Laidig Speaks: Part 1: The Benefit of Division 2 Experience before entering MLS

scorpionsFootiebusiness Contributor Dave Laidig offers Part I of his tw part masterpiece with a look at the climb from the lower divisions of American soccer to MLS.  For more on Dave, and to look at a small sample of his always excellent work, click on the “Contributors” tab on the top of the page.

Major League Soccer (MLS) played its first games in 1996.  And after a period of contraction and strategy adjustment, MLS has been steadily growing ever since; in viewership, revenues, attendance, and in the number of teams. Since2005, nine expansion teams have entered MLS with varied success.  Here, we examine two types of MLS expansion teams; the teams elevated from the second division (D2), and those teams created just for MLS (Non-D2).

The “D2” teams are the five teams that entered MLS after playing the previous season in U.S. Soccer’s second division; Toronto, Seattle, Portland, Vancouver, Montreal. And the “Non-D2” teams are the four teams that entered MLS without an immediate D2 predecessor in the same market: Chivas USA (Los Angeles), Real Salt Lake, Houston, Philadelphia.  Please note that San Jose’s return to MLS in 2008 is not considered an expansion team because MLS existed in the market from 1996 to 2005, and the team was officially considered on hiatus.

And to compare D2 and non-D2 expansion teams, we will consider the entry phase, or the first 3 years, of MLS play. The first phase is the focus because after a few years, it becomes tough to assign a reason for any particular circumstances.  Consequently, the issue here is whether D2 status makes any difference on the average attendance during teams’ entry phase in MLS?

D2 Teams v. Non-D2 Teams

Because the expansion teams joined MLS over a seven-year period, and because average attendance has been slowly increasing each year, each expansion team had its average attendance over its first 3 MLS years are contrasted with the MLS average over the same period.  And for those teams with less than 3 years in MLS, we used all of the years available, and compared it to the same period in MLS.  The attendance figures for the MLS expansion teams can be summarized as follows:

Table One

The table indicates several key trends.  Notably, the rolling average of all-MLS attendance figures has steadily increased over time, an important indicator for the league.  This demonstrates the solid base of the league and its general stability in the last decade.  In addition, this table also highlights two key points related to expansion teams.

  1. Every Expansion team had better attendance than the MLS Avg. over its first three years in the league. This is true even for the most recent additions, when expansion teams (included in the MLS Avg.) nearly equal the pre-2005 teams.
  1. Every D2 team had a better attendance than the non-D2 teams. This is true even though the recently-added D2 teams are being compared to a larger number of other expansion teams (which all perform better than the league average – see point 1).  The results are interesting, especially since the best non-D2 team (Chivas) is located in Los Angeles and boasts a strong tie to the Mexican league in a market already used to MLS competition through the LA Galaxy, which one would expect to enhance attendance figures.

The D2 Effect on Attendance

The averages indicate that D2 teams have better attendance levels, with Non-D2 Expansion Teams expecting 1,008 fans above the MLS Average and D2 Expansion Teams expecting 5,984 fans. Thus, the size of the D2 effect is an extra 4,972 people per game, over the first three years of MLS play.

Looking beneath the numbers, the effect appears to be robust.  And it is notable that every D2 market outperformed every non-D2 market; a result which stands out considering that some non-D2 teams were placed in large markets like Houston, Philadelphia and Los Angeles.  Some possible reasons for this large effect may be evident from a review of the business issues.

In general, playing in D2 prior to entry into MLS may allow for positive outliers in team performance.  For example, by playing in the lower division, a soon-to-be MLS organization can staff-up, mature, and build institutional knowledge necessary to compete financially.  The D2 route effectively slows down to start-up process due to the lesser burdens of competing in the lower division. Further, a D2 experience creates the opportunity to prepare the market for new team, and to control the sports brand prior to MLS entry.  In a similar vein, the future MLS team can begin to develop analytics for its customer base while operating in the lower division, giving it a head start on sales leads related to a unique sport.  And for an on-the-field benefit, operating in the lower division allows the team to develop data on part if its potential labor force (D2 soccer players) that can improve results – thus making the game more attractive for local fans.

Stability of the D2 Effect – Better Attendance Retention

Importantly, not only does the D2 effect lead to higher attendance, but the data shows that D2 teams show growth after the novelty of the initial year wears off.  Thus, the data support a conclusion that operating a D2 teams strengthens a team’s connection to its fan base.

Table 2

This shows that the D2 effect represents not only a strong start, but also a strong structure for growth in the soccer market. While not analyzed here, this retention data suggests that the D2 effect may extend beyond the initial three years after MLS entry.

When one does not limit the analysis to comparing the first 3 years of teams, the D2 teams consistently outperform the both the non-D2 teams and the pre-2005 teams on a year by year basis.

Table 3

This table compares the average attendance for MLS teams, beginning in 2005, for three groups of MLS teams: the original pre-2005 teams, non-D2 expansion teams, and the D2 expansion teams.  Here, D2 teams have reliably outperformed the other groups, year after year.  Starting in 2007, the gap between the D2 teams and the other groups was nearly 4,000 fans per game, and the gap only grew wider as more D2 expansion teams were added.

The various ways of comparing attendance uniformly indicate that D2 teams have consistently higher attendance levels.  In Part 2 of this series, we will consider the potential value of the D2 effect to potential expansion teams.

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15 Responses

  1. Its interesting that viewership for MLS games spikes in the middle of the season and is low at the beginning and the end of the season. In other pro sports, opening day is pretty huge, as are the playoffs. I show this in a graph:

    http://thesoccerist.blogspot.com/2013/01/a-breakdown-of-tv-viewership-worse-than.html

  2. While Toronto did have the Lynx, this team had the worst support in the USL First Division and no success on the field. This is very different to the Cascadia teams and Montreal.

  3. True, Toronto did have poor attendance (in fact, most D2 teams do). But the level of support in D2 did not seem to matter. Seattle did not have impressive attendance in the USL. In fact, second division attendance is a poor predictor of MLS attendance. However, the D2 experience does seem to make a difference on MLS entry.

  4. Dave,

    I like this analysis, but I this bit caught my eye:

    “The averages indicate that D2 teams have better attendance levels, with Non-D2 Expansion Teams expecting 1,008 fans above the MLS Average and D2 Expansion Teams expecting 5,984 fans. Thus, the size of the D2 effect is an extra 4,972 people per game, over the first three years of MLS play.”

    Is not that nearly 5,000 people extra skewed heavily (as are all league wide attendance numbers) by the massive support in Seattle? Put another way, if you take Seattle out of that analysis, you get a figure of 2,898, which is still much better than non-D2 teams to be sure, but about 40% less than if you include Seattle.

    However, your point is well taken, D2 teams certainly seem to do much better attendance wise.

    Looking forward to the next bit.

  5. The “Seattle” issue is a reasonable criticism. But in the end, I didn’t have a solid reason for excluding them. They had poor attendance in D2 (my home team the MN Thunder/Stars had better averages 9 of 12 seasons they were in the same league). And now they are way above the MLS crowd in terms of average attendance (but not MLS Cups…take that Seattle!). But unusual attendance is not a justification for exlcuding them from the analysis, but may reasonably serve as a cautionary note as described by Matt.

    I would call Seattle’s attendance levels a positive black swan. And participating in D2 exposes the team to the opportunity for such outliers, which is the ultimate take-away from this part of the analysis. Perhaps another MLS entry will emulate Seattle’s success (Montreal came close at the large stadium).

    Interesting to me, the non-D2 teams seem to have lots of built in advantages. Chivas is in LA, which has a strong soccer culture and tons of people. Philadelphia is a very large city as well, and boasts the model supporter group, the Sons of Ben. And while Salt Lake may seem unremarkable to the outsider, Houston is another large city. Further, Montreal (a D2 team) seems to have admitted that it overpriced its tickets, which led to a significant drop in attendance in the latter half of 2012 at its new place. I didn’t try to adjust for that error, or assume other teams would not make the same mistake.

    All in all, I stopped trying to find reasons to exclude teams, and just put them all in there. Even with nine teams total, this is still a small sample size. And Seattle is part of it.

  6. Dave,

    I firmly agree that Seattle is a positive black swan, and I understand why you chose not to exclude them. I wonder, in light of this blog’s focus, if there are business reasons why Seattle, which attendance-wise underperformed as a D2 team, is so far out in front attendance wise as a D1 team? I know it is outside the context of this post, but I find their general model interesting and wonder why, in light of so many other “soccer cities” they can pull 35K plus a game, but other teams cannot.

  7. Matt,

    I could only speculate as to why they are doing so well. And with a sample size of one, it’s tough to make firm connections. If had a solid answer, Don Garber would be throwing wads of cash at me trying to get my attention.

    But it’s worth pointing out what Seattle does that is unusual for MLS. First, they have attentive ownership with significant resources they are willing to apply to the soccer team (contrast with the Krafts, Hunts, etc.). There are slightly fewer pro teams to compete with (i.e., no basketball or hockey).

    The location of the stadium is in an ideal, central location. Ironically, the non-soccer specific stadium allows for the huge turnouts. The Galaxy could not seat 30k even if they could sell the tickets.

    In my opinion though, I think the biggest reason is the relationship with the fans. Peter Wilt (former Chicago Fire GM) is a longtime advocate of soccer teams connecting with the local communities, and placing customer service as a top priority (perhaps above game performance…my words, not his). And Seattle not only embraced the supporter culture (which makes games fun), but they also gave fans a veto over the GM. No other team has done that (in any major sport for that matter). The sense of community ownership is invaluable, and I think is the main reason for the team’s success.

    The Green Bay Packers and the NO Saints (after Katrina) also have a deep connection with the community, and I think that affects their financials as well. (If you think Sounders fans are bad – try living near Packers fans). But this is an interesting discussion.

  8. One way you could adjust for Seattle’s outlying gates is to use the median, not the mean, averages in the attendance calculations. Finding the number that’s right in the middle of the list makes sense in calculations like area home prices that have black swans.

    As a Seattleite, I have a few other ideas besides the others above on why the Sounders draw so well, especially compared to their D2 iteration:

    — A big “screw you” to the NBA, which was so eager to yank the Sonics out of town nine months before the MLS Sounders kicked off.
    — A lot of soccer history and outreach: the NASL and D2 Sounders; top Washington and Seattle Pacific college programs; a huge youth soccer system.
    — Strong TV ratings for MLS even before Seattle joined (I heard Seattle was the league’s biggest TV market without a team)
    — Terrific marketing. My last office job was in a marketing department, and our manager said the Sounders had one of the best marketing performances he’d ever seen in any industry.
    — Competition during the season from the Mariners, which is like shooting fish in a barrel since Lou Piniella left
    — A front office that’s at least perceived to be proactive. (They’re not afraid to make deals or spend money, unlike the M’s.)
    — A bigger desire for front-line teams over the minor leagues. Even without the NBA, the twice-champion WNBA Storm draw lukewarm crowds. The junior hockey Thunderbirds get loyal crowds, but I’m quite certain if the NHL comes in the proposed new arena, it would pack them in, especially against Vancouver.

  9. Thanks Liggie for the Seattle perspective. I know that my local team (thanks to its new owners) is interested in what worked well for the Sounders, and its the details that can make the biggest differences.

    As far as using the Median, I considered that. However, I have trouble taking extra steps to minimize Seattle a priori on an assumption its results are less relevant than other teams. A data point is a data point, and my research psychology training makes me wary of dismissing data without protocols created prior to the analysis, or risk introducing the possibility of bias.

    In the end though, the point estimate (median or average) is less important than the range of results. Part two of this post attempts to use the information to assist with a business decision (enter D2 before MLS or not). And that process would require making assumptions for each step, based on risk of meeting business goals on specific conditions. Thus, in reality, I’d imagine a front office may pick a completely different attendance target for their analysis (or may run it with a few difference targets from conservative guesses to aggressive).

  10. […] Laidig Speaks: Part 1: The Benefit of Division 2 Experience before entering MLS […]

  11. You dont need to exclude teams when looking at attendance – I think we are better off using the median (ie middle) value rather than the average. This does away with a lot of the extreme values – to see how the median attendance values look

    http://tinyurl.com/asqdu35.

    The point is that median attendances have gone up a little bit, over the years but that we are also looking at more clustering around the median. That’s just stats jargon to say that we have fewer low-attended and high-attended games (except for Seattle).

    I think that’s the real positive message here – in the early days you had teams like San Jose and KC doing very badly at the turnstile – and then you had a few standouts like LA or Toronto (remember when they lead the attendance lists?). Now everyone is doing at least pretty well.

  12. Using a median would be entirely justifiable. And the net attendance difference would still be positive. The monetary benefit (discussed in part 2) may not be positive if the most conservative assumptions for revenue are adopted (such as zero D2 revenue for three years).

    The average was used, in part, due to the range restriction issues for stadium attendance. With the proliferation of soccer-specific stadiums, the better attended teams are facing serial sell-outs. While this would be expected to drive prices (and revenue) up due to scarcity, many stadiums effectively cap attendance levels that could increase if the location were different. This analysis was derived from a submission to potential MLS investors that would not necessarily face an attendance limit due to stadium size. Thus, the attendance description, as well as some of the assumptions made in part 2, are artifacts of the original context of the analysis.

    My experience with individuals several levels of magnitude wealthier than I am, tells me that they would use their own values based on their own comfort with the assumptions. But I believe the analysis serves as an outline for the investment decision.

  13. […] Yesterday, I waded into the the ongoing debate about the propriety of the league’s trademark application filed to secure rights to the Cascadia Cup.  Today, Footiebusiness contributor Dave Laidig offers his reply.  For more of Dave’s excellent work, click the tab at the top of the page, and find some more here. […]

  14. […] Laidig: The Benefit of Division 2 Experience before entering MLS -Part 1 – Part […]

  15. […] Last entrant in the “post of the year” category and it comes from another Laidig entrant.  We waded into the the ongoing debate about the propriety of the league’s trademark application filed to secure rights to the Cascadia Cup.  I took one position and Footiebusiness contributor Dave Laidig offered his reply.  For more of Dave’s excellent work, click the tab at the top of the page, and find some more here. […]

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