Wednesday, September 10, 2008

Soccer in Portland Redux

On Monday, The Oregonian had another article about the success of Major league Soccer in the US. And while the article was fine, by focusing on past and current demand I think it missed an essential aspect of investing in a business - expected future returns. MLS has made major strides in its short history: there is now a steady roster of teams, many new soccer-specific stadiums, more wealthy owners and an increasing talent pool. But these are only partly why franchise fees have gone from $10 to $40 million in a few short years. The fundamental trajectory of soccer, the world's most popular sport, in the world's biggest market is clear: up, up, up.

This is different than saying 'everyone else in the world loves soccer, so should the US,' this is about the fact that the soccer crazy world spends a lot of money following soccer and watches it rabidly. Top European soccer teams are as valuable as the biggest NFL and MLB clubs in America and English teams are falling over themselves to try and get a piece of the US market. So there are huge potential returns globally from the growth of the MLS. It is probably decades away, but that does not stop current valuations from reflecting the potential future returns. There is a reason, on other words, that Merritt Paulson is going to put up the 40 million himself - he does not want to share the potentially huge payday if franchise fees continue appreciating they way they have been recently.

Even domestically, there are many reasons to expect that attendance and viewership will keep increasing. The US population is increasingly representative of cultures where soccer is the main sport. The growth in soccer participation among youth players has been explosive whcih not only increases the potential domestic talent pool, but creates generations of soccer-savvy fans.

As for Portland, the proven support for professional soccer and a stadium that could become the best soccer stadium in the country make it a pretty safe bet for the city, one would think.

In short, the future returns from a professional soccer club in America are potentially huge. Merritt Paulson is no idiot. He is not about to spend $40 million on a suckers bet.

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