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Can a savvy finance strategy propel Women's Professional Soccer to post-Olympic glory?
Kate O'Sullivan, CFO Magazine
July 15, 2008
Nine years ago, Brandi Chastain whipped off her jersey before 90,000 screaming fans at the Rose Bowl — not to mention tens of millions of television viewers worldwide — in celebration of the U.S. women's World Cup soccer championship. In the wake of that giddy summer of 1999, when World Cup games filled stadiums around the country and the U.S. team appeared on the covers of Time, Newsweek, People, and Sports Illustrated in the same week, a group of enthusiasts launched a professional women's soccer league. With $40 million in funding and a feel-good vibe driven by friendly, accessible players — some of whom, like Chastain and Mia Hamm, had become household names — the league was poised to take off.
After just three seasons, the league folded, done in by high costs, low attendance, and pitiful TV ratings. Like so many other start-ups launched on the eve of the new millennium, the Women's United Soccer Association (WUSA) burned through huge sums ($100 million) without making a dime.
Will the second time be the charm? Short on hype but long on experience, and with a special appreciation for the financial realities of professional sports, Women's Professional Soccer (WPS) will launch a seven-team U.S. league in cities from Boston to Los Angeles next April.
The new league's leaders insist that this time will be different. They have studied both the failure of the WUSA and the success of other fledgling pro leagues. They have also learned from the success of the men's U.S. pro league, Major League Soccer (MLS). With a carefully vetted business plan focused on cost control, WPS's organizers are determined to prove that the moment for women's soccer as a viable business has finally arrived.
The league will have to prove it, however, with a different cast of players. Famous footballers like Chastain, Hamm, and Michelle Akers are long gone, replaced by equally talented but far less known players like Abby Wambach, Hope Solo, and Natasha Kai. Can these newcomers, so obscure that a 2007 Nike ad hailed them as "the greatest team you've never heard of," entice people to spend their ever-more-precious dollars on women's soccer?
WPS commissioner Tonya Antonucci thinks so: "The fans are hungry to follow their new heroes and embrace the best league in the world," she says.
Missing the Net
Ask knowledgeable sports executives what went wrong with the WUSA and the same answer comes up again and again: the league spent too much money too fast. Its expectations for attendance and sponsorship were unrealistic, and the resulting cost structure proved unsustainable. "Operating budgets vastly exceeded actual revenues," says the 40-year-old Antonucci, who previously was a director at Yahoo Sports.
Many factors contributed to the cost overruns, which reportedly reached as much as $20 million per year. For one, salaries were high; top players initially made close to $100,000, steep for a brand-new league. Also, the league's TV deal was flawed. "A lot of people didn't know where to find the games on television," says Sue Rodin, managing director at marketing agency LeadDog Marketing Group and the agent of soccer star Carla Overbeck. As a result, ratings were abysmal. The games, which aired nationally on the Pax cable channel in 2003, averaged a 0.1 rating during the league's last season, which means only about 100,000 households watched.
Meanwhile, revenues from corporate sponsorships failed to cover costs. "The sponsorships were just not strong enough to provide the promotion the league needed," says Stephen Greyser, a professor at Harvard Business School who teaches a course on the business of sports. Weak television ratings also made sponsorships a more difficult sell. Although the WUSA originally planned to sell eight national sponsorships for $2.5 million apiece, only two deals came through.
Venues were another big problem — literally. The teams often played in cavernous football stadiums and were never the primary tenant. That meant they received little or nothing from the many revenue streams flowing from the stadiums, such as on-field sponsorships, parking, and concessions.
Mia Hamm's team, the Washington Freedom, played at RFK Stadium, former home of the National Football League's Washington Redskins. Her star power helped draw more than 30,000 fans for the Freedom's first game at RFK, but attendance soon dwindled. As a result, the costs of renting the stadium and paying staff for ticket-taking, concessions, security, and field maintenance usually exhausted the Freedom's total gate revenue.
"If you're paying close to six figures to open a facility that's going to have 5,000 or 7,000 fans in it, you're not going to make any money," comments Antonucci. Some teams played in university stadiums, which were easier to fill and generally cheaper to rent, but in some cases the schools limited the promotion the teams could do on-site. In other locations, staggering up-front costs squelched any hope of turning a profit. "The league entered into some facility relationships where they were making seven figures' worth of capital improvements to the facility just for the right to play there," says Antonucci.
Betting on the Franchise
With the wisdom of hindsight, the new league hopes to avoid most if not all of the financial pitfalls that wrecked its predecessor. "We heard loud and clear in meetings with potential owners that we really needed to focus on cost containment," says Antonucci.
The league will kick off its inaugural season with at least seven teams, based in Boston, Chicago, Dallas, Los Angeles, New York, St. Louis, and Washington, D.C. Antonucci says it would like to add an eighth before the season begins. A team from Philadelphia will enter the league in 2010. To limit downside risk and control costs, the league will use a franchise model instead of the single-entity structure of the WUSA. Each franchise is owned by an individual or syndicate that will also own an equal share of the league itself. "We would rather take the inherent risk of a franchise model — that some teams will struggle — versus having all the owners subsidize the weakest members," says Antonucci.
"It's very important to us that all the teams succeed," says WPS general counsel and Shearman & Sterling attorney Vicki Veenker. "But the franchise structure certainly means that some teams can succeed at greater levels than others. Some teams may have greater attendance, but then others may have lower stadium costs." The franchise approach will also enable each ownership group to take advantage of local market expertise to find the best stadium deal, identify strong local sponsors, and seek out the media outlets that will best market their team.
The numbers from the WUSA's three seasons provide valuable guidance for the new league. For example, in 2003 women's soccer averaged just 4,500 paid fans per game. "Having the actual attendance numbers brought expectations in line with our more modest approach to how the league can grow," says Antonucci. The new league hopes to average about 5,000 fans per game in its first year.
That in turn will affect the league's pitch to corporate sponsors. And pay, too: teams will have a salary cap, and the average salary will be lower than the $40,000 average paid by the WUSA. The league will also set a minimum salary.
As for television deals, WPS leadership recognizes that a strong, consistent TV presence is a top priority — perhaps a make-or-break factor in the long run. "We are working very, very hard to establish national television deals," says Antonucci.
To gain additional revenue, teams in the new league may sell sponsors the right to emblazon their names on team jerseys, a standard practice in European soccer. Six teams in MLS already advertise sponsors on their jersey fronts. Antonucci says teams could even offer jersey fronts to local sponsors and jersey backs to national sponsors.
Assists from the Men
A positive case study — and an important resource — for WPS organizers is men's pro soccer, MLS. Founded in 1996 with 10 teams, MLS has since expanded to 14 teams and plans to add 2 more. Last season, average attendance reached nearly 17,000 per game, and the league has national TV contracts with four networks.
In addition to improving its fan base and financial footing, MLS has been building smaller, soccer-specific stadiums, typically holding 20,000 to 30,000 fans. Several of the new women's teams will play at those stadiums. "Stadium revenue has become a very important part of the economics of professional sports in the last 20 years," notes Mark Abbott, president of MLS. "The financial success of a team often comes down to venue: naming rights, suites, concessions, and other events that are held at the stadium." MLS teams that control those revenue streams "are profitable or close to profitable," says Abbott, "and those that continue to rent third-party sites aren't." The New York Red Bulls, for example, play home games at Giants Stadium, which puts them third in line behind the NFL's Giants and Jets for stadium revenue.
New stadiums will go a long way toward helping WPS keep its costs down. "We're looking at smaller venues and hoping we outgrow them quickly rather than starting with larger venues and hoping that we fill them," says general counsel Veenker.
MLS will not only share space with WPS teams in some cities but will also share its marketing division, Soccer United Marketing (SUM), with the new league. The division will sell sponsorships for WPS. Kathy Carter, executive vice president of SUM, says the early buzz about the women's league in the corporate community has been good. "It seems that the owners have much more realistic expectations of what it takes to sell a ticket not once but 15 times," she says. "A sponsor can look across the table at these potential partners and see that they realize the hard work that's ahead of them."
The league's scaled-back business plan has also helped assuage the fears of potential sponsors that remember the WUSA's rapid rise and fall. "People in the corporate environment can look at this far more reasonable business plan and say, 'This is achievable, and it makes sense to put our dollars behind this,'" says Carter.
The collaboration with MLS is a marked change from the WUSA's go-it-alone approach. The men's and women's leagues "have owners in common, stadiums in common, and a commercial relationship at the national level," says Antonucci. "Those are three things the WUSA didn't have."
A Crowded Field
Despite the cautious business plan and the strong platform provided by the growing momentum of MLS and soccer generally in the United States, challenges abound for the new women's league.
For starters, the entertainment arena has only become more crowded since the WUSA folded in 2003. "They will be playing during a time of year with a lot of other things to do," points out Rick Kozuback, CEO and president of Global Entertainment Corp., the parent company of the Central Hockey League, a double-A professional hockey league launched 17 years ago. (The WPS season is expected to run from April to August.) "They will compete with baseball, MLS, and football. They will be one more sport filling a crowded landscape." And there's little doubt that in this weak economy families are carefully controlling their discretionary spending.
On the other hand, SUM's Carter says that so far companies are not shying away from spending money on sports sponsorships. Indeed, some in the business claim that sports are recession-proof. "People tend to look to entertainment in tough times," says MLS's Abbott.
Still, when it comes to paying even modest ticket prices — likely in the $10-to-$20 range — people feeling a financial pinch and the pain of high gas prices may opt to stay home.
Demographics should help. More than 3.2 million kids play on youth teams and another 4.5 million parents and other adults are involved with youth soccer as coaches, referees, and boosters. The U.S. Soccer Federation estimates that as many as 250,000 adults play at the amateur level. And with a growth rate of almost 200 percent since 1990, soccer is the most popular women's collegiate sport. "There are a lot of demographic shifts going on in this country that augur well for soccer," says Abbott. "There's immigration, but there is also the maturation of the soccer generation." People who started playing soccer as children at the start of the youth soccer boom in the 1970s now hold positions of corporate power. Today, those making decisions about large sponsorship deals or investments in the league could be former players, says Abbott.
But will those who play come out to watch? Participation doesn't always translate into a league's success, particularly in women's sports. Of the five women's professional leagues launched since 1996, only the Women's National Basketball Association remains, in large part thanks to subsidies from the National Basketball Association. "[WPS is] really faced with the issue of how to promote an extremely popular participatory sport," says Rodin, the sports-marketing executive. And with a slew of opportunities to watch soccer at the youth level, adults may not feel the need to attend a professional game.
Wish upon the Stars
Finally, WPS also faces a more intangible challenge: finding star power. The glow of the 1999 World Cup team has long faded, and today's top players are relatively obscure; the best-known include prolific scorer Wambach and goalkeeper Solo, whose angry outburst about being benched during the 2007 World Cup made headlines around the soccer world.
"Even though there's a really talented squad out there on the Women's National Team, the name recognition is not as vibrant," admits Rodin. "From a marketing point of view, it's going to be a bigger challenge."
"Stars are crucial to your success," agrees Antonucci. "But every league goes through star players retiring. You don't close up shop or not start a business because a star retires."
With the Summer Olympics set to kick off in Beijing in August and the U.S. National Team expected to medal, bright new stars may soon be born. The league is already devising a plan to allocate National Team members to WPS teams.
And thus the stage is set for next April, when the whistles will blow for the first matches of women's professional soccer's second chance. "It will be hard at first," says MLS's Abbott. "But if they take a very measured approach, a build-to-last approach, I think they will prosper."
Here's hoping they don't lose their shirts.
Kate O'Sullivan is a senior writer at CFO.
Learning from Lacrosse
Sports leagues launch and fold with surprising regularity, often proving that staying power involves a combination of tenacity and savvy execution. Major League Lacrosse (MLL), which launched in 2001, the same year as the defunct Women's United Soccer Association, is now in its eighth season. Realistic growth projections and careful spending have helped the niche league stick around. "We didn't burn through cash at a rapid rate," says commissioner David Gross. Doing otherwise, he says, would have scared off "not only the existing ownership group but also other potential investors."
Grassroots marketing was also critical to the new league's success, says Gross. "If we had tried to do a major media buy, we wouldn't have made a dent in the marketplace," he says. "Instead, we focused on trying to grow the sport of lacrosse." Offering as many platforms as possible to sponsors — including signage at games, ads on the league's Website, advertising during television broadcasts, and spots on the league's Web radio show — has also proved key to MLL's durability.
What advice does Gross have for the new Women's Professional Soccer league? "They've got to create a budget that is truly in line with their revenue expectations," he says. "The salaries they pay the players have got to be in line. They have to explain that to the players and really get their emotional, mental, and physical buy-in to the league." But Gross stresses that MLL itself is still a work in progress: "A young league isn't really in a position to be giving anyone advice. We're still learning ourselves." — K.O'S.
Keys to the Game
$15 — Estimated ticket price
4,500 — Average attendance per game (WUSA's actual paid attendance in 2003)
$67,500 — Estimated ticket revenue per game
21 — Scheduled number of games (per team)
$1.9 million–$2.8 million — Estimated total annual budget per team, including players' salaries
$500,000–$1 million — Estimated cost of a multiplatform sponsorship package
Sources: WPS and CFO estimates