The Business Case Behind Lionel Messi Going To Major League Soccer
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The Business Case Behind Lionel Messi Going To Major League Soccer
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Hey Friends,
Lionel Messi is one of the world’s most popular athletes. We know this. He has more than 325 million followers on Instagram alone—that’s roughly equivalent to every person currently living in the United States following him on the platform.
And Forbes estimates that the soccer star made $130 million last year, meaning he is not only one of the world’s most popular athletes but also the world’s highest-paid.
Lionel Messi 2022 Income Breakdown
On-Field: $75 million
Off-Field: $55 million
Total: $130 million
So when news broke yesterday that Lionel Messi was set to leave Paris Saint-Germain in 2023 to join Major League Soccer (MLS) club Inter Miami, many Americans were understandably excited. And when you add in the fact that the report claimed Lionel Messi would be acquiring a 35% equity stake in the MLS franchise—valued at more than $200 million today—it almost seemed like it was too good to be true.
Well, maybe that’s because it was. Lionel Messi’s camp quickly denied the rumors, saying they are “completely false” and that Messi “has not yet decided on his future.”
I’m not sure what to think about this, quite frankly. Lionel Messi has purchased more than $10 million worth of luxury Miami real estate over the last few years. Inter Miami co-owner David Beckham was pictured with him this past weekend in Qatar. He has publically joked about joining the club several times, and let’s be honest, even if Messi had agreed to the deal, it’s not like he would come out and confirm the report anyways.
So we’ll see what happens. But rather than waste your time speculating on what might eventually happen, I want to spend our time today breaking down the business case as to why I think this is actually a good idea. So without further ado, let’s get right into it.
I think David Beckham is probably the most obvious example to start with. He left Real Madrid in 2007 to play for Major League Soccer’s Los Angeles Galaxy, and he signed a five-year, $32.5 million deal with the club — or $6.5 million per year.
That represented a 70% pay cut to his current deal at Real Madrid. But that was just the public number. David Beckham reportedly made more than $250 million during his time with the LA Galaxy through a unique revenue-sharing agreement with the team and a laundry list of multi-million-dollar sponsorship deals.
Still, that was just the tip of the iceberg for David Beckham. The real win came years later when he exercised an option in his LA Galaxy contract that gave him the right to purchase a Major League Soccer expansion franchise for just $25 million.
Why was that the big win? Because expansion fees had increased drastically, going from $10 million when David Beckham originally signed the contract to the $150 million that Nashville SC paid just one month prior to Beckham exercising his option.
MLS Expansion Franchise Fee
2007: Toronto FC pay $10 million to join the league
2017: Nashville SC pay $150 million to join the league
The reality is that Lionel Messi probably won’t get nearly as good of a deal as David Beckham. Major League Soccer was a much smaller league in 2007, and Beckham was taking a much larger gamble. But that doesn’t mean Lionel Messi’s potential 35% equity stake in Inter Miami won’t eventually be worth much more than it is today.
It’s become fairly apparent to me that Major League Soccer is set to become the next major professional sports league in the United States. And with several MLS clubs already worth nearly $1 billion on paper, you could probably argue that it already has.
For example, the Seattle Kraken recently paid a $650 million expansion fee to become the NHL’s 32nd franchise. But according to Sportico’s 2021 MLS valuations, there are already five clubs worth more than that in Major League Soccer — Los Angeles FC, Atlanta United, LA Galaxy, Seattle Sounders FC, and New York City FC.
Top 5 Most Valuable MLS Teams (2021)
Los Angeles FC: $860 million
Atlanta United: $845 million
LA Galaxy: $835 million
Seattle Sounders FC: $705 million
New York City FC: $655 million
And just look at how average team valuations have trended over the last few years, increasing from $240 million in 2018 to $550 million in 2021. That’s a 32 percent compounded annual growth rate and a massive increase from the $10 million expansion fee Toronto FC paid in 2007.
Of course, we all know that past success does not guarantee future results. But all signs indicate that MLS franchise valuations probably have much more room to run.
Soccer is the world’s most popular sport. Estimates suggest there are about 4 billion soccer fans globally, meaning that more than 50% of the world’s entire population enjoys the sport. But even in the United States specifically, more children (ages 13 to 17) now play soccer than ice hockey, lacrosse, wrestling, and gymnastics combined.
And the number of children playing soccer is now within striking distance of baseball.
Number Of US Kids By Sport In 2020 (age 13 to 17)
Baseball: 1.8 million
Soccer: 1.2 million
Lacrosse: 421,000
Gymnastics: 247,000
Ice Hockey: 243,000
Wrestling: 219,000
But the underlying fundamentals of MLS franchise ownership also appear to be improving. For example, the 23 teams that competed 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, just three made $1 million or more in profit.
Sure, expansion fees have certainly helped limit the financial damage as the league grows. Cincinnati and Nashville each paid $150 million. St. Louis and Sacramento paid $200 million each, and Charlotte paid an MLS record $325 million in expansion fees — those fees are then split across the league.
But the real growth driver will be media rights. For example, Major League Soccer has seen the average annual value (AAV) of its broadcasting rights increase from $8 million to $75 million over the last decade. That’s solid growth, of course, but it still pales in comparison to major sports leagues like the NFL and NBA, which bring in $10 billion and $2.6 billion each year in media rights, respectively.
Major League Soccer is currently negotiating its next rights package, and the rumor is that they might be having a hard time finding someone at their preferred $300 million per year price tag. But regardless, MLS media rights are set to increase 3-4x, and if that enables them to sign better players like Lionel Messi, they will only go higher.
And that’s without even talking about the specific opportunity at Inter Miami.
The Miami MLS club is currently valued at $525 million, according to Sportico, and is estimated to do ~$35 million in annual revenue in a non-pandemic year. That’s a 15x revenue multiple and resembles a valuation that is more closely aligned with software companies (~15x revenue) than traditional sports franchises (~6x revenue).
But there are also a lot of exciting things happening in Miami. The club played its inaugural season in 2020 during the middle of a global pandemic. They are building out a youth academy and development system under David Beckham, and ownership was recently granted a 99-year lease for a massive redevelopment project in Miami.
This will allow them to build a new 25,000-seat stadium, at least 750 hotel rooms, 30+ acres of retail space, hundreds of thousands of square feet of office space, and a 58-acre public park. That should bring in more revenue and increase the valuation.
Still, the reality is that no one really knows what is going to happen next.
Lionel Messi would have an incredible economic impact on the Miami franchise if he were to get involved. And it would most likely be a no-brainer for the ownership group to include him, regardless of the price.
But the Argentinian has earned more than $1 billion throughout his illustrious career, and at that point, maybe you start to think about retirement a little bit differently.
I hope everyone has a great day. I’ll talk to you tomorrow.
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