The Tale of Two Clubs

Major League Soccer (MLS) is the premier soccer league of the United States and Canada. Since 1993 this organization has grown from obscurity and is now a household name in America. The league is currently composed of 20 teams divided into two conferences with four more teams scheduled to be added by 2020. With only a few more slots in the league, dozens of cities are putting bids on the table to gain entrance. However, despite the flood of interest, MLS has accepted the propositions of two clubs that will move into cities that are already occupied by other teams. Will this provide too much supply that will exceed demand and dilute profitability for both parties? The following story suggests that the league is not yet ready for two teams in one locale.

Chivas USA competed for market share with LA Galaxy in the Southern California area. Attendance at the Chivas games became so poor that the club gave tickets away in order to fill the stadium. It didn't work. Despite cheap ticket prices, average attendance remained at a dismal 7,000, about 35% of capacity. Average attendance at LA games was 21,258, 80% of capacity with full-price admission. The Galaxy had won the turf battle for fans. Tickets to watch Chivas play were essentially inferior goods that weren't valuable despite being free to the consumer. Is the soccer market in North America too saturated for current levels of demand? If this is the case, allowing two teams to share a city may be a step backward for the league in the current market.

Cities which house only one soccer team see game turnout hover around 95 percent. With these traits in mind, it seems the decision to grant LA FC and NYC FC entry into the MLS system is a mistake. These teams will fight for their respective markets. Once the better performing team emerges, fans will follow, leaving the other team to die. Given past experience, it seems that the wise solution is to separate teams geographically from one another, allowing them to have a monopoly on their individual markets. Demand for the sport is still in its youth in this country. Despite the promise of continued growth, by providing too much supply at this stage, MLS risks the failure of clubs residing in the same area as another.
Can a city sustain two MLS clubs?


Dave Tufte said...

Sebastian: 100/100

I've done some hard research in this area with other sports, and I think there are no decent answers why sports clubs locate where they do. Or at least decent answers that can be put together from the data that's actually publicly available.

I'm not saying that economic analysis is inapplicable here. But I am saying that the data that would be needed to make useful conclusions is usually absent.

Like what? Personal value to the owners of owning a team in a specific city, maybe even if it's just for convenience. Value of local media contracts. Expectations of capital gains on the investment (which is where most owners make their money). Those are just a few ideas.

Who knows? Perhaps Chivas is the Pittsburgh Pirates of the MSL: yielding a high ROI without winning much or drawing fans.

Cam said...

This is a well-timed post, Sebastian. Real Salt Lake owner, Dell Loy Hansen, recently offered to build a stadium for his minor league team in the Salt Lake City fairgrounds. This is not two MLS teams in the same city, but it is still two professional teams. RSL can fill a stadium on a Wednesday night, which shows that there is high demand. The game I went to recently was packed with fans wearing RSL apparel and shouting the fight song on their feet. There is a large following. The question becomes, will a minor league team in the same area affect demand for the major league team?
I think the type of team and location are two very important factors here. The minor league team would be considered an inferior good. As people make more money, they pay for RSL. If less money is available, they may choose the minor league team. That way, the owner of RSL catches both markets.
The area that the fairgrounds is in has a growing Hispanic population. Hispanics, in general, are less affluent and they love soccer, which is my situation as well. Lower income leads to higher sales of inferior goods. There is also an opportunity for this new venue to host other events and local leagues. The owner of RSL is trying to capture a demand curve that has not been met with supply.
The idea has been shut down for now, but having two professional soccer teams from different leagues in one city may be a more successful idea than two MLS teams.

Dave Tufte said...

Cam: 50/50

I wouldn't jump to the conclusion that the minor league team will be an inferior good. I don't know that many people who think about sports as something that they upgrade or downgrade depending on their budget.

Let me stick my neck out in a politically incorrect way. I wonder if the idea is to expand with a soccer team dedicated to the Hispanic market on Salt Lake's west side.This could be an our team/your team marketing strategy.

Jerry said...

I think that it can go both ways. The idea that adding another team can create an "our team/your team" scenario is definitely possible. However, due to its relative unpopularity throughout the most of the United States it would seem that having two teams in one geographic location wouldn't help much. Cam brought up that generally Hispanics love soccer. Based on this assumption and having lived in Southern California, this is a common generalization. So while adding another team to the Los Angeles region may not provide the best turnout, i'd be willing to bet adding another team in Southern California wouldn't be a bad idea. Close proximity to Mexico and a much higher percentage of Hispanics in the demographic mix could mean more fans.

Of course all of this is uncertain, but geographic separation may not be ideal in some areas that are heavily populated with soccer fans. The idea of multiple leagues or teams in certain areas could prove to be beneficial.

Dave Tufte said...

Jerry: 50/50

Agreed. I think the multiple team idea makes the most sense in Los Angeles, due to the amount of travel time required to get most places.

I don't think soccer is the only sport that can work this way, but it is one that already does work this way in Europe. Check out this link to a map of the minor league soccer clubs and local areas within the city of London alone.