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Going for the Gold

Can a savvy finance strategy propel Women's Professional Soccer to post-Olympic glory?

July 2008
by Kate O'Sullivan/CFO Magazine

Nine years ago, Brandi Chastain whipped off her jersey before 90,000 screaming fans at the Rose Bowl — not to mention tens of millions of television viewers worldwide — in celebration of the U.S. women's World Cup soccer championship. In the wake of that giddy summer of 1999, when World Cup games filled stadiums around the country and the U.S. team appeared on the covers of Time, Newsweek, People, and Sports Illustrated in the same week, a group of enthusiasts launched a professional women's soccer league. With $40 million in funding and a feel-good vibe driven by friendly, accessible players — some of whom, like Chastain and Mia Hamm, had become household names — the league was poised to take off.

After just three seasons, the league folded, done in by high costs, low attendance, and pitiful TV ratings. Like so many other start-ups launched on the eve of the new millennium, the Women's United Soccer Association (WUSA) burned through huge sums ($100 million) without making a dime.

Will the second time be the charm? Short on hype but long on experience, and with a special appreciation for the financial realities of professional sports, Women's Professional Soccer (WPS) will launch a seven-team U.S. league in cities from Boston to Los Angeles next April.

The new league's leaders insist that this time will be different. They have studied both the failure of the WUSA and the success of other fledgling pro leagues. They have also learned from the success of the men's U.S. pro league, Major League Soccer (MLS). With a carefully vetted business plan focused on cost control, WPS's organizers are determined to prove that the moment for women's soccer as a viable business has finally arrived.

The league will have to prove it, however, with a different cast of players. Famous footballers like Chastain, Hamm, and Michelle Akers are long gone, replaced by equally talented but far less known players like Abby Wambach, Hope Solo, and Natasha Kai. Can these newcomers, so obscure that a 2007 Nike ad hailed them as "the greatest team you've never heard of," entice people to spend their ever-more-precious dollars on women's soccer?

WPS commissioner Tonya Antonucci thinks so: "The fans are hungry to follow their new heroes and embrace the best league in the world," she says.

Missing the Net

Ask knowledgeable sports executives what went wrong with the WUSA and the same answer comes up again and again: the league spent too much money too fast. Its expectations for attendance and sponsorship were unrealistic, and the resulting cost structure proved unsustainable. "Operating budgets vastly exceeded actual revenues," says the 40-year-old Antonucci, who previously was a director at Yahoo Sports.

Many factors contributed to the cost overruns, which reportedly reached as much as $20 million per year. For one, salaries were high; top players initially made close to $100,000, steep for a brand-new league. Also, the league's TV deal was flawed. "A lot of people didn't know where to find the games on television," says Sue Rodin, managing director at marketing agency LeadDog Marketing Group and the agent of soccer star Carla Overbeck. As a result, ratings were abysmal. The games, which aired nationally on the Pax cable channel in 2003, averaged a 0.1 rating during the league's last season, which means only about 100,000 households watched.

Meanwhile, revenues from corporate sponsorships failed to cover costs. "The sponsorships were just not strong enough to provide the promotion the league needed," says Stephen Greyser, a professor at Harvard Business School who teaches a course on the business of sports. Weak television ratings also made sponsorships a more difficult sell. Although the WUSA originally planned to sell eight national sponsorships for $2.5 million apiece, only two deals came through.

Venues were another big problem — literally. The teams often played in cavernous football stadiums and were never the primary tenant. That meant they received little or nothing from the many revenue streams flowing from the stadiums, such as on-field sponsorships, parking, and concessions.

Mia Hamm's team, the Washington Freedom, played at RFK Stadium, former home of the National Football League's Washington Redskins. Her star power helped draw more than 30,000 fans for the Freedom's first game at RFK, but attendance soon dwindled. As a result, the costs of renting the stadium and paying staff for ticket-taking, concessions, security, and field maintenance usually exhausted the Freedom's total gate revenue.

"If you're paying close to six figures to open a facility that's going to have 5,000 or 7,000 fans in it, you're not going to make any money," comments Antonucci. Some teams played in university stadiums, which were easier to fill and generally cheaper to rent, but in some cases the schools limited the promotion the teams could do on-site. In other locations, staggering up-front costs squelched any hope of turning a profit. "The league entered into some facility relationships where they were making seven figures' worth of capital improvements to the facility just for the right to play there," says Antonucci.

Betting on the Franchise

With the wisdom of hindsight, the new league hopes to avoid most if not all of the financial pitfalls that wrecked its predecessor. "We heard loud and clear in meetings with potential owners that we really needed to focus on cost containment," says Antonucci.

The league will kick off its inaugural season with at least seven teams, based in Boston, Chicago, Dallas, Los Angeles, New York, St. Louis, and Washington, D.C. Antonucci says it would like to add an eighth before the season begins. A team from Philadelphia will enter the league in 2010. To limit downside risk and control costs, the league will use a franchise model instead of the single-entity structure of the WUSA. Each franchise is owned by an individual or syndicate that will also own an equal share of the league itself. "We would rather take the inherent risk of a franchise model — that some teams will struggle — versus having all the owners subsidize the weakest members," says Antonucci.

"It's very important to us that all the teams succeed," says WPS general counsel and Shearman & Sterling attorney Vicki Veenker. "But the franchise structure certainly means that some teams can succeed at greater levels than others. Some teams may have greater attendance, but then others may have lower stadium costs." The franchise approach will also enable each ownership group to take advantage of local market expertise to find the best stadium deal, identify strong local sponsors, and seek out the media outlets that will best market their team.

The numbers from the WUSA's three seasons provide valuable guidance for the new league. For example, in 2003 women's soccer averaged just 4,500 paid fans per game. "Having the actual attendance numbers brought expectations in line with our more modest approach to how the league can grow," says Antonucci. The new league hopes to average about 5,000 fans per game in its first year.

That in turn will affect the league's pitch to corporate sponsors. And pay, too: teams will have a salary cap, and the average salary will be lower than the $40,000 average paid by the WUSA. The league will also set a minimum salary.

As for television deals, WPS leadership recognizes that a strong, consistent TV presence is a top priority — perhaps a make-or-break factor in the long run. "We are working very, very hard to establish national television deals," says Antonucci.

To gain additional revenue, teams in the new league may sell sponsors the right to emblazon their names on team jerseys, a standard practice in European soccer. Six teams in MLS already advertise sponsors on their jersey fronts. Antonucci says teams could even offer jersey fronts to local sponsors and jersey backs to national sponsors.

This has been excerpted from CFO magazine. Read the full article here.

Kate O'Sullivan is a senior writer at CFO.

© CFO Publishing Corporation 2008. All rights reserved.