Let’s go back to the beginning.

Why did Bell and Rogers buy MLSE, together? Why do they still own it?

They both said and would say today a lot of things about “delivering prestige content, producing Canadian content (I am not kidding – they actually said that, in 2012, anyway), blah blah blah… but I think any thoughtful analysis leads to only one answer: new entrants in the TV market in Europe, especially Sky in England, had used rights packages in sports leagues to wreak havok in their markets. By controlling the Leafs and Raptors, they could make sure that a “Sky” in C anada would never have exclusive NHL or NBA rights. Further, Rogers had just bought the NHL rights for $5B in a vicious auction that clearly made a big impression on everyone involved, which was- that ain’t happening ever again. Bell needed to make sure they would have reasonable access to NHL games in the long run. Bell could therefore never let Rogers just buy the premiere sports property in Canada and both Bell and Rogers knew it. They bought MLSE to keep it away from each other, and any other new entrant, and to stop bidding wars for future TV rights for prime properties.

So, fast forward 10 years, they have this asset and, lo and behold, it has been phenomenal in terms of asset growth (but maybe not so much cash flow growth – more on that in a second) Bogers paid 2.1B in 2012 and today it might be worth, I am guessing $6.5-7B:
· the NBA Suns just sold for $3.5B and the Raps have a bigger TV market, but a lower market growth rate, plus they have a lot more billionaire buyers there, so I am guessing USD $3B, or CAD 4B, for the Raptors
· the Predators just sold for USD$900M, so I am going to say 1.5B, or CAD 2B, for the Leafs
· plus $500-1B for TFC and the arena

Hi fives all around!

But there is, maybe, a wee problem. The ROI on this investment is, I bet, mediocre I am guessing that MLSE “makes” only a couple of hundred million a year, 100M each from the Leafs and Raptors, plus it makes something from the arena, and loses money at TFC. That’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortitzaion). Something Richard Peddie loved talking about, back in the day. I base this estimate on:
- the fact that MLSE EBITDA was $80M at the time of the sale (see above), and
- the work done in this blog a couple of years back, which suggested the average NBA team “made” $72M (USD) 5 years ago. I would guess the Raps would be average, maybe a little below, given that basketball is generally less popular in Canada than in the US. I assume the NHL makes less than the NBA in general, but the Leafs are among the top earners in the NHL
https://www.celticsblog.com/2021/9/1...boston-celtics

So, say, 200M in EBITDA. But there is the matter of debt service (most of the purchase price of MLSE was borrowed, that is easily $100M a year) and capital expenditures (shiny new training facilities for every team, and …. this is where it gets interesting… big player contracts.) Because player costs are mostly capitalized and then amortized, and not expensed, they are not in “EBITDA” (remember that is before amortization).

I would bet that MLSE tread water and that is a crappy ROI. Worse, they are seen as profligate and wasteful by MLSE. My evidence for this is the corporate hard line on the last year of contracts, which we saw with Seba/Jozy in 2019, and Dubas this year, and the amount of time they are taking to replace Friisdahl (it is 18 months and counting, and I suspect the don’t think they need yet another expensive suit sitting in the middle). If there is one thing Bogers probably think they know, it’s handling expensive people with contracts (both companies are full of them). They don’t buy this idea that you need to deal with talent 12-18 months before contract end (which is not true in the business world broadly), and they are not letting it slide, given the overall return picture.

Back to the Beginning

Let’s circle back. Why did MLSE’s owners buy MLSE? To keep it away from each other, and others? So now, they have two very valuable franchises, that have increased in value a lot, but have done nothing in terms of cash flow. Plus, a little soccer team that hemorrhages money. So … what to do with the soccer team.

Now, to be fair, they have had a strategy of spending on players to build asset value since 2014 (the legacy of Tim Leiweke, all bow low in his general direction!). But is it working? RSL, a notoriously cheap team, sold for USD $400M last year, and the expansion few San Diego team will pay USD$500M. Big spending teams are mostly failing competitively the last 3-4 years. Are TFC worth more than that? Probably not. There is zero evidence that big player expenditures are translating into franchise value in MLS. So now what?

That is what I think happened at the MLSE Board last year. A much harder look at profitability at teams, and a stop on the bleeding at TFC.

In fact, all this begs the question: why keep the soccer team? I fear that the answer is, for the same reason they bought MLSE in 2012: it’s not that they want to show the games, or win championships, or even go to the games …. they want TFC only to keep it away from others.

All that to say, sure, fire everybody, I feel it too… but I am not optimistic about what comes next.