1. Despite everything, Inter Miami is valued at $600-$650M:
Big Ideas:
- Club valuations say less about the real value of the clubs and more about the amount of investment money floating around and the “Premium Power” of owning a team or a part of one.
- As much as this is a wise investment, the situation in Miami is closer to gambling than any supreme strategy.
- The MLS expansion strategy offers a lot of product, but the quality is what is needed to push the league forward.
Hello, I’m Dave.
Welcome to the 100th edition of the newsletter.
If you are new here, I have themes that will definitely emerge over time.
As we kick off this week, we start in Miami where Inter Miami is now valued at over $600M.
That’s a lot of money for a team that doesn’t have a permanent home, plays about 45 minutes from its ‘home’ market, and has been underperforming on the pitch since its inception.
As a personal note, I got an Inter Miami training top for Christmas and I love it. And, I went to high school and spent some of my early adulthood in Ft. Lauderdale, so I watch this stuff pretty closely.
To me, I keep coming back to three things when I look at this story:
- The value of these assets isn’t really tied to reality any longer. Instead, the value of these teams is tied to “Premium Power” of pricing an asset that only a small number of people can own, a lot of investment money that hasn’t found a useful place to go, and a gamble that nothing will change in sports business after the pandemic is behind us.
- The play to consolidate ownership of the team is a gamble on the team’s future since they still don’t have a location for their stadium in Miami.
- MLS continues to expand, I’d say, excessively, and the product on the pitch is bound to suffer, harming the value of the teams and the ability of the teams value to grow.
Let’s pop through these one by one, shall we?
First, the valuation of the team.
In the good old days, teams used to be valued at a 3-4x valuation compared to their revenue. Then, Ted Leonsis, I believe, came along and helped change the perception of what the valuation of a team should be to reflect something in the range of 10x valuation for the team.
This is a way of pointing out that in 2019, before the pandemic, the team in Atlanta had the highest reported revenue of any club in MLS at $78M and LA Galaxy was second with $64M. LAFC was at $50M and it drops way off from there.
I point all of this out because it shows that the valuation of the Inter Miami team isn’t in line with reported revenues.
So, the valuation has to be driven by a couple of other things like a limited number of investment opportunities, favorable tax rates, and a bet that happy days will always be here for sports business.
That’s a pretty big gamble because we’ve seen ratings drop, attendance and no-shows are an issue, and we still have structural trends that were undermining ticket sales and attendance before the pandemic.
TBF, MLS’s early-season ratings this year are up and a new TV contract could easily boost all clubs’ revenues.
This brings us to the second piece, this is a big gamble on the team’s future.
This isn’t Miami’s first MLS team.
The Lockhart Stadium site where Inter Miami is playing now was the old home of the Miami Fusion.
But the team and its owners still don’t have a permanent location for their club.
In fact, the city of Ft. Lauderdale and Broward County is currently in a dispute with the ownership group about promises broken out during the redevelopment of the Lockhart Stadium site.
Remember the power framework I’ve talked about a bit over the last few months?
In using the framework, it looks like Inter Miami isn’t holding very strong cards here:
- In looking at the relationship they have with their customers, the customers have all the power, and attendance has been a real problem in Miami.
- In looking at the relationship between the team and their competition, they don’t have a huge amount of power here either because there are tons of other options that people in South Florida can choose without feeling like they have to go to an Inter Miami match like golfing, boating, the beach, the bars, the Marlins, the Heat, the Dolphins, and I can continue.
- In looking at the state of the team’s relationship with their partners or potential partners, again, no dice. The team has no power in their relationship with Miami-Dade County currently and as we’ve seen Broward County and the City of Ft Lauderdale are likely keeping a hiked eyebrow with any promises the team is making.
This sets up a big gamble on the team’s future around three things, minimum:
- MLS’s ability to get a new contract.
- The team’s ability to find a suitable permanent home and build their grand vision.
- The team’s ability to grow a fan base.
Finally, when you pull back and go to the strategic level, you are confronted with MLS’s continued reliance on expansion to grow the game.
In the past few weeks, I’ve highlighted a number of instances where the supply of events and tickets is so great that it is almost impossible to imagine a sell-out happening.
That is a dangerous position to be in right now and makes continued talks around expansion seem a bit dangerous because at a certain point there will be so many teams that demand can never be achieved.
Look at the current product on the field and you’ll see:
- The quality of the games isn’t high enough to justify a premium valuation.
- Most team brands have been developed to the point of commoditization, meaning that they can’t sustain a price premium or differentiation in the market.
This is a problematic situation all around.
I love soccer, but I also feel like the development of the game and the game’s fans in the States isn’t helped by a lot of the actions being taken now.
But…maybe I’m wrong.