Rumors are running the game these days for the Philadelphia Union, and the latest rumor is that the team is struggling financially. The true source of this particular rumor is unknown, but Kevin Kinkead from CBS3 lobbed out a few bombs last Tuesday and Wednesday.
Absolutely dire money situation for the Union right now— Kevin Kinkead (@KevinKCBS3) June 23, 2015
More than anything, they are so constrained in the player budget right now, that there's no room to maneuver— Kevin Kinkead (@KevinKCBS3) June 24, 2015
There's not much to work with in those tweets, but luckily there is more. Nick Sakiewicz in his already infamous interview Monday rejected the idea of a financial issue. "We absolutely have the financial wherewithal, and financial capacity," he said of signing new players. Upon seeing this quote Kinkead went on a twitter tirade providing more history and context for the current Union financial situation.
We'll talk about who is more believable in a minute, but fans shouldn't take either of these points of view at face value. Let's look at the factors that influence the Union's financial condition and try to get a sense how things are.
The Union are in a strong sports market and see solid paid attendance. They also don't have as a high wage bill relative to other teams. So if there is financial distress, what exactly could be the cause?
First let's back up my first two statements. Here is a chart of the Union's share of attendance league wide compared with their share of total guaranteed compensation league wide.
Over the last four plus seasons, with only attendance data for 2015, the Union have 38% higher share of league attendance than they do player wages. Over the last four seasons the average team would have 5.3% of league attendance and the Union have seen 5.2%. Game day attendance is the single biggest source of income in MLS, which is not the case in other leagues, where television revenue is king. The Union also appear to charge in the top half of the league for tickets. According to this article at the Empire of the Sun, the Union were tied for fifth-highest season ticket prices for Supporter's Groups in 2014. It's a fair bet the rest of the ticket prices are also in the top half of the league, give that Supporter's Groups normally get something of a discount.
The average club would also be paying 5.3% of total player compensation but the Union have actually averaged just 3.8% over the last four seasons, according to information released by the MLSPU. That's a good deal less than their fair share. What we don't know is the net transfer fees of each teams, which are not included in MLSPU's salary report. The Union could be spending poorly relative to other teams in that area.
However, just to be paying an even share of players' wages including transfer fees, they would have to average more than $1 million in net transfer fees more than the average MLS team. That can't possibly be the case unless this team is making deals we could not imagine possible.
If the league were just about game day revenue and player wages the Union would have one of the best margins in the league. It just so happens that game day revenues and wages are the two biggest line items in the Union P&L, but there are be other factors to consider.
The first is that 2015 has been a much worse year than expected. The above numbers don't include 2015. Attendance at Union games is down 0.8% compared to 2014 so far this season, but the rest of the league is up 11%. So the Union's share of attendance is down to 4.2%, still above their historical spending level. We do know that the new teams added to MLS, Orlando City SC and New York City FC, are already big spenders, so it's likely that the Union's share of player wages also went down. But we won't know for sure until July when the MLSPU is (allegedly) set to release it's annual salaries. It's important to note that the small attendance impact would be helped if not covered by the more than $60M in new television revenue the league has this year.
The second issue that might be causing the Union distress might be below the league average in sponsorship dollars and merchandising. There's nothing to suggest this would be the case. The Union even have an official supermarket and an official financial institution. This is exactly why Nick Sakiewicz was put in charge, and I imagine he's doing his job well. It's hard to imagine that sponsorships and jersey sales are putting the Union in the poor house.
The Union might have higher operating expenses than the average team. They house a full academy and now have world class practice fields, but unless they grossly mismanage their cost base then this shouldn't be an issue either. Nick talked extensively in the interview about their investment in the Academy, so that cost may in fact be higher than league average. But if they don't produce more MLS-quality players over the years and make that a competitive advantage, the costs will be a burden.
It might also be the case that there is an arrangement with the owners where the owners take profit from the club every so often. This could limit financial flexibility, but as with the stadium debt, this would be an issue every season, and not just one that plagues them in 2015.
The last alternative is that the MLS business model doesn't work. The Union are in line with the other teams, but none of them make money. This is most certainly not the case given the demand for new franchises. MLS commissioner Don Garber has said that MLS will expand beyond 24 teams, and I seriously doubt owners would be lining up to take part in a business model that doesn't work.
None of the unknowns seem likely to be burdening the Union to degree that would uniquely impact 2015. Therefore It's difficult to understand what might be sinking the Union into financial ruin. Is it the transfer fees? Is it lower jersey sales? Did they somehow get screwed by Bimbo? Are their operating expenses too high? Or is it simply not an issue as Nick Sakiewicz suggests?
Looking at the motives of the two sources leads you to believe that the Union are in more financial trouble than not. Sakiewicz has incentive to make the fans feel comfortable and convince them that better players are coming and that one of the worst teams in the league can upgrade the talent. Journalists have little motive to mislead their readers, especially when saying something unpopular. My money is on the side of the story that money is tight, it's just difficult to see why.
From what we can surmise, this is a team that gets a better than average proportion of revenue from their fans and doles out significantly less for their players. Given they are starting with that win from a business perspective, anything else is just self-inflicted gross mismanagement.