Rethinking Division-2 Pro Soccer in North America – Part 2

This is the second of a 4-part article looking at the future of Division-2 soccer in North America. Click here for part-1.

Running teams like a small business instead of on their potential profit – Balancing the Budget

While USSF is looking at standards to make sure teams are run with fiscal responsibility, Rob Clark, owner of the Rochester Rhinos, feels there’s much more that can and must be done. Clark spoke to IMS while he was preparing for a home game. He wasn’t wooing potential corporate sponsors although you may find him doing that later in the evening. “Right now I’m stocking ice into the beer carts, then I’ll stock the beer carts,” said Clark. “I can’t speak for anyone else in the league but everyone on my payroll has to do a minimum of 2 jobs. We have a very small staff but I expect 200 percent work from them because that’s what it takes to survive. I think what differentiates me from many others in the world of soccer in North America is I run it like a business. I’m not a soccer guy. I’m trying to show people that it’s necessary to do so if you want a workable business model.”

Clark, a banker by trade, owns a community bank in upstate New York with his father . They started with one branch and have grown that to over 20. “That’s the way we’ve always done business,” stated Clark. “We find challenges, we turn them around and they have to become self sustaining. That’s what we’re on the verge of doing here with the Rhinos.”

Even though the Rochester Rhinos have been involved at the D2 level of soccer since 1996, Clark has only owned the team for 3 years. He bought the team in ’08 after the club had accumulated debts in excess of $15 million dollars. “Its been a tough learning experience for me the last few years but we successfully altered the bottom line by approx. 1.7 million dollars,” said Clark. “I lost approximately $2 million in ’08 and this year we are essentially at a balanced budget. I am very proud of that turnaround and proud of my staff for really buying into what we are building. It is my belief that the Rhinos brand is beginning to appreciate in value as a result of our turnaround.”

Clark says there are things teams can cut back on and others they cannot. “Our production value to fans like game day giveaways and the game day experience is better than ever,” states Clark. “We spend heavily on local advertising and in our production and save immensely where we can.”

The Rhinos owner says teams need to cut costs in areas that the customer doesn’t see and those cost saving measures cannot diminish the game day experience. “The fans need to walk into a professional environment and the event has to feel like an event.  If you operate like a high school team, then the public will treat you like a joke. I cannot stress the importance of spending in the right areas and finding ways to save in other areas. That’s what everyone needs to focus on right now, building your regional market.”

“I still don’t feel like we’ve got enough clubs that are running what you would consider a successful business,” says Eddie Rock, a FIFA licensed players’ agent at Libero Sports whose firm represents numerous athletes who play in this year’s USSF D2 Pro League.  Rock says that he fully understands that in order for players he represents to be successful the team owners need to be successful. He says with all the teams that have come and gone in the league it isn’t doing anyone any good. “I think we’ve too often been running them [D2 soccer teams] on potential and camps. We need to develop a system where there are five to ten thousand people going out every week to see a match. And there are sponsorships and possibly even TV money to bolster the front office, the back office and players salaries.”

While Clark says he agrees that too many teams are run on potential he has specific ideas on how to cut teams costs. However, he may not see eye to eye with Rock on all issues. He says one of the areas he thinks that owners need to look at is player payroll.

“The last 2 years I didn’t know enough about the soccer business so I went with the norm for the league which is pretty high payrolls,” said Clark. “When I first got here our payroll was through the roof. Last year it was still extremely high, probably the top 3 in the league. In the off-season I said, I’m just not going to do that anymore! We’re not going to lose a fortune. I’m going to find a seasoned general manager and a seasoned head coach and we want to play an exciting brand of soccer bringing in more youthful players that have a different dynamic. If you have a really strong coach and GM who can develop that talent then you have something long term. So far I think we are onto something and succeeding with our model.”

“I’m not suggesting the payrolls need to be some minute tiny number,” added Clark. “But I’m not an advocate of a player having one good year and then everyone is infighting for that player the following year who gets a 400% raise. There should be a cap on a players increase from year to year.”

“If you look at operating budgets and players salaries in leagues, TV money is usually what drives something from what we would call minor league to major league,” explains Rock. “Players are worth as much as a team can afford to pay them. A team is going to pay that player based on three of four revenue sources. Attendance is typically the number one factor. Two would be commercial sponsorships and the third is almost always TV money. Through all the major team sports in the US those are the three revenue generators. If you look at the leagues that have high salaries and the largest visibility, it’s all based on a national TV contracts. MLS finally has a very favorable contract with ESPN but there’s been nothing that shows there’s a large demand for a national TV contract for whatever the equivalent is to our 2nd Division soccer.”

The National Sports Center in a non-profit organization that run nearly 100 different businesses within the organization. Each one must break even or make a profit in the first year and the NSC Stars are no different according to Kris Bjerkness, general manager of the team. While running a pro soccer team may be very different then other ventures the NSC has delved into, they’ve taken a similar approach to player salaries as Clark when it comes to keeping player budgets low and looking for young exciting talent.

The NSC owns their own stadium that’s been paid off for years. They already had a staff in place and only had to hire a few more positions to run the team. Recently Bjerkness said that he believes his team could break even with paid attendances of around 2500 to 3500 per game. So far this season, the Stars are falling below that attendance number.

Clark states that his break-even number is most likely a bit higher than the Stars number. “There are so many contributors to that equation,” explains Clark. “Commercial sponsors are just as important. So are suite sales. If I had to establish a number, I would say approx 4 thousand per game paid, not including corporate packages or comps.”

Looking at the attendance numbers of Division-2 in the US, average attendance was 4,408 as of July 12of this year. However, subtracting attendance numbers from Portland and Vancouver who will be moving to MLS next year sees that number drop to 3,880. Without Montreal, who will move to MLS in 2012, that number plummets to 2,934. Obviously numbers that wouldn’t allow many D-2 teams to financially break even on the year. If a team sold nothing but $12 dollar tickets at 2,934 fans per game and a 16-game home schedule that’s only $563,328 thousand dollars a year from ticket sales.

It’s said that average cost of travel for D-2 teams is approximately $190 thousand per year. Considering players salaries, stadium costs and staffing amongst many other expense, it’s clear why D2 teams must be extremely frugal if they are to survive let alone make a profit.

The NSC’s Bjerkness says the organization has been working hard to stand by a budget it made last winter. The Stars have applied many cost savings measure sometimes only bringing 15 players on a road trip to save money. The salaries of the Stars players are also believed to be one of the lowest in the league. Yet looking at the Stars and Rhinos record as of July 10th (midseason) Rochester was in 2nd place overall and Minnesota was tied for 4th place. [Minnesota did have a number of games in hand on some teams due to a very heavy early season schedule.] Teams with much higher payrolls like Carolina, Montreal and Puerto Rico are all below the Rhinos and the Stars at the midway point.

Rob Clark says he also has a few other simple money-saving ideas, some that he believes could save teams up to $200 thousand dollars a year. He states that teams could save not only independently but collectively as a league. One of his ideas is to follow an MLS model where there is a league center where everything filters through one office and back out. He believes teams could experience large savings by purchasing their workman’s comp for all players through that league office.

“We could save an enormous amount of money doing that,” said Clark. “Nearly 6 figures for each and every team. It just doesn’t make sense to me they way we are doing some things right now and I hope over the next several years we can look at those things and try to find a way to make it more productive.”

But Djorn Buchholz, CEO for the Austin Aztex and former GM for the Minnesota Thunder, underlines the complexity of the issues. He points out that while some ideas may look great for some teams, they may not work for all teams. For example, while Buchholz is not opposed to a centralized office and cheaper workers’ compensation, he explains that Texas does not require workman’s compensation. However the league does require that players are covered for injuries. So the Aztex self-insure themselves saving a considerable amount of money. The Aztex CEO explains that Austin’s cost for insurance is around $25 thousand a year. He says that when he was GM of the Minnesota Thunder their workman’s comp insurance was running in the area of $70 thousand a year. Clark’s centralized workman’s comp would most likely save most teams money but cost more for the Aztex then they currently pay.

Clark says he has other ideas as well. He believes teams could save by banding together and using their buying clout to get larger discounts on products used by all teams such as cups, promotional products or even promotional appearances. He says AAA Baseball is very good at banding together to buy down cost. He gives an example of a Sponge Bob day promotion. He explains how the league will book him at 10 different ball parks and by doing so they cut their costs in half.

Tomorrow Part-3– Adding teams, regionalizing divisions and reducing travel costs. Click here for Part-3