So it was a gut punch for MLS when, on Feb. 26, it was announced that American billionaire Ron Burkle decided not to move forward with a proposed deal to be the lead investor/operator of an expansion team in Sacramento, putting the project on an indefinite hold. The decision came 17 months after a very public announcement awarding the city a team that was attended by Burkle, California Gov. Gavin Newsom, Sacramento Mayor Darrell Steinberg, MLS commissioner Don Garber, owner of the USL Championship’s Sacramento Republic Kevin Nagle and a host of ecstatic fans.
The questions now are: Can Sacramento rally itself — again — and find the kind of deep-pocketed lead investor who can provide a level of financial backing that satisfies MLS? And how long is the league willing to wait before it starts looking at alternative cities?
Into the breach steps former San Jose Earthquakes, Toronto FC and LA Galaxy defender Todd Dunivant, who took over as the Republic’s president after Ben Gumpert resigned last month. As one would expect, Dunivant’s tone is upbeat, stating that once Burkle’s decision was made public, there was immediate interest from prospective investors.
“We’ve gotten a lot of different folks that have reached out about it, so we’re working through that process,” he said. “This isn’t something that you snap your fingers and it happens overnight, but we are certainly working with the level of urgency because we are ready. We’ve been working on this for a year and a half transitioning toward MLS on all aspects, so we want to see that momentum [continue].”
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About the quality of contacts, Dunivant added, “They’re serious. These are not prank calls by any means.”
There is plenty that remains compelling about California’s capital as a possible MLS expansion city. The market is proven, with the Sacramento Republic averaging more than 11,000 fans per year for the past six (non-COVID-impacted) seasons. Sacramento ranks 20th in terms of size of the television market, putting it above eight existing MLS cities, including Nashville and Austin. City leadership is firmly behind the bid, and the Republic has prepared the Railyards stadium site in downtown Sacramento for construction to begin. The only other pro sports team in town is the NBA’s Kings, potentially giving an MLS team the chance to dominate the summer and fall sports calendars.
“MLS can own [Sacramento] in a way that they wouldn’t in Detroit,” said one league observer, who has been involved in expansion projects in the past, noting the Michigan metropolis’ previous bid for a place in MLS and its crowded sports landscape already consisting of teams in the NFL, NBA, NHL and MLB.
The economic hurdles in Sacramento’s way
Sacramento’s bid is facing some fierce headwinds. The costs of a stadium ($350 million), the expansion fee ($200m), plus the building of a training facility and the purchase of the Republic from Nagle puts the startup costs at around $600m. With Sacramento now back to square one in its quest to acquire an expansion team, it raises the question of whether MLS will require it to up its expansion fee from the originally agreed $200m to the $325m fee Charlotte paid in late 2019. It all amounts to a massive investment.
But complicating the situation is the fact that there are three MLS teams — the Houston Dynamo, Orlando City SC and Real Salt Lake — that are for sale. The three teams have their own stadiums and training facilities, and would be turnkey operations by comparison.
That dynamic undercuts the perception of scarcity in the market — that no matter how many times it sought to increase the number of teams in the league, there are only so many spaces available — that MLS has crafted so well during its expansion push. That scarcity still exists to a degree, but if you’re a billionaire looking to buy an MLS team, the entry price for an existing team is likely to be lower than the rising price tag in Sacramento. LAFC were the latest team in the league to have an ownership stake change hands, with half of Vincent Tan’s 20% cut being bought up by the club’s existing owners in February 2020, creating a $700m valuation. However, LAFC is arguably the most valuable team in MLS, and none of Houston, Orlando or RSL could reasonably expect to fetch similar sums, with the $400m valuation of Chicago Fire set in 2019 a more realistic figure.
All of which puts more of an onus on finding a potential owner with local ties, someone with a vested interest in bringing a team to Sacramento — even if it costs more than acquiring a team in another city.
“I would think that [a potential owner] is probably going to be somebody who is geographically sensitive,” said Sean Clemens, a director and principal with Park Lane, an investment bank that focuses on sports transactions as a key part of their business. “I think Sacramento being Bay Area-adjacent certainly adds some luster to that opportunity. And there’s a lot of wealth in that part of the world. So I imagine that it would be someone that would value being in close proximity and being able to be close to the franchise they’re running.”
Sacramento also appears willing to sweeten the pot, with Fortune reporting that the city will use tax increment financing (loans borrowed against future tax revenue) to increase its infrastructure payments to $45m. And with the stadium sitting on a 31-acre parcel, and only 14 of that set to be taken up by the stadium, it’s possible that the adjacent land could be used for ancillary businesses that a prospective owner might be interested in. But that person needs to be identified first.
If not Sacramento, then who?
All of this has made an already winding path for Sacramento even more so. But the reality is that every other market looking to acquire an MLS team has its challenges, although some are further along than others. And while sources around the league tell ESPN that MLS is sympathetic to Sacramento’s plight, it’s begun exploring other possibilities.
San Diego’s expansion hopes were thought to be dead in 2018 after a stadium referendum backed by FS Investors was defeated in favor of a competing project supported by San Diego State University. As it stands, the lack of a potential owner would appear to be a major impediment to reviving any kind of expansion bid. But a source with knowledge of the situation said initial discussions have taken place between MLS and SDSU regarding the framework of a deal that would see an MLS expansion team play in 35,000-seat Aztec Stadium, which is projected to open in September 2022.
While MLS is reluctant to get into a situation in which one of its team would be a tenant in someone else’s stadium, the source floated the possibility of an expansion team being a part-owner of the stadium, or at least having a guarantee that all MLS-related revenues would flow to the team.
Las Vegas’ interest in MLS is contingent on a proposed redevelopment in and around Cashman Field (the home of the USL Championship’s Las Vegas Lights), with the Renaissance Companies running point for billionaire Seth Klarman, and his company the Baupost Group. Reached by email, Renaissance chairman Floyd Kephart told ESPN that its exclusive negotiating agreement (ENA) with the city that encompasses the entire development project, including the soccer stadium, is set to expire on April 15. If the city decides to move forward, the entities involved would enter into a Master Development Agreement, which would then clear the way for Baupost to acquire the Lights.
“At that time we will submit a new ‘concept plan’ for the redevelopment of the Cashman Complex and related properties included in our ENA,” Kephart said. “We are continuing to work with the city to assess the opportunities related to continuing and/or expanding professional soccer in Las Vegas.”
Phoenix is another city that has expressed interest, and the success of USL Championship side Phoenix Rising — a North American record 20-game winning streak en route to a regular-season title in 2019 — has laid a foundation. Yet within MLS circles there are concerns about whether the owners have deep-enough pockets, despite consisting of Chinese billionaire Alex Zheng and Chelsea and Ivory Coast goal-scoring legend Didier Drogba. An appropriately sized stadium is an issue as well. While the team will play in a new, modular 10,000-capacity stadium at White Horse Pass within the Gila River Indian Community this season, a new venue will have to be built, and the hot weather remains a concern — as it does in Las Vegas.
“We couldn’t be more excited about the progress we’ve taken in this offseason,” said Phoenix GM Bobby Dulle.
When asked if a larger, MLS-ready stadium would have to be covered, Dulle said, “We’re working through multiple concepts. There are certainly concepts that have a roof structure and there’s concepts that have different ways to mitigate the heat.”
There is also the chance a new city could enter the competition. It was recently reported that the ownership group behind USL Championship side Louisville City was looking into joining MLS, although Louisville president Brad Estes told the Louisville Courier-Journal, “We have a great fan base, we have a great product on the pitch, we love our league, so if MLS makes sense at some point in the future, then of course we will evaluate it, but we don’t have to make that move.”
Other cities figure to be more aggressive, meaning Sacramento is on the clock.