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Issues 2015 Part V: Planning for an Uncertain Economic Future

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As MLS economics change the Timbers will need a long-term plan to stay ahead of the economic curve.

Jaime Valdez-USA TODAY Sports

MLS economics are changing.

Before their debut 2011 season, the Timbers reportedly paid an expansion fee between $32 and $34 million. Fast forward four years and the going rate for an MLS franchise has tripled to $100 million, attendance continues to climb, and the league just signed an eight-year television deal with ESPN, Fox, and Univision that will net the league $720 million over eight years – more than triple MLS’s television revenues under the prior deal.

Although MLS’s growth to date is easily (and often) overstated, its trajectory is undeniable. But along with the dollar numbers increasing, where the money comes from in MLS is going to change.

At present, MLS clubs’ revenue streams are heavily dependent on local revenue – gate receipts, local sponsorships, and, of course, ownership contributions. The Timbers are strong in each respect, with the 4th highest announced attendance in MLS (almost certainly 2nd if you count people actually in stadium), an extensive portfolio of sponsorships, and, as Merritt Paulson put it in a recent Facebook Q & A, a club that is well-capitalized.

The MLS Players Union, which likely provides a substantial underreporting of actual roster expenses, puts the Timbers’ payroll around $5 million – a number that is comfortably in the upper half of MLS. Accordingly, it’s clear the Timbers have put their solid financial foundation to work on the field. And if their pursuit of Jozy Altidore is any indication, the Timbers have no plans to slow down.

But as revenues increase across the board in MLS the Timbers will need a strategy to maintain and build on their financial competitiveness.

In some respects, the low-hanging fruit would appear to be additional gate revenues. With a lengthy sellout streak and a season-ticket waiting list that has ballooned to over 10,000 aspirational season-ticket holders, there is no question that given infinite capacity the Timbers could sell many more tickets than the current 20,806-seat capacity at Providence Park allows. And without question, Providence Park is one of the best stadiums in MLS. Few venues in MLS have Providence Park’s combination of location, historical character, and atmosphere.

But a variety of challenges place significant limitations on the Timbers’ ability to expand Civic Stadium. The north and west sides of the stadium are well developed and central to the stadium’s historical identity. On the south end, Providence Park is limited by its border with the Multnomah Athletic Club, a powerful Portland institution with a track record of being jealously protective of its interests. Finally, Providence Park is limited on the east side by recent improvements and a city design-review process that has placed a premium on maintaining the street-level view into the stadium.

Accordingly, while the Timbers have short- and medium-term plans to expand Providence Park to a capacity around 23,000, the chances for a more significant expansion in the foreseeable future are slim.

In the end, however, this may not be a significant limitation on the Timbers’ ability to retain their financial strength in the new MLS economy because, as noted, MLS revenues will likely change in nature at the same time they grow in quantity.

As the new television deal foreshadows, the greatest source of future MLS revenue will likely be national. So while gate receipts currently play a prominent role in determining a club’s financial prowess, their importance is likely to wane as television and national-sponsorship revenues increase and become a more prominent line on the league’s and clubs’ balance sheets. This is why the arms races in the NFL, NBA, and MLB concern market influence rather than attendance numbers and stadium capacity.

But in some respects this makes the Timbers’ job of planning for the financial future more difficult, as the task of posturing for a financial advantage vis-à-vis the rest of MLS won’t be able to be accomplished by doing something as discrete as a Providence Park renovation.

Instead, with the prospect of escalating MLS economics looking increasingly likely, the Timbers are going to need a plan for maintaining their competitiveness in this changing MLS economic environment. Although this presents the Timbers with a medium- and long-term challenge, if the Timbers want to stay on the positive side of the league’s financial curve, they will need to start planning well ahead of time for a somewhat uncertain future.

Thus, their success in doing so in 2015 will go a long way toward determining whether the Timbers can successfully navigate what looks to be an uncertain, but escalating MLS economy.