of the league. There have been more international friendlies, a Gold Cup and a World Cup since that deal. SUM makes MLS money.

There used to be a page on SUMWorld.com that listed all of the teams and organizations represented by the company. At some point -- probably figuring out that it was a bad look for labor negotiations -- this site started redirecting to a generic advertise with MLS page on the league's main site.

★★★

Is MLS secretly making hand over fist, operating at a massive profit? No, probably not. But are they bleeding cash? We can't know that unless we see SUM's finances, which we're never going to see, but it's hard to believe they wouldn't make this picture a little rosier.

There's just too much missing here to come to the conclusion that MLS is unsustainable and in dire straits financially. Szymanski's argument doesn't hold up even if you take his numbers at face value, which other well-placed MLS sources seem to believe we shouldn't do.

The basic argument of "Giant costs - smaller revenues = big loss, therefore collapse is imminent" only makes sense when you've actually accounted for all revenues. Szymanski hardly got started on that. When someone makes this argument while actually accounting for all revenues, maybe their argument and prediction will be taken seriously.

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