In a move praised by sports investors, Major League Soccer will enable private equity funding to increase league capital, which will suffer the economic impact of Covid-19, MLS Commissioner Don Garber told CNBC.
Garber, who appeared on Closing Bell on Friday, announced the move and said the league was "close to closing" to provide private equity funding that "could invest in our local teams," said he.
Allowing private equity funding could help reduce some of the burden on MLS owners who suffer losses without viewers wanting to attend the games this season. Garber admitted that "it was very effective for us to have no game earnings a day," adding that the MLS could suffer a $ 1 billion loss from Covid-19.
Jared Bartie, co-chair of the sports industry at O & # 39; Melveny, said the drop in sales was problematic given that MLS clubs have debts from their venues that they have to serve, among other things.
"There is a rental fee; there is a debt service; there is sponsorship and partner fulfillment," Bartie told CNBC. "[Matchday] earnings are necessary to offset these costs. If revenues decrease, these costs do not go away. They are still there."
Although most MLS clubs have financial problems, the owners also earn money from Soccer United Marketing, which oversees all commercial rights to the MLS. SUM controls corporate sponsorship, broadcast, digital, and consumer goods rights and does advertising for the Mexican Football Association's competitions and CONCACAF's Gold Cup games in the United States.
"We'll get through this," said Garber. "But there have certainly been challenges."
The private equity option allows MLS limited partners like Kevin Durant of Brooklyn Nets and James Harden of Houston Rockets to have more buyers if they decide to sell their shares in the future.
Garber said MLS has been reluctant to allow private equity ownership in the past because the league "wanted to know who your owners were, so you could understand how long it took for their vision to join the league."
With increasing franchise values, the National Basketball Association and Major League Baseball have created mutual funds to attract minority buyers. The New York company Dyal Capital Partners will handle the fund of the NBA. MLB Commissioner Rob Manfred told CNBC last December that he expected MLB's mutual fund to be "operational" this year.
"It creates new opportunities for people who want to invest in sports, and maybe not purely financially," NBA Commissioner Adam Silver told SportsPro Media. "Part of that is the convenience and the seal of approval and the desire to be directly involved in these leagues."
The MLS resumed its season on Wednesday with its "MLS is Back Tournament" after it ceased operations due to the pandemic on March 12th.