Friday, July 06, 2007

Let’s Get Ready for the Beckham Invasion

In a matter of days – two weeks from tomorrow, Saturday July 21 the long anticipated Major League Soccer debut of David Beckham is scheduled to take place when Beckham’s newest soccer club the Los Angeles Galaxy will host Chelsea F.C. of the English Premier League in an international club contest at The Home Depot Center in Carson, Calif. Thursday, ESPN announced plans to offer coverage on many different ESPN platforms – the day will be important to both ESPN and MLS – the dawn of a new era for soccer in the United States.

Beckham’s debut will end a six month odyssey that began when the Galaxy signed Beckham to a record $250 million multi-year contract on January 11, 2007. From that fateful Thursday announcement of the Beckham signing – nothing has quite been the same for Major League Soccer as a business and as a sports property.

To some it must seem like the ‘second coming’, a heralded arrival along the lines of Pele joining the New York Cosmos in 1975 after the greatest name in soccer history signed a $2.8-million, three-year contract with the Cosmos. His presence in the NASL helped boost average attendance by almost 80 percent from 1975 (7,597) to 1977 (13,584). For Major League Soccer, the announcement of the Los Angeles Galaxy, five-year $250 million signing of David Beckam will serve as the catalyst for soccer’s growth in North America.

How important is the 'second coming' to the future of Major League Soccer? According to a report in The Washington Post when the deal was announced in January the MLS will pay Beckham $400,000 per year, with the Anschutz Entertainment Group (who own three MLS franchises and the Los Angeles soccer specific stadium) paying the balance.

One of the key's to how the MLS has managed their business affairs, each franchise has to manage their team working with a $2.2 million salary cap. So how could the Galaxy’s management team circumvent the cap? Last year the MLS Board of Governors agreed to a Designated Player Rule, but that rule has been known from its inception in MLS circles as the Beckham Rule, the ability to exceed the salary cap with the signing of one designated player, hence nicknamed the Beckham Rule.

In 1977, the year Pele led the Cosmos to the North American Soccer League championship 77,691 filled Giants Stadium to ‘experience’ Pele and his Cosmos teammates Franz Beckenbauer (organizer of the 2006 World Cup in Germany), Carlos Alberto (teammate of Pele's on Brazil's Cup-winning squad of 1970) and the brash Chinaglia (a top scorer in Italy).

"We were as big as the Yankees and bigger than the Giants," says Shep Messing, a Harvard grad whose part-time passion for soccer turned full-time when the Cosmos went big time. "We had our own tables at all the clubs. But we weren't any more decadent than players today."

Seven years after Pele played his last game, the NASL folded after their 1984 season. Major professional soccer was gone from the American sports landscape until 1993 when organizers of the 1994 World Cup, the first World Cup to be contested on American soil, announced the formation of Major League Soccer.

Beckam’s $250 million (that didn’t include revised endorsement agreements) makes Beckham the highest paid athlete playing a North American sport, surpassing Alex Rodriguez’s ten-year $225 million.

Along with ESPN’s announcement Thursday, Wednesday Beckham in a somewhat surprising decision announced he was ending his endorsement agreement with Gillette. Beckham walked away from the agreement despite a proposed $6 million offer from Gillette. What made the news somewhat surprising, Beckham’s decision to walk away from an agreement with an American based company on the eve of his American soccer debut. According to the published report after Beckham’s current three-year agreement expired on June 30 the company only offered Beckham a one-year extension.

A source close to the talks told The Times of London: “Mr Beckham’s advisers have decided to move in a new direction.”

It’s not as if one of the most recognizable personalities isn’t in demand. Beckham still has agreements in place with some of the most important brand names: $20.11m a year from Adidas, $9.05m from Motorola, $8.04m from Coty, and $4.02m from Pepsi. ESPN will debut a multi-media Beckham campaign next week. And Beckham who is managed by Simon Fuller, the brains behind the reality television show American Idol is reportedly negotiating agreements for Beckham with an automobile manufacturer and a financial services firm about new sponsorship deals.

Adidas Beckham’s biggest dollar sponsors debuted an interesting commercial campaign ten days ago – melding together Beckham and New Orleans Saints running back Reggie Bush (another Adidas athlete) swapping sports during practice in "Futbol vs. Football."

"There's very few people whose names transcend their own sports. People know the name of David Beckham, whether they follow soccer or not," said Stephen Pierpoint, vice president of brand marketing for Adidas America in a Chicago Tribune report.

To mark Beckham's arrival, Adidas retaped its "Impossible is Nothing" commercial with him to make his soccer past understandable to an American audience.

"Soccer's appeal is still behind some of the major U.S. sports in this country. We're excited about the growth opportunity that we have there," Pierpoint said. "Within the soccer community, everybody is very well aware of and really looks up to some of those MLS players, national team players, as icons. As we spread outside the soccer community, those names become lesser known. And David's name we feel really travels further, and that's an opportunity for us to draw more people into the sport of soccer, draw whole families into the sport of soccer."

And the great Pele believes Beckham can help generate the same spark he did more than 30-years ago for soccer in North America.

"It's almost the same," Pele said. "There are a lot of similarities."

That said the arrival of Pele ultimately led to the death of the North American Soccer League. If any lesson was learnt from the arrival of Pele – short-term short planning can kill the golden goose quicker than you can imagine.

The biggest club in the league and the organization's bellwether was the New York Cosmos, who drew upwards of 40,000 fans per game at their height while aging Brazilian superstar Pelé (considered to be the greatest player of all time) played for them. Giants Stadium sold out (73,000+) their 1978 championship win. However, the overall average attendance of the entire league never reached 15,000, with some clubs averaging fewer than 5,000.

The NASL faced challenges in regard to selling the sport of soccer to Americans, which was then completely foreign to the majority of them. The league "Americanized" the rules in the attempt to make the game more exciting, and comprehensible, to the average American sports fan. These changes included a clock that counted time down to zero as was typical of other timed American sports, rather than upwards to 45 minutes as was traditional, a 35 yard line for offsides rather than the traditional half way line, and a shootout to decide matches that ended in a draw. The foreign image of soccer was not helped, however, by a league that brought in many older, high profile foreign players, and frequently left Americans on the bench. This effort was often doubly futile, as while many of the foreign players were perhaps "big names" in their home countries, almost none of them qualified as such in North America, and they quickly absorbed most of the available payroll, such as it was, which could have otherwise been used to pay North American players better.

Overexpansion was a huge factor in the death of the league. Once the league started growing, new franchises were awarded quickly, and it doubled in size in a few years, peaking at 24 teams. Many have suggested that cash-starved existing owners longed for their share of the expansion fee charged of new owners, even though Forbes Magazine reported this amount as being only $100,000. This resulted in the available talent being spread too thinly, among other problems. Additionally, many of these new owners were not "soccer people", and once the perceived popularity started to decline, they got out as quickly as they got in. They also spent millions on aging stars to try to match the success of the Cosmos, and lost significant amounts of money in doing so.

Also, FIFA's decision to award the hosting of the 1986 FIFA World Cup to Mexico after Colombia withdrew, rather than the U.S., is considered a factor in the NASL's demise.

MLS was formed on December 17, 1993, in fulfillment of Alan Rothenberg and U.S. Soccer's promise to FIFA to establish a "Division One" professional football (soccer) league in exchange for the staging of the FIFA World Cup USA 1994 in the United States. The league began play in 1996 with ten teams and enjoyed promising attendance numbers in its first season. Numbers declined slightly after the first year, but have stabilized in subsequent years. The original 10 teams were divided into two conferences: the Eastern Conference (Columbus Crew, D.C. United, New England Revolution, NY/NJ MetroStars, and Tampa Bay Mutiny), and Western Conference (Colorado Rapids, Dallas Burn, Kansas City Wiz, Los Angeles Galaxy and San Jose Clash).

The question that needs to be asked after the Los Angeles Galaxy signed one of the most recognizable names in the world today, a name that goes far beyond sports, will professional soccer’s second “opportunity of a lifetime” be managed better than the three years Pele played soccer in North America? Have those involved learnt the lessons paid by those who first attempted to bring the world’s most popular sport to America not going to make the same mistakes made by others? In a resounding word – YES!

When the league was started, most teams played in stadiums built specifically for NFL or NCAA (college) American football. This was based on the record attendances achieved at the 1994 FIFA World Cup. However this turned out to be a considerable expense to the league because of modest attendance and poor lease deals. To provide better facilities as well as to control revenue for the stadium, a major goal of MLS management is to build its own stadiums, which are often called soccer-specific stadiums (though they are capable of accommodating high school football, lacrosse, and concerts).

In 1999, Lamar Hunt personally financed the construction of Columbus Crew Stadium, the first major stadium ever built from the ground up specifically for soccer in the United States. The Crew formerly played at Ohio Stadium on the campus of The Ohio State University, but was forced to find a new home when the university began renovations on the stadium.

The Los Angeles Galaxy got a new home beginning with the 2003 season, The Home Depot Center (HDC) located in Carson, California. The Galaxy previously played at the Rose Bowl in Pasadena, California. In 2005, expansion club C.D. Chivas USA joined the Galaxy as tenants at the HDC. Chivas USA does play a few games per season at the Los Angeles Coliseum, usually in tandem with its Mexican parent club.

The move to soccer-specific stadiums has been seen by many as essential to building up attendance and fan support for MLS. So far, every team that has built its own stadium has not only seen its game attendance rise, but also has helped MLS to come closer to the ultimate goal of profitability. Thanks to their new stadium, the Los Angeles Galaxy became the first team to make a profit, and is projected to be followed in 2006 by FC Dallas (final financial numbers for Dallas’ 2006 season are not available yet). With the league's new TV rights for the 2007 season, several more teams are projected to be profitable.

Major League Soccer lost more than $350 million in its first decade, according to a report by Business Week in 2004 However, several signs in media, a landmark TV rights deal, and trends in the league itself suggest a brighter future in the next decade. First, soccer is gaining coverage on American television, with the Fox Soccer Channel and the ABC/ESPN family of channels now airing games in MLS, various Latin American leagues, major European leagues, as well as the World Cup. The exposure helps to erase the image of MLS as being a league of a 'niche' sport.

Last year, MLS and ESPN announced that the network would be paying the league its first ever rights fees to air its games and would produce the games instead of MLS, and also promote the sport on its networks with more time on SportsCenter and a primetime slot on Thursday’s on ESPN2 right after SportsCenter. The deal is said to be worth between $7-8 million a year, and will extend from the 2007 season through to 2014.

This deal is said to be a landmark event for professional soccer in the United States. Combined with other broadcasting rights deals with Fox Soccer Channel and Fox Sports en Español (combined rights deal), HDNet, and Univision, the league in 2007 will take in around 20 million dollars in TV rights for the first time. ESPN, Fox Soccer Channel, HDNet, and Univision are at an estimated $15 million a year as of 2007 before the Univision deal.

Soccer specific stadiums has been a key to the growth of professional soccer in North America – but the arrival of a marquee athlete with the marketing and brand power of David Beckham is an essential piece of the puzzle.

"As wonderful as this is, we don't want to saturate and we don't want to duplicate when it's not necessary," Galaxy president Alexi Lalas added in the Chicago Tribune report. "So there is a specific Los Angeles-based platform, there's the regional, there's the national and then there's the international. And it's a combination of the Galaxy, the league -- MLS -- Adidas, ESPN. All of those different entities are targeting different areas."

Los Angeles Times’ NHL beat writer Helene Elliott compared Beckham’s arrival to Wayne Gretzky arriving in Lotus Land before the start of the 1988 National Hockey League season.

"I don't know anything about soccer except that I have a 6-year-old who loves the sport and he understands what California and the Galaxy are getting," Gretzky said recently.

"There's no player as much or more charismatic in the world today than David Beckham. He's got as much charisma as Tiger Woods and he's right up there with any great athlete you can name."

Former Kings’ owner Bruce McNall told The Los Angeles Times he too believes there is a synergy between the arrival of the Great One and Beckham.

"It was nuts," McNall said. "I remember I was invited to a party when Wayne first came, a big Hollywood party. I left him for a minute, and when I came back there was this big line of people waiting for his autograph.

"We'd get Tom Cruise and Nicole Kidman at the games, Tom Hanks, Barbra Streisand, Sylvester Stallone, John Candy. Former President Ronald Reagan would sit next to the glass. There probably wasn't anybody in Hollywood you can imagine who wasn't intrigued by the whole thing."

McNall offered one piece of advice to Galaxy officials – hopefully not only do they understand what the potential they have in moving soccer forward in Los Angeles but both Beckham and the Galaxy understand they both have to be on the same page in order to successfully move forward.

"He's a superstar, and if he's willing to do the things Wayne was willing to do to help the game, it can be a big help," McNall said.

"If a sport is not indigenous to an area, you need to make a dramatic move, I think. This is dramatic. If I'm in the position of [owner] Phil Anschutz and I have a huge investment in the sport, not just in the Galaxy, and I have the opportunity to do something dramatic, that's really cool."

McNall told The Los Angeles Times he believes the financial risk appears manageable because the Galaxy can profit from the merchandise and ticket sales Beckham generates.

"The biggest mistake I made was acquiring Wayne without acquiring ancillary rights that would have allowed me to recoup my expenses," McNall said. "I didn't own the arena, marketing rights or concession sales. I had seats and a slight increase in TV rights, but that wasn't enough.

"I wasn't able to cash in as much as they probably will. From a business standpoint, it sounds to me like they'll do well. For what they're trying to do, which is making soccer a viable sport here and nationally, it's a smart move. It's got a chance to work."

When Wayne Gretzky arrived in Los Angeles he had just married Janet Jones a movie actress. The Wayne Gretzky of 2007 is a marketing machine – someone who understands and works tirelessly and successfully at building his image – most of which evolved after Gretzky was traded from the Edmonton Oilers to the Los Angeles Kings.

"Selling the sport is not only what happens on the field, it's off the field too," Gretzky said in the Los Angeles Times report. "One guy can definitely help, but everybody's got to be on the same page. When I came to L.A., the whole organization worked tirelessly to promote the game, people like [broadcasters] Jim Fox and Bob Miller and a lot of others spent hours selling the sport in the community.

"You can do all the marketing and selling you want to do, but the reality is that you've got to accomplish feats on the field. If he does well on the field, people will embrace him. They want to see an exciting brand of soccer.

"If they can get everybody behind them and working together, they should do well. But it takes time. There are no instant fixes."

For SportsBusinessNews this is Howard Bloom. Sources cited and used in this Insider Report: Wikipedia, The Los Angeles Times, The Times of London and The Chicago Tribune.

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