The Loons Rise

The Loons Rise

This spring, Minnesota United FC ascends to soccer's big time. What's its business plan in a sports-saturated market?

Run that scene from The Graduate today, and Mr. McGuire wouldn’t say “plastics,” but “soccer.” That’s Bill McGuire, former UnitedHealth Group CEO, who is looking to profit on soccer’s surging popularity with his new Major League Soccer franchise Minnesota United FC, which began play in March. Though early results were not encouraging, with the team on pace to give up a league record number of goals, McGuire is playing a long game.

Major League Soccer officials speak of their league as a movement, and indeed it has become one, more than doubling in teams since 2005. Minnesota United, along with Atlanta United FC, are the latest of 12 new teams in the past dozen years. Average attendance at MLS matches last season reached a record high of 21,692, a 40 percent jump over the past decade. Only the NFL and Major League Baseball drew more fans per game among major sports leagues in the U.S.

Television viewership, social media followings and merchandise sales all rose last season as well. That drove the average MLS club value to $185 million in 2016, according to Forbes magazine, an 80 percent increase over three years. There does seem to be a future in soccer, yet McGuire’s club enters a crowded local sports marketplace. If it can succeed here, how will he do it? And if you accept the premise that there is a finite pool of entertainment dollars, then at whose expense?

Great Expectations

Minnesota United FC played for six years in the second-tier North American Soccer League. That team drew an average 8,670 fans to matches the last two seasons at the National Sports Center in Blaine. In 2015, the MLS, in an expansion mode, selected the NASL’s Minnesota team (along with a team in Atlanta) for its next wave of expansion in 2017. MN United, also known as the Loons, has a new coach and mostly new players (all but five), but maintains the same front office infrastructure and ownership.

The new MLS team’s temporary move from Blaine to TCF Bank Stadium in the heart of the metro area opens the Loons to an expanded fan base. The MLS is North America’s premier soccer league, and the assumption is that the increased quality of play—from opponents, if not immediately by the expansion home team—will attract additional fans. But convenience and improved competition will not fill the 21,895-seat capacity of the Bank’s lower bowl for the Loons’ 17 scheduled home matches. (Team officials would like to be able to play part of the 2018 season in the venue, but that’s unlikely because construction on its new stadium in St. Paul’s Midway neighborhood, expected to take 18 to 20 months, has not begun.)

The team has set a goal of selling season tickets for about two-thirds of capacity for the Midway stadium, where it will begin play in 2019; that’s approximately 13,300 season tickets, according to team president Nick Rogers.

“That gives us the opportunity to sell to groups and get new people to come in,” Rogers says. “There is always attrition, so we want a pipeline of non-season-ticket holders coming to games.” He also notes that profit margins on individual game tickets are higher.

Last year, the team had about 5,000 season-ticket holders, with prices ranging from $189 to $995 for premium fieldside seats at the National Sports Center. Fans transitioning to TCF Bank Stadium are ponying up anywhere from $339 to $2,950 for similar “pitchside club” seating.

As of February 1, the team “was closing in on 9,500” season-ticket sales for 17 regular-season home games (team spokesman Eric Durkee would not be more specific). By comparison, the new Atlanta MLS team, which will play in the 40,000-seat Falcons’ NFL football stadium, had sold more than 22,000 season tickets, but had several more months to do so. Six weeks from the start of the season, the Loons are about 30 percent short of their season-ticket goal, but Rogers was not worried. “If we can get 9,000 people in Blaine for a minor league game,” he says, “I’m not concerned about finding another 10-15,000 more.”

The move from the NASL to MLS will bring increased revenues, but it will also require additional expenses, particularly in payroll and leasing. Last year, Minnesota United FC paid its 30 players’ salaries within the league range of $15,000-$100,000 with most under $40,000. This year, it will not come close to breaching the MLS $3,845,000 salary cap, but it will be compensating most of its 30-player roster closer to the base MLS pay of $50,000 with the top players getting closer to $100,000. At present, the team has no marquee players, whose salaries can run into the millions (with a provision that any amount over the cap is paid directly by owners), but who make the team more competitive and draw fans.

A recent Wall Street Journal article estimated that MLS team revenues range from $15 million to $50 million, with most teams on the lower end. National TV rights are in the low seven figures through 2022.

Once it moves into its new stadium in St. Paul, John Vrooman, a sports economist at Vanderbilt University, speculated in 2015 that the team could realize an annual operating profit of $8.5 million based on projections for $25 million in revenue against $16.5 million in operating expenses.

MN United goalkeeper Patrick McLain shows the boys how it’s done.

The millennial play

The core of soccer’s fan base lies in immigrants, young families and millennials. For those who call soccer “football,” (the name the rest of the world uses for the sport), the game has strong cultural ties, and those fans have embraced the MLS. For instance, Hispanics make up 30 percent of MLS fans and are a growing population, currently at about 53 million in the U.S. Rogers expects the Loons to get an extra boost from the Twin Cities’ sizable Somali and Hmong communities.

Young families, especially those with children who play soccer, are among MLS’ largest supporters, and they, too, represent a considerable base. Soccer is the most-played sport among 6- to 8-year-olds in the U.S., according to the Sports and Fitness Industry Association, and a 2014 study by the Sports Business Journal showed a strong connection between playing soccer and being a paying fan. Soccer is the nation’s second-most popular sport, trailing only the NFL, among 12- to 17-year-olds, according to the ESPN Sports Poll.

But millennials (ages 18-34) may be the most significant component of MLS fans, a full 38 percent. The average age of MLS fans is 35, youngest among pro sports in the U.S. (MLB is 46; NFL, 43; NBA, 38.5). MLS commissioner Don Garber noted a key factor in the league’s decision to expand into the Twin Cities was its large population of young people.

The league knows millennials are an especially desirable demographic for retailers. In January, Minnesota United secured a three-year relationship with Target Corp. as an official MLS partner and jersey sponsor. “This is a league that millennials and Gen Xers own,” says Bill Sutton, director of the Sport & Entertainment program at the University of South Florida. “Their fathers didn’t go to these games.

Loons’ defender Collen Warner refines his technique.

Indeed, many Twin City residents over 40 remember going to Kicks games at Metropolitan Stadium when the NASL was the major soccer league in the U.S., but that league was never able to gain the foothold the MLS has, especially among today’s younger fans. The reason might be that in the mid-’70s, there were barely 100,000 kids playing soccer in the United States, according to U.S. Soccer. By 2000, there were more than 3 million. They make up the bulk of today’s millennial soccer fans.

“The easiest and clearest way for MLS to take hold is through millennials, for them to be able to say it’s our community, it’s our sport,” says Rich Luker, who compiles the ESPN Sports Poll. “If it becomes their subculture and part of their identity, then it’s passed on to their kids. That’s what every team needs to survive: multi-generational support.”

German insurance giant Allianz is expected to be the naming sponsor for Minnesota United’s stadium when it opens in St. Paul in 2019.

MLS officials have claimed almost a proprietary interest in millennials. “It’s a bit of a movement among young millennials who haven’t purchased season tickets to other sports leagues,” says Dan Courtemanche, MLS vice president of communications. He points to the fact that 60 percent of the season-ticket holders for the MLS’ New York City franchise, which began play in 2015, had not bought season tickets previously for any other pro sport.

Showing up

Attendance is critical because the league’s television contracts are not as lucrative as those of other leagues. Three years ago MLS signed eight-year commitments with ESPN, Fox and Univision, but the league’s $90 million annual broadcast revenue is far behind that of other major leagues (MLB, $12.4 billion annually; NFL, $4.9 billion; NBA, $2.6 billion; NHL, $200 million). That makes MLS clubs more dependent upon revenues such as ticket, concession and merchandise sales.

The clubs are selling the experience as much as the match itself. It is indeed unlike any other U.S. sporting event with fans standing throughout the match, singing, chanting, banging drums and waving banners during two uninterrupted 45-minute halves. “What happens on the field is important, but what happens in the stands is also important,” Courtemanche says. “That’s part of the atmosphere and the experience that will bring them back.”

That atmosphere is created in large part by fan groups that evolve organically. Modeled after European supporter groups, they work to replicate the atmosphere at European and Latin American games—absent the hooliganism that has given soccer fans a bad reputation. In Seattle, there’s the Emerald City fan group. In Portland, there’s the Timbers Army. And in the Twin Cities, they are the Dark Clouds, which claims about 600 members.

These are the fans painting the banners, composing the chants, hosting pre-game parties and other events. They have constitutions, mission statements and guidelines for members, who pay annual dues. They also do service work and contribute a portion of membership fees to charity. “It’s extremely beneficial to the clubs,” says Galen Trail, professor of sport administration and leadership at Seattle University.

The Loons hope to be able to mimic the success of recent expansion teams in comparable markets of Portland, Ore.; Orlando, Fla.; and Seattle. Orlando and Seattle grew out of minor league teams like the one in the Twin Cities. The Seattle Sounders have led the league in attendance since joining it in 2009; last year they averaged 42,636 fans per home match. Orlando City SC attracted 62,510 fans to its first match in 2015 and averaged 31,324 fans per match last year. The Portland Timbers have sold out every home match since starting play in 2011. They have more than 10,000 people who have paid $50 to be on a season-ticket waiting list.


Competitive balance

The Loons enter a more crowded marketplace than those other teams did. With a season extending from March through October, Minnesota United FC overlaps every local professional team. Orlando only has the NBA Magic and minor league teams. Portland also has the NBA and some minor league teams. Seattle might be most comparable to the Twin Cities, with teams in the NFL, MLB and WNBA, though it has no NHL or NBA teams. (There is a minor league hockey team in Seattle.)

“There’s no question the Twin Cities can support an MLS team,” says Rivers Wilson, associate professor of economics at the University of St. Thomas. “The Twin Cities happen to be a metro area that really likes soccer. I think it will end up being a fairly big hit.”

In the local sports marketplace, the Twins seem especially vulnerable, primarily because their season tracks most closely to MLS. Though MLB attendance has been trending upward since 2004, the Twins’ attendance dropped below 2 million in 2016 for the first time in 12 seasons. Attendance has fallen every year since it peaked in 2010 at 3,223,640, the year Target Field opened. The team has also been consistently bad since 2010, with a losing record every year except 2014 (when they were a mediocre 83-79). Last year was their worst since the franchise moved to Minnesota, losing a franchise-record 103 games.

There’s nothing to suggest the Twins will be able to capitalize on the draw of a winning team this summer. Season-ticket sales are down about 1,500 from last year, with the team on pace for 12,000 full-season ticket equivalents (combining numbers for different partial packages sold). Twins president Dave St. Peter attributes the team’s slipping attendance to its performance on the field. “We’ve done it to ourselves,” he says. But he believes if the team can become a contender again, it will again attract 2.5 million fans a season. “The Twins aren’t going to suffer because of soccer. People underestimate how strong our fan base is.”

Rogers does not think his club’s success will hurt any other team. “It’s not something where our success is bad for someone else,” he says. “It’s not a zero-sum game.”

It is difficult to predict what the exact effect the new soccer club will have on existing teams’ attendance. There is not a substantial data sample to consider, and the quality of the data is often inadequate, says Joel Maxcy, a sports economist at Drexel University. For instance, attendance data alone are almost insignificant without considering ticket prices.

A 2005 study that looked at MLS clubs in markets with teams from the four major leagues (NFL, NBA, MLB and NHL) found that the soccer club suffered negative effects due to the presence of the other teams. While that study is a dozen years old—and soccer in general and the MLS in particular has gained significant traction attracting fans since—Maxcy thinks the idea of more competition from the other major leagues in a market still presents more of a challenge to the MLS than the established leagues. “I’d be surprised if that’s changed fundamentally,” he says.

Dr. Bill McGuire

At the same time, Maxcy sees the competition among teams cutting both ways. And while many factors affect attendance, including weather, star players and marketing efforts, the most important factor, Maxcy says, is team quality. “In that regard, the Twins probably do have more to worry about if a team is going head-to-head with them—they have been bad and are expected to be bad again this year,” he says. “It’s not going to drive them out of business, but the increased competition is going to be noticeable.”

Rogers acknowledges that part of the Loons’ marketing strategy is to reach beyond the hard-core soccer fan to fill its stadium. “For the last few years, we fished where the fish were, but to be a major league team, we have to expand our reach, go more mainstream,” he says. “We want to market ourselves as more of a general interest sports event.”

That could very well be what pinches the Twins when, say, a family in Eden Prairie is trying to decide whether to go to Target Field or TCF Bank Stadium. Despite the insistence of MLS officials that soccer fans exist in a sort of silo, unique unto themselves, fans of other sports migrate to soccer matches. The Sports Business Journal survey found that 54 percent of those who said football was their favorite sport actually preferred going to soccer matches. Slightly more than 60 percent of baseball fans said they would rather go to a soccer match than a baseball game. In Seattle, a study done two years ago by Seattle University’s Trail found that one out of five fans of both baseball and soccer would pick a Sounders game over a Mariners game. That may be cause for concern. “If you have a limited entertainment pie,” Trail says, “they are going to have to take it from somewhere.”

Even if the Loons do siphon fans from Target Field, the Twins will not lose. The Pohlad family, who own the Twins, has a significant stake in the soccer team. Rogers won’t say exactly what percent the Pohlads hold, other than to call them a “major investor.” Timberwolves and Lynx owner Glen Taylor is also a “major investor,” he says. The Lynx season also overlaps the Loons.

yLynx, Twins and the Loons games are very similar in being family-friendly and more affordable than those of the Vikings, Timberwolves and Wild. Yet instead of competing, the three teams could even be helping one another if the Loons are able to attract new fans.

“The minority owners [Taylor and the Pohlads] want to see how those untapped markets make their other franchises better,” says Kristi Sweeney, an assistant professor at the University of North Florida who studies consumer behavior in professional sports. “I see this happening through sponsorship and marketing dollars. They didn’t buy into the Loons to dilute their other products. I think they got into it to grow their other brands.”

At least one sports marketing guru shares McGuire’s vision of the future for success in the Twin Cities. “This is soccer’s time in the U.S.,” says the University of South Florida’s Sutton. “They’re doing everything right.”

John Rosengren is a Minneapolis author specializing in the world of sports. He is a frequent TCB contributor.