MLS Expansion: Cincinnati Named 26th Franchise With An Assist From The Uncertain Future of Crew SC

The domestic soccer world learned on Tuesday that Cincinnati has been granted admission into MLS (Major League Soccer) as the 26th franchise in the top circuit in North America. The “race to 28” which is the expansion plan by the league to get to 28 franchises by the year 2020, has long been detailed here on Frank’s Forum.

The Cincinnati club will begin play in 2019 and will fill a void in that area of the map for MLS as they look to expand their reach into new markets for soccer. The bid was successful based on a variety of factors: they have an established fan base as the current USL team there has shattered attendance records averaging over 24,000 fans per game and frequently selling over 30,000 tickets to home matches, they have a stable investment group of local business leaders, and they have plans for a new stadium with government support.

However, in my view, the Cincinnati bid for expansion was fast-tracked because of the uncertainty surrounding a current MLS franchise (an original franchise no less) the Columbus Crew SC. Some fans of MLS may already be aware, but for those who are unaware, the situation in Columbus is this: the franchise operator Anthony Precourt wants to move the team to Austin, TX and they are in the middle of a lawsuit in Ohio with a group that aims to keep the team from relocating.

The desire to relocate to Austin was not pulled out of the ether, the impetus for the move was due to a common theme in pro sports in America: a dispute over a new stadium. The Crew play in the first soccer specific stadium to be built in MLS in Columbus, which was a key component of their bid back in the mid-1990s to get one of the original bids for franchise ahead of Cleveland, which had no plan for a dedicated stadium for a soccer team.

However, that facility in Columbus is now viewed as outdated compared to other state of the art facilities that have been constructed by other MLS franchises in the two decades since the Crew SC were born into the league. The plan hatched by Mr. Precourt was to use Austin as leverage against Columbus and see which city gave him the best deal on a new stadium; which is a move that has been used by other owners in other sports for years.

Columbus officials felt that the residents would not approve any measure allocating public funds (tax revenue) towards the construction of a new soccer facility for the team. They countered with a plan to renovate the existing stadium to make some enhancements that would benefit both the players and the fans.

Mr. Precourt balked at the renovation, and according to reliable news outlets, began privately ratcheting up his negotiations with Austin public officials stating that he intends to move the team to the Texas capital city. This brought about the court action which has taken several twists and turns in the past few months. It also angered the investment groups bidding for expansion teams in other markets because they were seen to be ahead of Austin in the running for a spot and saw this maneuver as Austin trying to “cut the line” and gain a team without going through the full expansion process.

In my perspective, the circumstances surrounding Crew SC provided the conditions for Cincinnati to gain an expansion bid ahead of other cities because MLS was looking at the prospect of having no franchise presence in Ohio. The population demographics and the geographic location of Ohio makes it a critical market for any professional league from a business standpoint.

The Cincinnati entry into MLS next year “covers their bases” if Precourt moves Crew SC to Texas. The bid for Cincinnati had a leg up on other bids because they do not have to wait for a stadium to be built – they are going to play in their current home, Nippert Stadium on the campus of the University of Cincinnati for a few years. This enables the club to join and begin play seamlessly in 2019 because they are not rebranding the USL club colors.

This is to take nothing away from the investment group in Cincinnati or the Mayor or other public officials there who put together a very organized bid compared to other cities who have struggled (Sacramento, Detroit, and St. Louis jump to mind). The plan for the West End stadium is very bold and innovative and will seek to achieve what so many other MLS stadiums have been commissioned to do in the past: turn around a blighted neighborhood of a major American city.

The league now will have a presence in Ohio regardless of what happens in Columbus which will appease the major national sponsors and the league’s TV partners: ESPN, Fox Sports, and Univision. FC Cincinnati will have a natural rival with the new Nashville expansion team which will be joining MLS soon as well, so if Columbus does lose the Crew, the regional rivalry can be easily ramped up with Nashville.

The demographics for Cincinnati and Austin are similar, both are attracting young professionals starting their careers or under 35 years old: MLS targets this demographic and covets it. The officials in Austin have big plans for a stadium there for soccer and they would have built-in rivals with FC Dallas and Houston Dynamo both playing in the Lone Star State currently for MLS.

The court action has damaged the business for Crew SC this season, with bad weather and fan apathy playing a part in dwindling home crowds for the matches held there so far this season. I was watching past games via the ESPN+ app which has the streaming rights to all the MLS games, and the home match I saw with Crew SC had camera angles showing an nearly empty stadium.

The court proceeding has played out very publicly in Ohio throughout the media. The latest tactic by the group in Columbus was to attempt a court injunction using the “Modell rule” which was adopted after Art Modell moved the Baltimore Colts NFL franchise in the middle of the night to Indianapolis. The rule seeks to prevent a current team owner from relocating a team without first providing another group in the team’s current local area from putting together a competing proposal to purchase the team.

The counterpoint argument by Mr. Precourt’s attorneys was very smart. I have written in the past that MLS is a single entity model structure which means that MLS owns all of the teams and the local groups are “operators” of the franchises. The legal argument was that MLS was the owner of Crew FC, not Precourt Sports Group, and MLS owns many teams in many states, so as operator of a franchise Mr. Precourt was essentially just following orders.

In the end the court will decide and that ruling could be appealed to a federal court because it is considered interstate commerce and a bunch of other legal jargon being thrown around will serve as a distraction. It will serve as a distraction from the fact that MLS wants to be in Austin because they think it provides a better long- term demographics forecast in the future than Columbus. The translation: they can make more money in Austin and play in a new facility with better revenue controls than the deal they have in Columbus.

Those factors all benefitted a Cincinnati group which was a little late to the expansion table, to get a seat ahead of other entrants who have been working for many years to put all the pieces together for a successful bid. The MLS walks away a winner because the Cincinnati team will be very successful at drawing fans because they have proven that already, they potentially gain access to the untapped Austin marketplace without giving up an expansion spot to another city, which means the league will still be able to add two more teams to get to 28 franchises.

The situation in Columbus is fluid as are the developments in Detroit with the land swap deal with the site of the jail, Sacramento and their quest for a stable “operator” to join the investment group, Phoenix trying to get their act together overall, and St. Petersburg trying to convince MLS that a third Florida franchise makes long-term business sense.

The league is growing, my own view is that I hope it does not grow too large that it collapses due to over expansion, only time will tell.

Red Nose Day 2018: Fighting Child Poverty

The annual event known as Red Nose Day will be held for the fourth time in the United States on Thursday, May 24th. The fundraising and awareness event seeks to combat the effects of child poverty both in the U.S. and throughout the world.

The entire day features activities aimed at connecting people to both the cause and to others within their respective communities. The goal being to raise funds for trusted partner organizations that work within our neighborhoods to provide food, medical care, and educational services to children in need.

The Red Nose Day fundraising special night of programming will air once again on NBC (for the fourth straight year) which will feature special editions of primetime programs similar to their approach last year. Then, at 10 PM Eastern/ 9 PM Central the Red Nose Day Special will air with Chris Hardwick hosting for the second consecutive year. The 2017 event raised $40 million according to the press release.

In the last three years the event has raised $100 million and helped over 8 million American children living in poverty. The event sponsors from last year have all renewed their commitments for 2018: Mars Wrigley Confectionary Company (M&Ms brand is a main sponsor), Walgreens, NBC, and The Bill & Melinda Gates Foundation. Comic Relief USA is the non-profit organization behind the entire Red Nose Day operation, both in the United States, the United Kingdom, and throughout the world in 34 different countries.

This is the fourth straight year that this blog has dedicated a post for this event and that is because of the important group that it serves: children. The world is filled with disadvantaged, impoverished, and malnourished children. The streets are filled with homeless children with no means of supporting themselves.
The Red Nose campaign has provided 32 million meals to children in the United States, has provided care for 60,000 homeless children, and provided medical services to 6.7 million children globally.

The Red Nose campaign has been in existence since 1988 and continues to benefit programs in a focused and local level to reach children very effectively. The Walgreens partnership has been very strong in pushing the event to the American audience through signage in their retail pharmacy locations, their website, and through media buys in print, radio, as well as television.

Please check out home.rednoseday.org for more information about events in your local area on Thursday, May 24th. The NBC primetime special programs will air that evening culminating with the special celebrity-filled event hosted by Chris Hardwick.

Please consider donating either through the Red Nose Day website, at your local Walgreens, or during the live fundraising event on Thursday night on your local NBC affiliate.

Your donation will go toward helping the most vulnerable within our population: children. Thank you for your support of this wonderful fundraising effort.

Follow Up: Larian Ditches Bid To Buy Toys R Us

In a follow up to earlier posts here on Frank’s Forum the news on Tuesday is that billionaire Isaac Larian has ditched his bid to buy Toys R Us. The bid would have saved some of the store locations in the once-iconic chain and would have saved some of the several thousands of jobs being lost in the liquidation.

The original offer was believed to be made for around $675 million and the negotiations broke down when the court refused the offer on the table. Larian also found out this week that his bid to purchase the mammoth toy maker, Mattel, has also failed.

The toy industry is bracing for a U.S. industry landscape that does not include Toys R Us, which averaged $11 billion in toy sales which is a 50% market share of the $22 billion domestic toy business. Mattel and Hasbro have both seen tremendous losses in value since the announcement of the liquidation of Toys R Us.

Hasbro spent money in recent days to purchase the Power Rangers brand name and retail rights. The other toy manufacturers are quickly adjusting their distribution patterns and working with brick and mortar retail giants such as Wal-Mart and Target, which are both increasing their toy orders.

The emergence of toys in other more obscure regional chains will increase as well to fill the void left by Toys R Us. The major players mentioned earlier and Amazon will also be working together to grab larger pieces of the pie in the industry space.

Meanwhile, the last of the Toys R Us store locations are winding down their operations to close in the next few weeks. The future for the Toys R Us brand is completely unknown at this point, if there is a future at all. The bid from Larian was the only major bid for the business that is even known to be out there and that has fallen apart. The entry of another group of investors is certainly plausible but the amount of capital it will take to reinvent the brand and create a significantly better customer experience are two big mitigating factors in my view which could doom the brick and mortar presence of the brand.

The one viable potential opportunity for Toys R Us to get a reboot is if it is purchased by one of the major toy brands, such as Hasbro. The major toy makers have a great deal to lose in the reality of Toys R Us leaving the U.S. toy industry space. Mr. Larian, as I previously wrote about believes that the toy industry will collapse without Toys R Us. These toy makers have a big stake in the situation and could decide to try their hand at rebuilding the brand.

The other alternative is that Toys R Us will be purchased by another entity to be used as an online only retail presence. In my perspective, I have felt since this news broke on the liquidation of the once-dominant chain, that this route was the most likely scenario for the future of the brand. The shifts in the retail space toward the online shopping experience could make a lot of sense to an investment group or private equity group.

The Toys R Us name still has a value and a consumer visibility that would translate well into a strictly online presence. The potential investors would be far more likely to go that direction than to take on the significant costs of rebuilding a brick and mortar chain. The sad reality is the loss of jobs, and that is why I was rooting for Mr. Larian to be successful in his bid.

The next five to six weeks will be critical to the future of the Toys R Us brand, in that time period another bid could emerge, or the business may be sold off in pieces until there is nothing left but the memories most of us have from our childhood. It is a sad narrative that those memories could not be passed on to future generations.

Follow Up: CBS, Viacom, A Lawsuit, & Verizon

In a follow up to the earlier coverage on this merger, the drama around CBS and National Amusements (parent company of both CBS and Viacom) took a disastrous turn on Monday. The board at CBS took a harsh tactic in the negotiations by suing National Amusements in a Delaware court to block the potential merger with Viacom.

The suit seeks to dilute the authority that National Amusements has in CBS by reducing their voting stock percentages and other high level business machinations which are involved in certain situations when a company is going into a defensive mode to avoid consolidation.

The lawsuit also involves CBS seeking the protection of the CBS Board of Directors from being altered by National Amusements at any point now or in the future. This is a maneuver intended on preventing Shari Redstone from removing certain board members at CBS who have indicated that they are against the Viacom merger, and having her “stack the deck” with people aligned with her in pushing through the merger.

Furthermore, the suit also seeks protection for CBS so that they essentially do not have to accept a “bad merger” deal. This news on the lawsuit comes from Forbes, CNBC, and USA Today. Redstone, has stated that she had no intention of making changes to the CBS board, and both sides are pointing fingers.

This situation is getting ugly, to say the least, and it is unusual too because National Amusements has a hand in both entities already. The normal circumstances of other mergers or acquisitions are between two sides that have no prior affiliation. The ruling of the court in this situation will provide some insight into the potential path that this merger will take in the months ahead.
The court ruling will also provide a legal precedent for the future for M&A activity of this type. In my earlier feature length piece on this merger, the variables were presented regarding the differences of strategic vision that Ms. Redstone and Les Moonves (who runs CBS) had regarding the future of the company.

The merger makes some degree of sense because the assets of Viacom, particularly the cable television outlets, would provide CBS with more content to control and also a wider footprint in cable TV. The recent industry report that was published yesterday touts that cable television revenues have increased by about 10% nationally would seem to indicate that this potential merger is timely for CBS.

However, in my experience covering M&A activity, I kept returning to the rationale behind why CBS would take the option on Monday to sue National Amusements (which some in the media call “the nuclear option”). The only scenario that made sense to me was that CBS had another deal forthcoming or another potential partner for a deal they were trying to work out in back channels.

The one potentially fit in my mind was Verizon, because it had been rumored before, and I wrote about that possibility in an M&A “roundup” type piece I did on media companies. The synergy between Verizon and CBS makes sense for both parties given the other acquisitions and consolidations surrounding both of those entities.

Verizon is under pressure from AT&T, who is attempting to merge with Time Warner, and the federal government has a lawsuit in place currently to block that merger. Comcast is in the process of a bidding war with Disney over the assets of 21st Century Fox as well.

In fact, some within the financial news media suggested that Verizon may have backed off from making a formal proposal to CBS because of the federal government response to the AT&T deal with Time Warner.

The news broke about three hours ago today that Verizon has had contact with CBS and that there is some renewed interest in a potentially deal. That makes sense given the steps that CBS has taken with the lawsuit here against National Amusements. They may not want to take the Viacom deal if they have a better deal with Verizon.

The rather limited cable presence of CBS (Showtime and a couple of smaller channels) would be enhanced by a partnership with Verizon. The network shows on CBS are tremendous ratings drivers, which along with the NFL and other sports content, makes CBS a desirable commodity for Verizon as they seek to keep up with their competitors in the marketplace.

The Verizon potential involvement could be the “wrench” that gets thrown in the CBS – Viacom negotiations that causes a rift that cannot be repaired. The decision of the court will loom over this merger and will be pivotal to which direction it takes in the months ahead.

In the meantime, if the AT&T lawsuit with the government gets resolved that will determine the strategic direction that Comcast will take in the bidding war with Disney over Fox and will provide guidance to Verizon as they determine their commitment to acquire CBS. It is similar to a giant game of dominoes, except that billions of dollars are at stake as well as the careers of many seasoned industry executives, and the fate of consumer choice hangs in the balance.

Follow Up: All Cash Or All Stock – The Battle Between Disney & Comcast For 21st Century Fox Assets

In a follow up to an earlier full-length piece on this same subject, the bidding war between two media titans: Comcast and Disney have intensified with the assets of 21st Century FOX clearly in the crosshairs.

The business news media outlets were all buzzing on Tuesday morning with the news that Comcast is looking to attempt a move in mergers & acquisitions known as “crashing the gate”. This maneuver involves putting together, through a variety of ways, a huge amount of cash to put a premium level bid on the table which will change the valuation of the assets involved (in this case FOX assets) to sway those involved to go with that bid over a competitive bid.

The Disney bid which has been known to the public for a while now involves an all stock proposal for the FOX assets. The shareholders of FOX would get Disney stock shares at a level commensurate with their level of involvement in FOX stock ownership. There is a formula for all stock bids of this type which I will not go into further detail, plenty of other writers have covered that component of this deal and have done amazing work in that area.

My focus is two-fold: the bids for this deal as it relates to other media acquisitions and the impact on the media industry which also relates back to the consumers. This method of “crashing the gate” that Comcast is now seeking to employ in this merger is somewhat risky. In past M&A activity it has either worked very well, or failed in spectacular fashion.

The contrasting strategy by Disney, the all stock bid, is a more traditional approach; it is an “old school” method which has a more reliable historical track record. The bid by Disney is seen as a very important acquisition in terms of content ownership in an increasingly competitive landscape.

It should be noted that Fox prefers the Disney bid because the all stock approach would be more favorable for their shareholders. The Comcast bid being all cash would create a scenario where Fox shareholders would have to pay taxes on that in the short term, which is not a desirable position for a corporation to have to pass along a tax increase to shareholders.

The backdrop to this is the impending launch of the Disney streaming app service where the company spent an immense amount of money developing the app which will be a subscription based streaming service. Disney needs the consumers to enroll in their subscription- based app in massive numbers to “break even” on the outlay of dollars they sunk into the project.

The best way to ensure the enrollment of that scale and magnitude is to have a very broad based and extensive content collection. Disney plans to pull their content off of Netflix, with whom they had a partnership to exclusively stream Disney content prior to their own app being developed. The potential acquisition of the 21st Century Fox assets would provide a huge assortment of content for Disney to feature on their new streaming service.

Comcast is trying to also stay in prime position in the race for control of content in the new landscape of the television medium today. The efforts by Comcast to pull together a reported bid of $60 billion for the FOX assets is proof of their strategic importance to the media and cable TV giant.

However, according to Reuters and other outlets, the Comcast “crash the gate” strategy has one caveat that many find curious. Comcast will only pursue the full process of acquiring the FOX assets with an all cash bid if the banking and government entities involved in the AT&T bid for Time Warner allow that merger to take place.

Some found it strange that Comcast would make this request and would be that interested in the outcome of another merger within the industry. I thought about it and realized that Comcast is adding this caveat to the proposal because they want some legal precedent for a large scale merger of this type before they go “all in” on investing time and resources into taking it through the process.

The legal team for Comcast can use the decision in the AT&T / Time Warner merger to alleviate hurdles and a protracted legal suit with government ant-trust regulators if they have a precedent to utilize in their defense. The AT&T proposed merger with Time Warner has been tied up in courts for several months with significant costs to AT&T. Comcast does not want to fall victim to the same fate.

The case for Disney could be made because of the benefits of the all stock transaction but anti-trust oversight will be certainly a factor in either transaction whether it is Comcast or Disney with the winning bid.

However, in order to relieve some of that anti-trust scrutiny, Fox announced that they will take Fox News, Fox Business, and their cable sports division comprised of channels known as FS1 and FS2 ; and they will form a separate company that will be not part of this deal with either Disney or Comcast. The new company will be a spin-off of Fox and will have shares divided up among current Fox stockholders.

In my view, I was concerned about the cable news and cable sports divisions of the company being owned by either Disney (which owns ABC and ESPN) or Comcast (which owns NBC and NBC Sports). The major sports and news divisions would be run by one single entity if that spin-off company was not created. The impact on the viewer would have been significant and created concerns about the control of news and the cost of those cable subscriptions for both news and sports programming.

It remains to be seen what Comcast would plan to do with the content it could potentially wrestle control of from Disney that would represent the assets of the former 21st Century Fox properties. Comcast does not have a streaming app, but it could bolster the VOD (video on demand) offerings for their customers with such an acquisition.

The other industry rumor is that Comcast would seek to create a platform of channels that it could package out at lower rates to their subscribers as well as put together some sort of streaming package of channels like Hulu and YouTube have released recently.

Conversely, this brings about another potential issue with the Comcast bid, that it would benefit only the subscribers to Comcast cable services and not to the rest of the public. The same could be stated for Disney with their streaming app, but the argument could be made that everyone has the opportunity to join the app, but not everyone has the ability to become Comcast customers.

The precursor to the Disney app is the ESPN+ streaming app which just launched about a month ago. I was “grandfathered” into the ESPN+ membership because I held a subscription to MLS Live to watch all the soccer games from my days of covering the New York Red Bulls and the league.

The ESPN+ app is $4.99 per month and it is a tremendous value for a sports fan in my opinion. The amount of content on the app is robust and truly impressive. The ability to live stream games, watch archived games from earlier in a season, and the access to exclusive new programming is worth the cost. The average and the die hard sports fan would have several options and the addition of NHL hockey (which ESPN does not broadcast) streaming on the service is outstanding, especially with the Stanley Cup Playoff games currently ongoing.

A report from CNN later on Tuesday refuted some earlier reports saying that the Fox news and financial news assets would be spun off separately, but the sports division (FS1 and FS2) would go to the winning bid along with the other 21st Century Fox assets. That would be of interest to Disney to gain Fox Sports portfolio to bolster the ESPN+ app service even further.

The launch of the ESPN+ app was a smart business decision by Disney because if their streaming service is going to be on par or better than the ESPN+ service, then that could be a game changer for the industry, no pun intended.

The groundwork has been laid for a bidding war and it will be interesting to see what Disney will do and how they could counter this maneuver from Comcast. The viewers have a lot at stake as the cost that you pay for content could be impacted significantly but what transpires in the next several months.