Garber, Horowitz discuss MLS contraction
Posted: Wednesday January 09, 2002 11:42 AM
The following are select quotes from Tuesday's teleconference call following the announcement that the Miami Fusion and Tampa Bay Mutiny would cease operations.
The guests: Major League Soccer Commissioner - Don Garber
Major League Soccer Investor - Kenneth Horowitz
MLS Deputy Commissioner - Ivan Gazidis
Don Garber's opening comments:
"Earlier this morning we announced to the staffs of the Tampa Bay Mutiny and the Miami Fusion that we would immediately cease operations of both teams. That decision was made unanimously by the MLS Board of Governors this past Friday after many, many months of internal discussions on ways that we could keep a 12-team league in place for 2002 and beyond. As we have previously stated, for the past year we have been undergoing a very comprehensive review of our overall business and we concluded that among a number of other things, it was absolutely imperative for us to have Investor-Operators for every team in MLS. Tampa has been without an owner since the team was founded in 1996 and Investor-Operator Ken Horowitz determined along with the MLS Board of Governors that the South Florida market was not capable at this time of supporting an MLS team."
"We are in continued negotiations with several entities to invest in MLS. We hope to be able to announce prior to the start of the season the assumption of the operating rights to the Dallas Burn and the San Jose Earthquakes. The operating rights to D.C. United have been executed by the Anschutz Entertainment Group (AEG), whose two-year option would have expired after the 2002 season. They have exercised their option a year early. Once we finalize our hopeful agreements in Dallas and San Jose, we will have Investor-Operators for the first time for every team in MLS."
"I want to say that we feel strongly that the sport of soccer owes its thanks to Ken (Horowitz - MLS investor) for his commitment to MLS and soccer in South Florida. He invested an enormous amount of his money, his heart and sweat equity. I speak on behalf of our entire Board when we say we appreciate his contributions to the game and we look forward to his continued involvement with the league for many years to come."
"As previously announced, our investors have committed to fund the league through our 2006 season. We're pleased to be in a position where we can speak to municipalities, players and potential expansion operators and go out to the public in general with stability through 2006."
"As you all know, last week we announced the extension of our broadcast agreements through 2006 with ABC and ESPN. We also announced the formation of a new soccer company which will be funded by a number of our investors. That company purchased the rights to the World Cups in 2002 (Men's), 2003 (Women's) and 2006 (Men's). ABC and ESPN have agreed to broadcast all three World Cups as part of this relationship with our new company."
"Additionally, we've announced today that we've made a number of changes to the operating agreement that exists between the league and its teams. These adjustments will provide a number of enhanced revenue opportunities for local operators which will stimulate interest in the league from a number of entrepreneurial sports investors."
"I speak on behalf of our board and our senior staff when I say that we made every effort possible to avoid closing these two teams. We worked tirelessly to secure local Investor-Operators for both teams over the past year and in Tampa's case specifically for quite a bit longer. We tried to hold out as long as we could and still be in a position where we could effectively operate in 2002. We simply ran out of time. A Dispersal Draft of the players from Tampa Bay and Miami will take place this Friday. We will be announcing a new playoff format and a new schedule next week. We will be reformatted as a two-conference league with an Eastern and Western Conference."
"I know that there are many out there who think this is the end of Major League Soccer. And I want to say that this could not be farther from the truth. In fact we feel that this is a new and strong beginning. We're convinced that with the media commitments from the Disney networks, the funding commitments from our investors, the progress that we're making with new stadiums in Dallas, New Jersey and Los Angeles, that we will be a much stronger and viable league in the future. This is about what's right for the sport tomorrow, what's right for it next year, five years and ten years from now even if it means making some very tough decisions.
"We wanted to do everything that we could to focus all of our efforts on keeping men's professional soccer strong in this country for many years to come. In order to do that we must have strong local markets. We believe this decision will allow us to be in position to have strong markets in every MLS market in the future."
"I want to end by saying thank you to all the fans in Miami and Tampa. There's not much we can say that will ease their pain. The process that we went through over the last number of months was a difficult one. The uncertainty that it placed on them and our staffs is something we feel badly about and is something we want to apologize for. We hope that they will continue to support the league and have faith in Major League Soccer."
Kenneth Horowitz's opening comments:
"This decision literally came down to Friday, just a few days ago, and it was a very difficult decision. We continue to remain bullish on soccer in the United States. We plan to continue our investment with MLS. I continue to remain on the MLS Board of Governors and serve on three different committees and we have the option to open another team elsewhere in this country. My investors and I have invested close to $50 million in South Florida Soccer, the entity that operates the Miami Fusion, as well as a massive amount of personal time and emotional commitment. We've come to the conclusion that the South Florida market just has too many hurdles that we simply cannot overcome.
"It is for this reason that we've made this reluctant decision to cease operations. The decision unfortunately affects many people in many different ways and we are sorry for the pain this is going to cause our staff, our players, as well as our fans. The reality is that South Florida is a very difficult sports market. In recent years, teams have opened and shut doors within a year. Even the established professional sports teams - the Marlins, the Heat, and the Panthers - are all suffering. The Miami Dolphins routinely need to black out TV games from local broadcasts because they haven't been able to fill their stadium on a regular basis. The fan base is very diverse down here and many people simply don't have local ties to the area and have trouble identifying with the local sports teams. They typically identify more with the teams from states or countries they might have come from."
"We have other complications and I'm not going to go through everything. But one is the timing of the MLS season in contrast to when youth soccer is played down here. Youth soccer plays at an opposite time from when MLS plays and it makes it difficult for youth coaches and their players to attend Fusion games because they have gone on to another sport. We also have problems with the local heat and rain during the summer. The Marlins have been trying to have a domed stadium built to take care of that problem and it's been an ongoing problem for us.
"This year we had the winningest team in MLS. We literally were just one goal away from entering MLS Cup, our staff was nominated for many executive awards and everything started to click. But what really didn't happen was the market just didn't step up. Yes we had an increase in attendance but it simply wasn't enough. We had no increase in corporate sponsorship. I have no doubt in my mind that if we could pick up our players and staff and move them to another market not in South Florida, we would have had a very successful endeavor going forward."
Garber on the how critics perceive the decision:
"There are always and there will always be naysayers. There are always those who continually look at this league with criticism. That is something that we in the soccer business deal with everyday, not only in professional soccer. I want to reiterate that we have a five-year funding commitment. We have a five-year deal with ABC and ESPN. We have made immediate commitment to the World Cup and have formed a company to market and produce that. We will soon be announcing that all of our teams will have Investor-Operators. We have stadium projects that are soon to be approved in New Jersey and Dallas. I can't see how anybody would look at those things and still question the viability of the league."
Horowitz on why the decision was made at this point :
"South Florida loves winning teams and as much as a terrific coach Ray (Hudson) is and the quality of players we have, we certainly could not guarantee that we would have had a winning team again next year. We hoped we would. This year we tried playing two games at the Orange Bowl. We took the team down to Homestead to try to drum up support and frankly, the attendance and the lack of corporate support that we tried to follow up on after those games was just not there."
Horowitz compares the South Florida market to other MLS markets:
"We had the lowest ticket prices in the league. We haven't changed ticket prices in three years. We didn't dare touch them. There are things we have frozen while trying to get more fans to come and it just wasn't happening."
Garber compares to the South Florida market to other MLS markets:
"While Miami had the third lowest average attendance, it had the lowest revenue in the league this year, including fewer season tickets which are upfront money that have a higher yield for each team. They (Miami) had almost no revenue from corporate sponsorships. The issue in Miami is the lack of revenue and the lack of future potential revenue. It really lacked viability as a business."
Garber on the possibility that MLS could return to South Florida:
"The decision that was made concerns the team's status in 2002. If we were able to secure a situation with a new investor or perhaps with an approach that could have different economics to it, then we would certainly welcome returning to the Miami market. What we are hoping for is that in time we can have further discussions with the city, the corporate community and the fan groups to gain a greater level of support.
"We do feel for those people that are passionately connected to that team. There was a rally the other day that several hundred people went out to. Had there been thousands we would have really opened our eyes and noticed the hidden interest. Had any folks come forward in the last months, during our quest for new investment and support from the corporate community, we would have paid closer attention. But none of that existed. So for now we are not going to be able to have a team, but we hope we will in the future."
Garber on whether there was a Fort Lauderdale vs. Miami issue:
"One of the disappointments we have is that we play in a nice facility (Lockhart Stadium) that is soccer specific, if you will, and that our fans were very excited about. Ken (Horowitz) invested a lot of money in it. We weren't able to attract enough fans to make it a viable business. We went to Miami Mayor Diaz and Commissioner Jimenez who were very supportive and worked with Doug Hamilton (Fusion GM) in providing marketing support so that we'd have a better experiment with playing down in the Orange Bowl. Those games delivered far below our expectations and quite frankly the corporate support we hoped would be coming with that game didn't exist. I don't believe it's a Fort Lauderdale vs. Miami issue. I never did believe that."
Horowitz on other factors that led to the shutting down of the Fusion:
"I don't disagree that we probably made mistakes for the first couple of years. But we've been here for four years and for the last couple of years it's been a whole different team with different management. Doug (Hamilton - GM) has done an outstanding job. Ray (Hudson - Head Coach) has been an incredible voice. And we've had probably the best press in MLS. People knew we were around and they knew our ticket prices. There really wasn't much more we could do. The other professional teams have spent more money in advertising and it hasn't delivered more fans for them."
Garber on the impact of the team's on-field performance in the decision:
"D.C. United had one of the poorer performing teams the last few seasons but is way at the top of our revenue and fan following lists. The same applies for New England. Those are markets that are good soccer markets. Though the product hasn't delivered, we could only imagine what would happen in New England if we had a championship team. We would have a significantly more profitable business than we would have today. I don't think any of us can sit here and say that mistakes were not made. Ken (Horowitz) has been one of the more open and self-evaluative owners that I've ever dealt with. But the bottom line is that this past year we had a good team (in Miami) with the most marketable coach in this league's history. We have enormous media coverage in that market and yet we're not able to generate the revenues to make the team viable. If we had done things perfectly, I'm not sure we'd be much better than where we are today."
Garber on total MLS losses:
"We have not commented on our losses outside of the testimony in a lawsuit. This past year we were able to reduce our losses from previous years. In our budget for 2002 through 2006, the capital call that is required from ownership is significantly reduced from previous years. That is a function of our ability to reduce the league-operated teams from our budget. In 2001 we were supporting the capital needs of the San Jose Earthquakes, D.C. United, the Dallas Burn and the Tampa Bay Mutiny. That was 30 percent of our budget. In 2002 we won't be supporting any league-operated teams and therefore we will be reducing the capital needs of this league. We also intend to generate more revenue in our new television deal. And we will be reducing our overhead in the league office. We will keep our player budget the same next year. There will be potentially more spending on players in 2002 than in 2001. Our marketing spending will remain constant though much more of it will be focused on grassroots expenditures as opposed to expenditures on broad scale marketing and communications."
Garber on contraction vs. expansion:
"These moves were about making us a more viable business. We need to expand, but we need to have a business that has a greater potential for profit in the future. We needed to reduce the overall capital needs of this league in order to make us more attractive to investors. The most significant obstacle to investment in this league has been the ongoing capital needs. All of these moves as well as the plans for reformatting our organization have been about becoming more efficient and leaning toward profitability."
Garber on the percentage of teams owned by the Anschutz Entertainment Group:
"We need first for people to buy into the concept of single-entity. For the traditional sports fan that's a challenge. Ten years from now, when more leagues are single-entity, you will see that that will be less of a challenge. Our single entity ensures competitive balance. We have always had multiple team ownership and have never had any issues with that. We have a wide variety of checks and balances in place and we will continue to enforce them. Phil Anschutz and his group are investors in soccer. They have made a massive commitment to the sport. This sport has never had that one person or entity who has single-handedly said to the naysayers: 'I'm right and you're wrong. I've made bets on businesses that everyone said wouldn't work and I've proven to be right. My next bet is on soccer.'
"I will also say that five and ten years from now, when we are beyond the formation of this league and will instead look at the history of the league, I don't believe that Phil Anschutz will have an inordinate number of teams in this league."
Garber on what steps are being taken to dissolve issues that remain with the two clubs:
"Our Chief Operating Officer, Mark Abbott, and our human resources people are meeting with the staff in Tampa today. Those that will not be provided with jobs in MLS or our new company will be provided with a severance agreement. That process is taking place today. Doug Hamilton, the President and General Manager of the Fusion, met with his staff and they are going through the same process. The Tampa Bay Mutiny employees are employees of the league, and the employees of the Fusion are employees of Ken Horowitz's soccer company, so we have little to no obstacles there. Logistically we do have lease with Tampa and we are in discussions with the Sports Authority.
Horowitz on the next steps to be taken to dissolve the Fusion:
"We plan to continue to operate Lockhart Stadium going forward. That stadium is under a long-term lease, and we haven't changed any of our plans. With respect to the Fusion staff, we are also providing severance pay. I spoke to the staff personally this morning, and we are arranging for almost every one of them to have a job in either some company I am involved with or companies that some of my investors are involved with."
Horowitz on the stadium arrangement at Lockhart:
"There are costs to operate that stadium but we are paying to operate the stadium despite the fact that no MLS team will play there. There are two years left on the original lease and three five-year options."
Garber on potential new investors in San Jose and Dallas:
"I cannot comment on that at this time. We are in discussions with new investors in Dallas and we are in discussions in San Jose with the current operators. We had hoped to finalize all of these things prior to this announcement, but we were not able to do that. We have stated in our release that we will have an announcement on where we stand prior to the start of the season."
Horowitz on his interest in any of the remaining MLS markets without owners:
"I'm more interested in the east coast of the United States. I would like to get involved with a team again, but we've limited our search to the east coast of the United States."
Garber on the rumors that surrounded the Colorado Rapids' existence:
"Our issue in Colorado is that we had no place to play and we were not making the progress we needed to make with our negotiations on a new lease at Invesco Field at Mile High. We finalized an agreement there and that agreement works right now for the Colorado Rapids and MLS. It is our goal to be playing in soccer-specific stadiums in all of our markets in due time. So I do believe that in the long term, all of our teams will be playing in their own stadiums. But I cannot put a timetable on that for now. For the term of our deal with Invesco Field, it makes sense for us. There is zero opportunity for that team to contract."
Gazidis on the status of players under contract who are not selected in the Dispersal Draft:
"Those players would be ultimately released. Of course, there will also be players picked up in the Dispersal Draft and teams will have to be in compliance with our roster rules and salary budget rules by Tuesday, January 15. So not only will players who are not picked up in the Dispersal Draft be released, but there will also be a second wave of players released on Tuesday for a Waiver Draft that following Thursday. If those players are not picked up in that second draft, they too will be released."
Gazidis on the player personnel decisions to be made by other teams in the league:
"On a team-by-team basis, teams are going to have to take a very hard look at their roster and work out what the most effective way of using their salary budget is. At the end of this process we are going to have a significantly stronger league and we are also going to have some good players who will not be at the appropriate salary budget numbers and may come back in the league at more appropriate numbers after that. Clearly we are going to go through a difficult process."
Horowitz on what the continued operation of Lockhart Stadium will entail:
"We have the contractual rights to hold other events at Lockhart Stadium, whether we choose to bring in international soccer games or the circus. We can use that stadium as a place to hold other events."
Garber on whether other investors were interested in acquiring the Fusion:
"Had we been able to work something out where we could have transferred the rights in a deal between Ken (Horowitz) and any other potential investor, Ken would have jumped at that opportunity because he prefers keeping that team as opposed to folding it. I was not aware of any offer for any amount of money at any time, let alone the $18 million that was rumored. If there was an offer, then we would have sat down and had serious discussions with that potential investor."
Horowitz on whether other investors were interested in acquiring the Fusion:
"We would have loved to have kept the team here. If there was an offer we would have been for it. I have children who play soccer here. There is nothing that would have made me happier for the staff, players and South Florida than to continue to have a soccer team here."
Gazidis on whether coaches and general managers were given advance notice:
"We weren't giving any quiet, advance notice. They learned about this procedure and the way it will work today. Clearly, they're going to be very, very busy over the next couple of days. We're going to have all of our general managers and coaches here in New York from Wednesday evening onwards. It will be a very similar atmosphere to the one before a SuperDraft when all of our teams are together in a hotel. There will be a lot of discussions and player movement between now and Friday and then again between Friday and Tuesday."
Gazidis on international player limits:
"We're keeping to three senior internationals. We are looking at some adjustments to our roster rules to increase roster size slightly and to amend our junior international rules so that our young American players are put on the same footing as young international players. That information will be released next week."
Garber on the possibility of moving a team to Rochester:
"We spent time speaking to a number of different markets, most specifically Rochester. We didn't believe at this point that a move to Rochester would have aided Frank DuRoss' stadium efforts. Our competition group spent time looking at Frontier Field, and we did not believe a minor league baseball stadium with infield turf would be appropriate for an MLS team. We are still bullish about Rochester and we believe Frank DuRoss will get his stadium funding finalized and construction plans approved. If so, we are pretty excited about speaking with him in the future."
Garber on the challenges in Tampa Bay:
"We needed an owner in Tampa. We spent an enormous amount of time trying to find that owner. We had discussions when I first arrived with Warburg Pincus, who was looking at buying two teams in our league. Those discussions were never finalized. We had extensive discussions with the Glazer family. We did make an offer to them last season to take over the operations of the Mutiny, with an option to buy the team after a number of years. When we decided that we needed to have all teams operated by an Investor-Operator, we went to the Glazers and asked them to assume the operating rights, without asking them to pay a fee to purchase the team. The Glazers passed on that opportunity.
"The deal that they have with Raymond James Stadium is such that based on the average team revenue over the last four years, they (Glazers) didn't feel they could make it work."
"We need a soccer-specific stadium in Tampa if we are going to go back there. We've been in discussions with Mayor Greco, and we've been in discussions with the Sports Authority as recently as today. We've mentioned to them that we look forward to coming back to Tampa and working with the Sports Authority and the city to construct a stadium. We have a number of people that we've been speaking to over the last couple of months, and one of them is meeting with two of our owners this week and next. If the right elements come into place we hope to be back in Tampa."
Gazidis on how allocations can be used in advance of the dispersal draft:
"Teams can elect to do that. There will be a pre-dispersal draft round, an allocation round for the teams that are due allocations. Teams will have the option to use available allocations then. They could also hold on to those allocations and use them later. Given the array of talent that is going to be available I think many teams will take up that option. The order of the allocations will be conducted in a draft-like manner and that order is: (1) Colorado, (2) New England, (3) D.C. United, (4) Colorado, (5) New England, (6) New England, (7) Dallas, (8) Los Angeles, (9) San Jose."
Gazidis on potential adjustments to the salary cap:
"We believe there is enough room in the salary cap as it has been set. There is enough room for these players to be accommodated. What you will see though, is that players that are not valued for money on the dollar will be in jeopardy. Those that are will be even more valuable. There's no question in my mind that competitively on the field next year we will have a much stronger league than we had last year. One of the fortunate side effects of this disappointing news is that from a competition standpoint it's going to elevate the level of play."
Garber on why Tampa was eliminated rather than Dallas:
"We are confident we will have an Investor-Operator in Dallas prior to the start of the season. That, coupled with the encouraging news on the development of a stadium for that team in McKinney, is what separates those two markets (Tampa and Dallas). There is a vote by the McKinney City Council in a week to 10 days that will get us awfully close to a decision."
Garber on potential MLS contributions to stadium development in Dallas:
"At this point we are not ready to discuss the terms. Those negotiations are ongoing and are under a confidentiality agreement. We are, like other professional leagues are, asking for an enormous amount of municipal support, which we think is justified based on the value that our teams can provide for local communities in terms of revenue and exposure."