Welcome to MLS, Sacramento! Don’t mind the red ink and other growing pains

(This story was originally published on in April 2019, when league officials announced they would enter into exclusive negotiations with the Sacramento investor group. It reflects comments made at that time.)

Most of the teams lose money, the game is still gaining acceptance in America, and the whole enterprise is run on a shoestring compared to big-time sports like basketball and football.

So why is Sacramento – and its billionaire investor Ron Burkle – overjoyed that Major League Soccer announced Thursday that it was preparing to grant an expansion spot to Sacramento Republic FC?

It’s all about the future, and the belief that soccer is about to become the next big thing in American sports.

“We look at this like we are getting in early,” Matt Alvarez, a movie producer and Burkle’s partner in Republic FC, said Friday. “The league is in its infancy. We think this is the right time to get in. It has an upward trajectory, and its audience is much younger (than other sports). And we are excited by the way MLS fans are consuming the game on their mobile devices.”

Everyone with a checkbook, it seems, wants in. Alvarez and Burkle, a supermarket and entertainment tycoon who owns hockey’s Pittsburgh Penguins, will lead an investor group that will have to spend more than a half-billion dollars to join MLS. That includes an $252 million to build a stadium in the downtown railyard plus a $200 million expansion fee to MLS.

The expansion fee speaks volumes about the league’s progress. When Republic FC’s original investors began knocking on MLS’ door five years ago, when the minor league club debuted to sellout crowds at Cal Expo, the entry fee was around $70 million. It shows that franchise values are exploding – which will help investors stomach the annual losses they will surely incur. A Forbes magazine analysis said two-thirds of MLS’ teams lost money last year.

Investors “certainly realize there is a day-to-day financial slog that, for most, leaves them in the red,” said David Carter, a Los Angeles consultant and sports-business professor at USC. “But the asset continues to appreciate .... They’re making a long-term bet on franchise appreciation.”

Republic FC’s executives say Sacramento is a perfect fit for a league that’s on the rise.

“There’s a huge amount of growth that’s happening in soccer,” said Republic FC President Ben Gumpert. “We see it on our doorstep. Sacramento is one of the most thriving youth soccer markets in the entire country .... You see it every Saturday morning out on every square inch of grass.”

For Burkle and Alvarez, investing in Republic FC also brings other benefits – namely, the chance to get in on the ground floor of developing a portion of the downtown railyard. Burkle has plenty of experience in the hotel business, and he and Alvarez are prepared to turn 15 acres around the stadium site into a diversified entertainment and office district.

In a historical sense, the railyard is the appropriate spot for an MLS stadium. The former Union Pacific yard has been sitting empty since the mid-1990s, when MLS was born. Now the railyard and the league are seemingly ready for prime time.

MLS, less than a quarter-century removed from its first season, still badly trails other U.S. professional sports as a business. Its television deal pays a reported $90 million a year, while the NFL rakes in nearly $5 billion.

The league survives in part on a business model built around centralization and cost containment. Investors don’t own their teams; they own a share of the league. Players are under contract to MLS, not the teams, and a strict salary cap means only a handful of players earn more than $1 million a year. The Players Association says MLS’ highest-paid player, Michael Bradley of Toronto FC, will make $6.5 million this season – a little more than the average NBA player.

Critics say this system starves MLS of marquee players and hurts its standing among the elite international leagues. But Carter, the USC expert, said MLS owners have been reluctant to change the structure out of a fear that it “could threaten the financial stability of the league.”

At the same time, the growth has been undeniable. Four years ago, the league had just 20 teams. Sacramento will likely join St. Louis as the 28th and 29th teams, and MLS expects to add a 30th team at some point from a group of suitors including San Diego, Phoenix and Indianapolis.

“We feel very strongly that expansion is a driver of interest, it furthers the momentum story,” MLS Commissioner Don Garber said Thursday. And the next few years should be downright explosive: Garber believes the World Cup coming to North America in 2026 should be “rocket fuel” for MLS.

For Sacramento, Thursday’s announcement caps five years of work with more twists and turns than a World Cup tournament. Three years ago Garber told thousands of cheering fans at a downtown block party that MLS was almost certain to award Sacramento a franchise, with the team likely to begin play in 2020.

But then Sacramento lost out to Cincinnati and Nashville in the expansion derby, and MLS officials essentially told Sacramento it wouldn’t gain entry without a billionaire lead investor. To that point, Republic FC’s main owner was pharmaceutical executive and Kings minority owner Kevin Nagle, a mere multimillionaire. Sacramento’s MLS fortunes didn’t begin to revive until January, when Burkle signed on after months of wooing by Republic FC officials and Mayor Darrell Steinberg.

On Thursday, addressing reporters after an MLS board of governors’ meeting at the iconic Beverly Hilton hotel, Garber delivered the news: The league wanted teams in Sacramento and St. Louis, and was prepared to begin “advanced negotiations” with owners in both cities. A final decision is expected by late July, and the teams could expect to begin play in 2021 or 2022.

Sacramento’s bid “went from the top of the list to the bottom of the list until Ron Burkle and Matt Alvarez came in,” Garber added.

Garber said the “advanced negotiations” with Sacramento aren’t a formality. Among other things, the league wants Sacramento to “finalize their corporate sponsorship support,” he said.

Although Sacramento’s corporate base is thin for a city its size, getting sponsorships shouldn’t be a major problem. Carter, the USC expert, said the fact that Sacramento is finally on the verge of getting a team should bring corporations out of the woodwork.

“I think a lot of sponsors have wanted to take a wait-and-see attitude,” Carter said. “Now (Sacramento officials) can very aggressively remind people that now is the time to get behind this.”

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