Friday, July 23, 2010

Soccernomics: The Timbers, The Beavers and Paulson

Ross William Hamilton/The Oregonian

The folks that think that the PGE Park makeover for soccer is folly must believe that Merritt Paulson is a naive rube. I think they misunderestimate him. Paulson appears to be a sharp businessperson and, from my small sample of personal interactions with the Timbers front office, he appears to have created an top-class organization, at least on the business end of the deal. I recently purchased my season tickets and had a few questions and concerns was very impressed by the response I got. I even complained recently about the abrupt logo change after buying the boy a t-shirt and got a very professional and courteous response from the company contracted to sell Timbers merchandise.  I think Merritt saw an opportunity in soccer and Portland and has been shrewd in exploiting it and navigating the treacherous waters of local politics.

The news that Paulson is likely selling the Beavers comes as no surprise, with no future in Portland and soccer in the ascendancy, Pauslon's best bet right now is to focus on the Timbers. But don't think he is taking a bath on his Beavers investment: he bought the Beavers and Timbers together in 2007 reportedly for around $16 million and is in negotiations to sell off the Beavers alone for $20 to $25 million. Not bad  for a three year ROI - shrewd indeed.

I, for one, will be sad to see them go and sad at the loss of the lazy summer evenings and afternoons in PGE Park watching baseball.  It is great to know you can walk up, buy a general admission ticket and find a great seat.  But the fact is that PGE Park just doesn't work for baseball in Portland but is great for soccer and soccer is on the rise.  The World Cup ratings bonanza experienced by ESPN and Univision evidences a growing appetite for the sport in the US.  Here is a great recent article from Fortune about the Timbers and Beavers:

FORTUNE -- Portland, Ore. is the city of a thousand nicknames. "Stumptown," perhaps its oldest, harkens back to the region's logging roots. "Beervana," a nod to the city's renowned craft brew scene, is another favorite. Rumor has it, violent protests prompted George H. W. Bush's staff to christen the city "Little Beirut." But if Henry Merritt Paulson III has his way, "Soccer City USA," may become Portland's next big moniker.

The son of former Treasury secretary Henry Paulson, Merritt, who goes by his middle name, bet big on Portland's underserved sports market in 2007, when he convinced his family to buy the AAA baseball Portland Beavers and minor league soccer Portland Timbers for an estimated $16 million. Four years later, the investment may begin paying off when, riding the wave of post-World Cup popularity, the Timbers become Major League Soccer's 18th franchise in 2011, and Paulson, a 37-year-old former NBA and HBO executive, becomes the league's youngest owner.

"The timing is terrific," says Paulson, overlooking the field from his PGE Park office. Tall, thin, and with a collection of baseball and soccer gear strewn about his office, he looks like he could rip off a batting practice session at any moment -- but the constant ding of emails hitting his inbox shows how unlikely that is.

"Anybody who's doubts soccer's relevance need only look at the ratings and the attention that the World Cup has received here in the states," he says. "The awareness and the interest is at a high point."

On the other hand, interest in Portland Beavers baseball couldn't be any lower. Since being named a charter member of the Pacific Coast League in 1903, the team has existed as various franchises under a slew of different owners, and it has been affiliated with an array of major league teams.

Currently, the Beavers are the top farm team for the first place San Diego Padres. But on this day, most of the Beavers' 19,566 seats will sit empty as fewer than 2,500 fans tip the turnstiles to watch the team's ninth inning rally fall short. The Beavers have played in multi-use PGE Park since 1956, and currently share the stadium with the Timbers. But next year, under the MLS's $35 million expansion agreement, they will be evicted. The MLS mandates that their teams play in soccer-specific stadiums. So after $31 million of public and private-funded renovations, there will be a new pitch in Portland, but it won't be for baseball.

MLS's Game Plan

The MLS's edict is grounded in savvy business planning, as the league hopes to dodge financial troubles that have plagued past, now-defunct American soccer leagues. "The MLS has built itself for the long haul," says Paulson. "It's been fiscally conservative and prudent, as well as successful in developing soccer specific venues, which is crucial." According to MLS Commissioner Don Garber, soccer-specific stadiums are necessary to maximize revenue through premium seating, television-optimized sight lines, scheduling priority, and increased advertising opportunities, including naming rights.

Considering the league's track record, it's hard to argue with Garber's recommendations. Founded with the proceeds of the U.S.-hosted 1994 World Cup, the league began with ten teams in 1996 and will number 20 teams by 2012. In 2007, MLS also saw considerable growth after the 2006 World Cup, with David Beckham signing with the Los Angeles Galaxy, the signing of a 10 year $100 million clothing and equipment deal with Adidas, and with Toronto -- one of its most profitable teams -- joining the league.

Expansion fees, which are somewhat commensurate with team values, have also climbed in recent years. For example, Toronto payed $10 million to join MLS in 2007, while the Seattle Sounders paid $30 million to join in 2010. Montreal, the next team to join after Portland and Vancouver, B.C. launch in 2011, will pay $40 million to become a member in 2012. The fees give teams rights to operate a club in their market, the opportunity to join the board of governors, and an ownership share in MLS's marketing arm.

If Seattle's success is any indication, the potential for Portland and Vancouver is promising. The Sounders were just named Professional Sports Team of the Year by Sports Business Journal, beating competition from the NBA, NFL, NHL and MLB. Partially owned by Paul Allen, the team plays at the Microsoft (MSFT, Fortune 500) co-founder's Qwest Field, and averaged 30,000 fans per home game in their 2009 debut season. In 2010, the stadium expanded its soccer capacity to nearly 36,000 seats, and has continued to sell out every match along the way. "In my view, this is one of the most successful launches of a pro sports franchise ever," says Garber.

With about 20,000 seats, Portland can't match Seattle's attendance, but the league still expects it to perform well and hopes some Pacific Northwest rubs off on the team. As a minor league soccer squad, they already pack the stadium and recently sold out a "friendly" exhibition match against Seattle in just six days.

A loud, raucous group calling themselves "the Timbers Army" occupies an entire section of PGE Park and stays on its feet the entire game. Away from the pitch, Adidas makes its North America headquarters in North Portland while Nike's (NKE, Fortune 500) worldwide nerve center is in nearby Beaverton. Local youth soccer participation levels are through the roof, and the area's televised soccer viewing is among the highest in the nation, says Garber. "There's clearly something very special taking place in the Pacific Northwest as it relates to soccer," he adds.

[Read the rest at Fortune]

The lingering question is why hasn't Portland supported the Beavers in greater numbers? Theories abound about whether the city is a 'baseball' town and I don't really know the answer, but decent MLB ratings on Portland TV suggest something else about the reality of professional sports in this media saturated age: when the best is easily available in your home, going out to watch minor league baseball feels like a compromise - especially for a town the size of Portland.  I just don't think minor league sports work well in big cities anymore.  I have a sense that a MLB team would be well-supported, but who knows?  We'll probably never find out.

Anyway, as for me, I have my Timbers tickets and am looking forward to the atmosphere that the new PGE Park will provide for soccer and for never-ending advocacy of moving the small time stuff out so that the Timbers can play on grass. I will miss the Beavers though and those lazy nights at the Park with friends and kids.

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