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AEG Consolidating; What Does it Mean?

The Sports Business Journal published a story this afternoon detailing the front office changes that have been occurring at LA Galaxy, Inc. Take a minute to peruse the article, and then let's have a bit of a discussion:

New AEG division to oversee 11 properties - SportsBusiness Daily | SportsBusiness Journal
AEG has created a new division, AEG Sports, that aims to increase both efficiencies and revenue for individual properties at the company but could also result in more job consolidation, AEG President and CEO Tim Leiweke said last week. Chris McGowan, who as COO of the Los Angeles Kings has spurred....

There are several claims of "we're #1!" in that article, so first I want to see if those claims can be backed up. The first claim, that the Galaxy lead MLS in jersey sales shouldn't be too hard to prove since the Beckham jersey is one of MLS' few international sellers.

However, we're going to have to assume that Leiweke has seen 2011 numbers that haven't been released to the public yet. In 2010, Thierry Henry and Rafa Marquez well outsold David Beckham. Landon Donovan was third in jerseys sold in 2010, likely behind his World Cup performance.

Surely sales for Henry and Marquez slowed down after their initial flood of the market. As well, we can assume that the top three of 2010 (Philadelphia, Seattle, and New York) did not sustain that rate of sales through 2011. With the Galaxy unveiling a new home kit this season, really any numbers outside of what's happening right now are irrelevant.

Also worth noting is the fact that financially, jerseys sold outside of the Team LA stores aren't as meaningful. MLS teams only get 1/19 of all sales, and one can assume it's the same for brick and mortar stores since it's MLS supplying the jerseys. Perhaps Tim was referring to the Galaxy making the most money from jersey sales.

Of course in the quote he says jersey deal. I glossed over that since Adidas has the deal and that's with MLS, the Galaxy wouldn't get any bigger cut than any other team. Perhaps he meant in context with the shirt sponsorship deal, as his next point is the naming rights deal.

That's a solid home run of a point, as the Galaxy's shirt deal with Herbalife is worth up to $5 million. Toronto FC, Seattle Sounders FC, and Vancouver Whitecaps FC all have deals in that $4mill-$5mill range.

As far as the naming rights, that's another hum dinger. The Galaxy have far and away the best naming rights package $70 million over 10 years. It's supposed to expire this year, as is the Herbalife deal, but Leiweke told LAG Confidential at the David Beckham press conference that those deals should be renewed. Similar long term deals don't even compare: $25 mill over 20 years from Pizza Hut (a deal Pizza Hut withdrew from) or $40 million over 20 years from Dick's Sporting Goods.

The Galaxy claim Chris McGowan, the new COO, oversaw the Premium Seating sales efforts, and that records were set for all three AEG controlled venues. Given what we've seen so far, and knowing the Galaxy also have corporate partners in Farmers Insurance and Fox Sports to name a few, it's probably safe to say the team is #1 in sponsorships.

Which leaves us with the conundrum of season ticket sales that lead to all this FO turnover. Leiweke said the Galaxy aren't in the top three, which means they're likely in the top five. The Timbers have sold 14,705 ST packages, the Union sold 13,000, Seattle sold 32,000 in 2010. Whitecaps and Sporting Kansas City were also above 10k in 2011. It's starting to look like the Galaxy might not even be in the top 10.

Some of this can be explained away by the Galaxy having the most expensive season tickets in MLS. Walk up ticket sales are also quite strong for the Galaxy, as the 27,000 seater stadium sells out frequently despite such a small STH base. Of course it's also rumored Chivas USA have around 500 STH. So it could be worse.

The lack of STH was enough to cause a FO shakeup, and couple that with the Galaxy no longer reporting a profit makes it easy to see how precarious a position the club is in. The Galaxy spending model has produced trophies, but is it a successful business model yet? Competing with two MLB franchises, and the world's best known theme park for full season subscribers certainly isn't easy.

Alan Hinton recently said on twitter that the Seattle Sounders FO and coaching staff has remained unchanged after four years of operation, and that stability has shown on the pitch. Certainly the stability under Bruce Arena has meant the same thing for the Galaxy. While I'm sure the Galaxy hope there's no visible change in the game-to-game experience, the moves point to a desire to make things better.

It'll be interesting to see what better looks like. Or more cynically, if better even comes.