Thursday, November 17, 2011

David Beckham – was his MLS contract a good business decision

The David Beckham era in MLS comes to an end Sunday at the Home Dept Center in Los Angeles when the Los Angeles Galaxy meet the Houston Dynamo in the MLS Cup.

The championship marks much more than the end of the 2011 MLS season, it marks the end of a what was billed as the biggest contract in sports history. When Beckham joined the Galaxy in January 2007 he signed a contract estimated to be worth more than $250 million in salary and commercial endorsements. His contract never paid him anywhere near $250 million.

When the contract was signed the BBC reported the breakdown of Beckham’s MLS record contract:

• An annual salary of $10m
• His existing sponsorship contracts with his four sponsors - Motorola, Pepsi, Gillette and Volkswagen - are estimated to be worth $25m
• His merchandising shirt sales will bring in $10m
• His share of the club profits: $10m

That adds up to $55M. Multiply it by five and you get well over $275M. The ‘released’ $250M figure offered by the Los Angeles Galaxy likely didn’t include the endorsement agreements with Motorola, Pepsi, Gillette and Volkswagen that have been extended as a result of Beckham’s decision to continue playing the remaining years of his soccer career in North America.

Was it a good deal? Is Major League Soccer stronger as business and as a brand?

The Los Angeles Times offered some compelling points that suggest Beckham has been good for business. The right to become an MLS member (expansion fee) quadrupled to $40M.

MLS, which once had to pay for its game to be televised, will start the 2012 season with a $10 million a year multi-year agreement with NBC, as well continuing to enjoy broadcast from Univision and ESPN.

Last week Beckham's Galaxy signed a new local broadcast agreement with Los Angeles' Time Warner Cable, which according to The Los Angeles Times, will pay the team $55 million over 10 years .

Expansion fees haven’t decreased in the last five years and at $40M an MLS franchise represents a good investment. The growth of regional sports networks would have seen MLS secure a rights fee regardless of whether Beckham had joined the Galaxy. It’s important to note Time Warner Cable is focused on putting together a Los Angeles based sports channel along the lines of New York’s YES Network and the New England Sports Network.
An MLS franchise with or without Beckham would have been important to what Time Warner is trying to do in the LA market.

The Galaxy are one of, if not the, marquee MLS franchise. The Times estimated the Galaxy’s value in excess of $100 million, a great deal for an MLS franchise. But what impact did David Beckham really have?

This year the MLS regular-season average climbed 7% to 17,872, better than last season's NBA and NHL figures.

"That's all David," said Tim Leiweke, president of AEG, the entertainment group that owns the Galaxy and hockey's LA Kings. "From a financial standpoint … he's been undeniably successful. Show me one measuring post that hasn't increased significantly."

Leiweke, isn’t taking enough credit for what AEG has accomplished. The Home Depot Center, home to the Galaxy, hosts the MLS Cup and has become the premier MLS facility.

On the other hand it would be hard to fault many soccer fans if they were surprised to learn Beckham was still playing in the MLS. Should the Galaxy win Sunday, it will be the first championship the Galaxy have won in the five years Beckham has been a part of the team.

Beckham has started less than half the teams’ games during the contract, and made more appearances on loan for AC Milan than for the Galaxy in 2009 and 2010.

"David coming to MLS, arguably one of the most popular cultural figures in the world today, in or outside the sports business, was a statement to a really broad global audience that MLS was serious, that we were a legitimate business," MLS commissioner Don Garber said. "It also says to a global market of soccer players that 'Hey, if it's good enough for David Beckham it's probably good enough for you.' "

Five years ago this was the right decision for MLS. 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 stabilized in subsequent years.

When the league was started, most teams played in stadiums built specifically for NFL or NCAA 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.

Since Beckham joined the Galaxy in 2007 the MLS has expanded to Toronto, Seattle, Philadelphia, Portland, Vancouver and Montreal. The league plans on adding two more franchises in the next few years.

Beckham offered MLS a key block in levering the league and soccer in North America. He may not have played half of the Galaxy’s games, but in 2007 and 2008 MLS was afforded the opportunity to showcase their league with David Beckham.

France's Thierry Henry, Ireland's Robbie Keane and Mexico's Rafael Marquez are now playing for MLS teams. MLS matches are televised in Europe.

The MLS isn’t anywhere close to what England’s Premier League is to European Football fans but at least Euros are aware MLS exists and David Beckham deserves much of the credit for that.

"It's a pretty good experiment," Galaxy Coach Bruce Arena said in a Los Angeles Times report. "He's helped make this team better, he's helped make the league better and there's a great awareness of MLS around the world because of David. It's a much more popular sport now, and at a time when the competition for the sports dollar is greater than ever."

And what about Beckham – does David Beckham believe traveling across the pond to America was a good decision for him?

“It’s turned out exactly the way I wanted it to, especially off the field. We wanted to see the success of the game growing in this country, the league getting bigger and more popular, and I think we’ve done that. Throughout the game around the world, now the MLS is known around the world, which it wasn’t five or six years ago. I think that’s one of the things that I personally wanted to do. I wanted to create a buzz. … I want to win a championship. I came here as a soccer player; I came here to be successful as a soccer player as well as being an ambassador for the game.” Beckham told ESPN Los Angeles.

What about that $50M annual salary Beckham signed in 2007? The $250 overall estimate for the five year contract was based on “what Beckham might earn by combining his Galaxy salary with off-field sponsorship deals.”

Forbes Magazine reported Beckham earned $40M last year making him the world’s richest soccer player.

Was the signing a good investment? Yes and no. The MLS has grown tremendously in the last five years. If you’re going to decide on the value of the contract you have to look the overall picture and base your judgement on that. At the end of the day, it was the right business decision.

For Sports Business News this is Howard Bloom

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