Doing The Business
Let’s say you ran a small business. It doesn’t matter what industry, just a small business, a start-up, still young. You’re still trying to make it work, still losing money, still hoping you can find a committed local investor who will put some money into the thing.
So you work on this one project for a week or so, while doing all the other things you do on a regular basis to try to keep the lights on and the staff paid. Partially because of the work you put in on the project (and partly because of some luck), an asset drops in your lap. You don’t have a lot of assets drop in your lap, so this is a happy circumstance for you.
Now, you could probably make some money from this asset. Probably. You’d have a short window in which to do it, a small staff to make it happen (and they couldn’t just drop everything to make it happen, they’d still have to do all the things they normally do while trying to keep the lights on) and there’s no guarantee the reward would be worth the effort.
And then, out of the blue, a company (not a competitor) from another state offers you guaranteed money for the asset. You don’t have to do anything but say “Yes.” The asset has value to them, and they’re willing to make it worthwhile for you to relinquish it. Remember, this is an asset you’ve had for about 10 minutes, and that you acquired partially through a week of work and partially through luck.
And, all the while, the light bill is in the back of your mind. It has to be. When you run a small business, keeping the lights on and meeting payroll are always the priorities.
Now, maybe you’re a gutsy entrepreneur. Maybe you think there’s a great opportunity here and that if you and your staff work tremendously hard for another week and expend more marketing dollars (that are in short supply to begin with), maybe you can make it work. Maybe.
And then maybe the guy from corporate who’s been helping keep you afloat the last two years says, “Make the deal.” Or maybe he doesn’t have to because you’ve worked for this guy for two years now, and you know he wants you to make the deal.
So you make the deal.
Now, if the small business in question is the Minnesota Stars or Atlanta Silverbacks of the North American Soccer League, all bets are off. Those clubs, given the assets of home games against Major League Soccer clubs next week in the third round of the Lamar Hunt US Open Cup, opted to make the deal. They’ll travel to Salt Lake City and Seattle, respectively, putting their teams at a bit of a competitive disadvantage, but paying the light bill.
Minnesota GM Djorn Buchholz told IMS Soccer News’ Brian Quarstad:
“We were presented with a business opportunity to change the venue of this match to Rio Tinto Stadium that we could not pass up. As we continue working to ensure the long-term viability of the Minnesota Stars FC, sometimes difficult decisions must be made, and this was one of them. But history has shown that Minnesota pro soccer teams have what it takes to go on the road and get a result, and we believe this team has just that.”
(A bit of spin at the end, there, but Buchholz’ point is exactly right. And kudos to Quarstad for tracking down the GM in the wee hours this morning.)
The Silverbacks, meanwhile, issued a statement Wednesday saying the Sounders had given then them the proverbial offer they couldn’t refuse, and then laid out exactly what the organization would do with the additional funds.
Predictably, the more vocal fans of the game didn’t take it well, alternately blasting the lower level clubs, the MLS clubs and, finally, the United States Soccer Federation for allowing such a thing to happen.
To which I say, “Really?”
US Soccer is in charge of overseeing and growing the game in this country. Recently, stabilizing and growing lower-division soccer has been something many of those same vocal fans have made their feelings known about. But in this case, they seem to think USSF should step in and deny those smaller clubs the right to use assets at their disposal to help stabilize and grow their businesses (as if restraint of trade is one of the things our national federation should be getting into). As if USSF should say, “No, smaller clubs, you can’t improve your financial situation. Not yours. We’ve been charged with stabilizing the lower divisions, but only in ways that pass muster with people on Twitter.”
After all, smaller clubs sell assets – players – to bigger clubs all the time and all around the world. Are those assets – which fans like and which could help sell you some tickets – off-limits now, too?
USSF Spokesman Neil Buethe shed some light on the process in an email today:
“Teams are provided the opportunity to come to any agreement to switch the home site of a game from one team to the other in the event that the two teams could meet.
Here is an example: Winner of Team A vs. Team B is to play winner of Team C vs. Team D in the Quarterfinals, with A vs. B winner pre-selected to host. Team C may negotiate a contingency agreement with Team A, Team B or both to have the Quarterfinal venue switched to its stadium, should Team C advance.
There is usually a week deadline to finalize such an agreement, but in certain cases that deadline could be extended.
Also, it should be understood that we only approve the change when the two teams have come to an agreement (provided the new host meets all the requirements). The details of the agreement are between the two parties involved and are not part of our consideration to approve the change.”
I get that some fans are upset (but, please, name for me one person who spent last night in a fetal position over this so I can mock them), but fans think like fans, not like business owners. Fans haven’t lost millions trying to stabilize a club and make it profitable. Fans always want to run clubs, but they only want to do the sexy things like pick the colors and design the badge and fire the coach and decide who plays left back. They’ve never had to make tough financial decisions in a public arena with emotional customers (and, no, I’m sorry, whatever emotional investment you’ve made pales in comparison to the actual money people lose in creating a team for your entertainment).
Seattle’s been buying home games for three years, but now, suddenly, it’s a problem? Two – TWO – of the seven lower-division teams that were set to host MLS teams kept sold those games. There have only been four lower-division teams that have hosted MLS teams in the Open Cup in the last two years, and there are going to be five six next week! This tournament takes place every year in relative obscurity, and now all of a sudden fans are acting like Knights Templar, guarding the “sanctity” of the Open Cup like it’s the Holy Grail.
Suddenly, Open Cup third-round home games are an asset – that’s progress in and of itself, isn’t it? – and smart business people make good use of their assets. The US Open Cup is a tournament that loses money, featuring teams that lose money, in a country that has, historically, lost money on soccer. This was a chance for someone to make some money for once. I can’t find fault with them for that, or with USSF for letting it happen.
May 23rd, 2012 at 4:50 pm
This guy could be the next republican presidential candidate
May 23rd, 2012 at 5:39 pm
I really enjoyed your well-grounded work here.
I can appreciate both sides. What would be interesting to see are some numbers.
* How much cash are we talking here?
* And what does the balance sheet of these clubs look like?
Then perhaps we can have more insight into the risk/reward decision.
Understandably, that won’t happen.
May 23rd, 2012 at 6:15 pm
great article. cheers!
May 23rd, 2012 at 8:48 pm
In your amusing tale of a small business who sold it’s suddenly acquired asset, you forgot the part where paying all future light bills will depend on keeping the business’s clients happy. You also neglected to mention how the vast majority of them were made extremely unhappy by the sale of this asset. The business’s current light bill was going to get paid, sale or no. But paying tomorrow’s just became a whole lot more uncertain.
This was a bad move for Atlanta anyway you slice it. They were already embarrassingly unpopular in their own city. Their future will live and die on their ability to put butts in the seats. This move nets them money, but at the cost of fan support. When you’re building a franchise, that equation is supposed to go the other direction.
It was an even worse move for the integrity of the Open Cup’s site selection process. The new changes were designed to bring more games into the lower club’s stadiums. Instead, we’re facing a future where MLS teams will never play at lower level venues, and less financially stable clubs will recklessly put in unrealistic bids on the speculation that they can flip hosting rights into a buyout check.
This is no way to grow the sport.
May 23rd, 2012 at 8:53 pm
Oh apostrophe, your the bane of my existence!
May 23rd, 2012 at 10:06 pm
That’s an excellent view as well Conductor!
May 24th, 2012 at 7:42 am
[...] Kenn.com looks at the kerfuffle over the selling of third round hosting rights by lower division clubs such as Minnesota Stars and Atlanta Silverbacks to MLS teams like Real Salt Lake and Seattle Sounders and concludes business is business. [...]
May 24th, 2012 at 8:12 am
So this is the article that earned you the distinction of being called the “Rush limbaugh” of US soccer? LOL
Great article, like the part on how you point out how sport fans in this country really fail to see their teams as what they really are – a business.
May 24th, 2012 at 9:36 am
Kenn;
I really enjoyed this post and completely agree with you.
As someone who runs a small (emphasis on small) business, it seems like I am confronted with a similar decision everyday. I always try to see things long-term. If the fans of the teams in question are true fans, they will understand the necessity of this decision. More money now means the team will be able to reinvest in the long term goals of the organization.
I hope both D2 teams win and both get another big payday down the road!
May 24th, 2012 at 9:42 am
[...] a controversial and unpopular decision, though, the Silverbacks “sold” the right to host the game back to the Sounders for an [...]
May 24th, 2012 at 11:55 am
Dale & Kenn,
I disagree that this decision is the long-term one. To me, taking the cash instead of using this as a fan & sponsor expansion opportunity seems very short-sighted. Increasing their cash in the bank is exactly the wrong move. The purpose of a soccer club is to spend money creating a team that fans will pay to watch, and sponsors will pay to advertise with. Fans don’t pay to watch deposit receipts and sponsors don’t pay to advertise with bank statements.
The argument that these funds will help keep the lights on signifies that those clubs have problems that a short-term cash infusion WILL NOT SOLVE. Long after this money is spent, these clubs will still suffer from small fan bases, and lack of sponsorship dollars.
May 24th, 2012 at 5:40 pm
I was looking at theCup.US and looking at who hosted who in previous years tournaments. Either I am misreading your statement or your numbers are off regarding lower division teams hosting MLS teams.
In 2011, only one lower division team hosted an MLS team.
In 2010 I am counting two.
In 2009 I am counting 7 throughout the whole tournament. 6 in the 3rd round and 1 in the 4th.
In 2008 it was 6. 4 in the 3rd round, 1 in quarterfinals and 1 in semifinals.
In 2012 there will be 8 lower division teams hosting MLS teams just in the 3rd round. Depending on how the games go, potential buyouts etc. We could see more the rest of the way.
That is an improvement over the previous two seasons. And with more on the line and MLS teams appearing to take this tournament more seriously, I think this is a good sign.
May 25th, 2012 at 4:57 am
El Conductor; I will respectfully disagree with you.
By taking the “short term” money for a Cup game on the road, the clubs may be able to keep an extra marketing staff employed or pay to keep a popular player signed or run several small promotions throughout the season. This is the way businesses are built. Rarely, if ever, does one “big event” help a franchise. Case in point: this years Minnesota home opener. A hyped up game in the dome that drew 8K+. How did that effect their regular season attendance? So far, not positively.
As far as attracting “new” fans by having a Cup game at home, I doubt it would work. Most fans that are “new” will only be coming to see the MLS side. After the game, I doubt these fans would come back at all. Can you give me an example where this has worked? Where a lower division club has hosted a MLS side and had a steady build in attendance afterward?
There will be other Cup games down the road. But taking some extra cash and reinvesting it in the business is the way to go now.
May 25th, 2012 at 9:21 am
Dale,
According to Kenn’s 2011 stats, Minnesota averaged 1,676 over 14 games. As of last week, they were averaging 4,184 over 3 games. Also, their smallest crowd of those 3 games is higher than their 2011 average. So anecdotally, I’d say the bump from that first game improved things quite a bit.
But I’ll admit the stat history is so short and the number of “Hosting MLS” games are so few, there’s really no way to demonstrate a long-term attendance increase. I’ll understand if you maintain it doesn’t generally happen, while I’ll hold the opposite belief.
The key point I don’t think either of you is focusing on is concept of scarcity. In Kenn’s original example, he likened this situation to a business obtaining a unique asset. That asset is VERY scarce. You can off-handedly say, “there will be other Cup games down the road,” but there’s only a 50% chance of hosting in the 3rd Round. And there’s only a 1-in-16 chance it’ll be THE most popular MLS team (as it was in Atlanta’s case). So yeah, there will be other Cup games, but there’s only about a 3% chance it’ll be as valuable an opportunity as the one Atlanta sold away (and that’s not even counting the fact that as a USOC game, the game actually MEANS something, as opposed to pre-season friendlies).
Atlanta and Minnesota traded away extremely scarce opportunities for something ANY club could acquire. I hope they use the money wisely, because they sure didn’t use their unique opportunities that way.
May 25th, 2012 at 10:41 am
Atlanta’s owner weighs in, and whether you agree with his cost/benefit analysis or his final conclusion, you gotta give him credit for answering the questions:
http://www.insidemnsoccer.com/2012/05/25/q-a-with-atlanta-silverbacks-owner-boris-jerkunica-concerning-usoc-venue-sale
May 25th, 2012 at 5:36 pm
You hit the nail on the head Kenn. I understand the perspective of the Atlanta fans. A home cup game, and especially a home cup win, against Seattle would certainly help them build a fanbase.
On the other hand, free tickets to a home game and money to improve the team (one that finished last place by a mile last year and is currently in last place again), as well as a future friendly against an MLS team is a safer bet. A smart business decision by the Silverbacks.
May 25th, 2012 at 6:52 pm
By the way, Kenn, how much money were the NASL teams paid? If there is no source, do you have any idea what the price would be for this deal?