It’s important when discussing the costs that the “league” bears to remember that the league is owned by the same people running the teams. At the end of the day, those player salaries are coming out of the Investor-Operators’ pockets just the same as if they had been direct costs. Similarly, even though teams don’t directly see national broadcast revenues, any profits derived from those revenues will end up pro-rated among the Investor-Operators.

MLS Investor-Operators see the same ultimate costs and profits as they would were they more loosely organized, but in the MLS model there is a requirement of collaboration. One team can’t simply decide to change the status quo and spend more on players; the Investor-Operators must agree that all teams should spend more. The competitive risk is capped — no one team can hijack the league.

How does Major League Soccer make money?

They sell soccer.

The product is the game. They pay players to battle it out week after week for your entertainment. You pay to watch this in the stadium, or you pay for a cable package to watch it on your TV, or you buy MLS Live to stream the games. Soccer is the key product. MLS has to make a game that is attractive, interesting, and convincing enough to get you to make the trip, or at least tune in for 90 minutes.

Once you’ve been hooked into paying to watch games, MLS has a number of other products for you to consume. There’s a bevy of merchandise options: team jerseys, apparel, and accessories made by Adidas, or one of the other 70 official merchandise partners. When you’re at the game you can buy food and drink. You can also choose to pay more for a premium experience: closer parking, better seats, luxury boxes, and more.

Now that MLS has sold you on soccer and has your attention, they’re going to re-sell that attention to sponsors and advertisers. MLS has over 20 national sponsors you’ll see advertised in stadiums and on TV during game broadcasts. Additionally, Investor-Operators are encouraged to cultivate local sponsorships for their clubs, including the big logos on the front of MLS jerseys and stadium naming rights.

In order to keep you coming back to games, and to stay relevant throughout the week instead of just on game days, MLS created its own editorial arm. They create articles, blogs, videos, podcasts, and recaps to keep you thinking about the game you watched last weekend, and looking forward to the one being played this coming weekend. They’ve also created their own fantasy game so you’ll remain engaged throughout the week in setting your lineup. All of this activity is pushing you to attend games, or at least watch them on TV or online.

One of the single biggest revenue streams for MLS is their national broadcast rights. Since the 2015 season, MLS has earned $90 million per year from the national broadcast deals struck with ESPN, Fox, and Univision. This figure is more than three times larger than the previous broadcast deal, and allowed MLS to invest further in growing their core product. For example, this revenue likely allowed MLS to introduce Targeted Allocation Money, effectively giving each team a salary cap boost to sign higher-quality players, thus increasing the quality of the competition and giving you more reason to watch week after week.

While MLS receives criticism for their relatively small player salary spend, they have managed to find a balance. They are continuously growing their customer (fan) base while effectively containing this potentially explosive budget line. MLS knows having higher quality players — improving their key product — will lead to increased attendance and viewership, which cascades down and improves all other revenue streams. They also know that growing a fanbase to support those increased salary expenses takes time. This is the sort of measured, responsible growth that sets MLS up to be a lasting entity.

Soccer United Marketing

Any discussion of the MLS business model is incomplete without considering Soccer United Marketing (SUM). SUM may be the key to the continued growth and success of Major League Soccer, and positions the league and its Investor-Operators to reap maximum benefits from the growth of soccer in America.

MLS developed a skill set for selling its soccer. SUM was created to leverage that same skill set for selling the soccer of other entities. For example, SUM approached the Mexican Men’s National Team and said that if they were to do an American tour with SUM representing them, they’d be guaranteed at least $2 million in revenue per game. SUM coordinated the tour, setting up venues, marketing the games, and securing broadcast deals, and earning a portion of the revenues for their trouble. They’ve done similar work for the US National Teams, and visiting professional teams from around the world.

SUM represents a sizable portion of the overall MLS enterprise value. While details and numbers are scarce, it was reported in 2016 that MLS was seeking to buy back the 25% stake in SUM it had sold to Providence Equity Partners in 2011. This chunk of equity was valued at over $200 million, indicating SUM has a total value of around $800 million. Guessing at revenues based on this valuation would prove foolhardy, but we can be sure that SUM is bringing in at least tens of millions on an annual basis.

Providence Equity Partners continues to list SUM as a portfolio holding (listed as “MLS Media”), so it would appear MLS was unsuccessful in buying back their shares. The remaining 75% of SUM is owned by MLS, LLC, and in turn the Investor-Operators.

Expansion

There has been a glut of expansion talk lately as MLS has two clubs readying for their entry into the league (LAFC and David Beckham’s Miami team), and the league is currently evaluating bids for teams 25 and 26. The MLS Board of Governors — a subset of Investor-Operators — met earlier this year to set the expansion fee for teams 25 and 26 at $150 million each. This raised some eyebrows as just ten years ago Toronto FC entered the league for a much smaller $10 million payment. How can the league demand such a high payment? The answer lies in examining what exactly Investor-Operators get in return for their expansion fee.

While critics characterize the expansion fees in a number of (often creative) ways, they’re best viewed as investments into MLS, LLC. New Investor-Operators are, with their fees, buying a portion of equity ownership of MLS, their share of profits, and a seat at the decision-making table. As the value of that portion of MLS equity increases, so do the expansion fees. With the new television deal signed in 2014, MLS revenue jumped significantly, adding to enterprise value and potentially, profits. With each new team there is an increase in overall value as its local market is cultivated and a customer-base is built. Maple Leaf Sports & Entertainment was buying a spot for Toronto FC as the 13th team in the league, while the groups bidding for the 25th and 26th teams are buying into a league more than twice as big, and one with higher individual team values and vastly more national revenues.