MLS joins other leagues in allowing private equity funding

In a move hailed by sports investors, Major League Soccer will allow private equity funding to raise capital for the league which is suffering from the economic fallout from Covid-19, MLS commissioner Don Garber has told CNBC.

Garber, who appeared on “Closing Bell” on Friday, announced the decision saying the league is “pretty close to finalizing something” that will allow for private equity funding that “could come and invest with our local teams,” said he declared.

Allowing private equity funding could help ease some of the burden facing MLS owners who suffer losses with no spectators scheduled to attend games this season. Garber admitted that “not having revenue per game day has had a real impact on us”, adding that MLS could suffer a loss of $1 billion due to Covid-19.

Jared Bartie, co-chairman of O’Melveny’s sports industry group, said the drop in revenue is problematic because MLS clubs have debt from their venues that they must maintain, among other costs.

“There’s rental fees, there’s debt servicing, there’s sponsorship and partner satisfaction,” Bartie told CNBC. “[Game day] revenue is needed to offset these costs. When revenues fall, these costs do not disappear. They are still there.”

Although most MLS clubs are struggling financially, owners are also earning revenue through Soccer United Marketing, which oversees all MLS commercial rights. SUM controls the entities’ sponsorship, broadcast, digital and consumer product rights and manages the promotion of Mexican Football Federation competitions and CONCACAF Gold Cup matches in the United States.

“We’re going to get through this,” Garber said. “But he had challenges for sure.”

The private equity option will also allow MLS sponsors, like Brooklyn Nets star Kevin Durant and Houston Rockets star James Harden, to have more buyers if they decide to sell their shares in the future.

Garber said MLS has been reluctant to allow private equity ownership in the past because the league wanted to “know who your owners are so you understand how long they are for their vision to be in the league.”

With franchise values ​​skyrocketing, the National Basketball Association and Major League Baseball created investment funds to attract minority buyers. New York-based Dyal Capital Partners will manage the NBA fund. MLB commissioner Rob Manfred told CNBC last December that he expects MLB’s investment fund “to be up and running” this year.

“It creates new opportunities for people who want to invest in sports, and maybe not purely financially,” NBA commissioner Adam Silver told SportsPro Media. “Part of that is the amenities, the cachet and the desire to be directly involved in these leagues.”

MLS resumed its season on Wednesday with its “MLS is Back Tournament” after suspending operations due to the pandemic on March 12.

Carol M. Barragan