Apple's $2.5 Billion Bet On Major League Soccer

If you are not a subscriber of Huddle Up, join 59,000 other professional athletes, business executives & casual sports fans that receive it directly in their inbox each morning — it’s free.

---

This Email Is Sponsored By…

I've been wearing a WHOOP for several years, and it has made a massive difference in my life. It's the only tech product that I wear 24/7. So it's pretty cool to see people like Patrick Mahomes, Rory McIlroy, Michael Phelps, and Justin Beiber wearing one.

WHOOP automatically measures your respiratory rate, oxygen level, resting heart rate, HRV, and activity levels throughout the day. I love how WHOOP interprets the data in an understandable and actionable display.

The best part? Their 4.0 is officially back in stock and shipping in real-time. So to celebrate that and Father’s Day coming up - WHOOP is offering 15% off AND free shipping when you use the code JOE at checkout.

---

Hey Friends,

Major League Soccer (MLS) has agreed to a historic new media rights deal with Apple, making the tech, digital media, and streaming company the only place where soccer fans globally can watch every Major League Soccer match for the next ten years.

The deal is reportedly worth at least $250 million annually, or $2.5 billion over ten years. That’s 2.8x more than the $90 million MLS currently earns from its TV deals.

Major League Soccer TV Deals

• Current: Fox, ESPN, and Univision are paying $90 million annually

• New: Apple will pay at least $250 million annually (177% increase)

But there is an interesting caveat: The $250 million is just a minimum guarantee. And as Apple rolls out a newly launched MLS subscription offering on its platform, MLS will also have the chance to generate additional revenue through subscription sales.

“What's different here is traditionally media companies pay rights fees, and you sell ads,” said MLS Commissioner Don Garber told SBJ. “This is a partnership. And that partnership's core is a subscription business that we're going to build together, and we're going to get a guarantee against the revenues that will be achieved on the subscription business. Then, we go over those guarantees, we'll have the opportunity to make more money, which is really unique in sports media.”

Major League Soccer will also now produce all of its matches, bearing additional production-related costs but guaranteeing uniformity across all of its broadcasts.

(Pictured: MLS Commissioner Don Garber, Apple CEO Tim Cook & Apple Senior VP/Services Eddy Cue in NYC)

The deal also includes a few other unique features. For example, an undetermined amount of MLS games will be broadcasted for free within the AppleTV app. The new subscription service will have every MLS game with no blackouts. MLS says that all season ticket holders will receive free access to the new service. And the plan is for most MLS games to be broadcast on Saturday nights so the league can offer a “whip-around show” like NFL Red Zone as part of the new streaming service and AppleTV+.

Not to mention that Major League Soccer is still reportedly trying to work out a linear TV deal with ESPN, Fox, and others — this will only be a few games a week (at most) and shouldn’t be a big number because all games will be simulcast on Apple TV.

But while this sounds like a great, innovative, and exciting deal for Major League Soccer, I’m not sold on the fact that it’s as good as some might think—and here’s why:

First, I think the elephant in the room is that Major League Soccer is a growing sport that is trying to get in front of as many fans as possible. And a deal like this, on a streaming platform like Apple TV, clearly hinders that. Because for all the faults that cable TV might have, it’s still a much larger distribution platform than Apple TV+.

Secondly, the “$250 million guaranteed” number looks good on paper, and maybe MLS can generate some meaningful revenue from subscription sales, but it’s slightly deceiving, to say the least. Not only is MLS giving up local TV rights as part of the deal—Forbes estimates that the 28 MLS clubs might earn $80M+ annually from those deals today—but they also have to bear all production-related costs, which, even at just $40k to $50k per game, will cost the league tens of millions of dollars annually.

“As part of the deal, MLS will have to forgo local media rights. That money needs to be subtracted for a fair assessment of the deal. Assume each of the 28 MLS teams currently gets an average of $3 million for local rights, so slice $84 million a year from the Apple tie-in. That makes it worth less than $170 million a year,” says Mike Ozanian at Forbes.

So why did MLS agree to this deal with Apple? Well, that’s a complicated answer.

But I think part of it has to do with the financials that are driving growth across Major League Soccer. For example, the average MLS team is now worth about $550 million. That number has more than doubled in just the last three years alone, and several teams, like Los Angeles FC ($860 million), Atlanta United ($845 million), and the LA Galaxy ($835 million), are now quickly approaching billion-dollar valuations.

Top 5 Most Valuable MLS Teams (2021)

1. Los Angeles FC: $860 million

2. Atlanta United: $845 million

3. LA Galaxy: $835 million

4. Seattle Sounders FC: $705 million

5. New York City FC: $655 million

But the interesting part is that most of this growth has been driven by expansion fees.

Over the last five years, a flurry of MLS expansion teams have been announced — Cincinnati and Nashville each paid $150 million, St. Louis and Sacramento paid $200 million each, and Charlotte paid an MLS record $350 million in expansion fees.

And given expansion fees are distributed throughout the league, those multi-million-dollar payments artificially inflated annual revenue numbers, and in turn, valuations.

For example, according to Forbes, the 23 teams that played in MLS during 2018 combined for $100 million in losses. Even worse, only seven of those teams turned a profit, and of those seven teams, only three of them made $1 million or more.

So while Major League Soccer clubs reported total revenue of nearly $800 million in 2018, they brought in almost half of that from expansion fees alone in 2019. And once you remember that MLS clubs currently receive a ~12x revenue multiple because of future growth prospects, individual team valuations start to look slightly overvalued.

Why? Because with roughly 30 clubs that are either currently playing or will be playing soon, Major League Soccer is nearing full capacity, and when $350 million expansion fees start to dry up, a large media deal becomes much more critical.

And when you add in the fact that MLS is currently averaging less than 300,000 viewers per game on ESPN right now, my guess is that Commissioner Don Garber and MLS executives were unable to find a linear television partner that was willing to pay the $300 million annual fee that they have been publicly floating around for months.

Now that doesn’t mean this is a bad deal—it’s still a big jump from their previous $90 million annual contract. But the details are important, and while streaming services will undoubtedly be a large part of the future of media rights in sports, I personally believe that MLS might have sacrificed some long-term growth for short-term dollars.

But only time will tell on that, and I would love to be proven wrong.

Have a great day. I’ll talk to everyone tomorrow.

Your feedback helps me improve Huddle Up. How did you like today’s post?

Loved | Great | Good | Meh | Bad

---

If you are not a subscriber of Huddle Up, join 59,000 other professional athletes, business executives & casual sports fans that receive it directly in their inbox each morning — it’s free.

---