SUM is one of the most contentious topics in the U.S. Soccer election, and MLS's commissioner–and SUM's CEO–explains its role and whether there are conflicts of interest in how it operates and who is involved.
The most heated topic in the U.S. Soccer presidential election has been the role of Soccer United Marketing and its business partner, the U.S. Soccer Federation. And now Don Garber, the MLS commissioner who is also the CEO of Soccer United Marketing, has answered 29 questions from SI.com designed to press him on the details of SUM’s role and get on-the-record responses.
U.S. Soccer, a non-profit organization, has a lucrative deal through 2022 with Soccer United Marketing, a for-profit company owned by Major League Soccer owners. Questions have been raised over whether the relationship between U.S. Soccer, SUM and MLS is too cozy and has conflicts of interest, while proponents of SUM argue that its work has been crucial in providing the nearly $150 million surplus that currently exists in the federation.
One of the leading candidates in the election is Kathy Carter, who has served in recent years as the president of Soccer United Marketing.
In a recent candidate survey done by the federation’s Athlete Council, which has 20% of the vote, several candidates questioned the role of SUM in the federation. A sampling:
Eric Wynalda: “The mixing of business interests and non-profit sports governance is a recipe for disaster, as we have seen repeatedly in the soccer world in recent years. MLS has used SUM to have a de facto monopoly on U.S. Soccer policy and power. This includes their ability to limit player movement, salaries and access. How much? Without the ability to review the deal, it is hard to pinpoint the severity of the negative effects of the relationship.”
Carlos Cordeiro, currently the vice president of U.S. Soccer: “The unique ownership of SUM creates conflicts that need to be addressed. To avoid any and all conflicts going forward, USSF will need to ensure that any individuals with potential conflicts of interest are recused from any future negotiations with SUM that is why I have proposed a new Board-level commercial committee to be chaired by one of our independent board directors to oversee the entire process.”
Carter: “The relationship with SUM has been beneficial to U.S. Soccer, the game and the broader soccer community. However, poor communication by the current U.S. Soccer leadership has created significant confusion in this area.”
On the new Planet Fútbol podcast, I asked Garber about the remarks from Cordeiro and Wynalda. Here’s what Garber said when I asked if he agreed with Cordeiro that there are conflicts that need to be addressed: “I don’t,” Garber said. “It surprises me, because Carlos has been on the board for a decade. He has been part of every discussion that took place at the board regarding the SUM agreements and knows all well that anybody associated with Major League Soccer has been entirely recused from those discussions.”
“They’ve been out of the room, whether that’s me, whether that was Jeff Agoos, for example, when he was working for Major League Soccer, or any other athlete that’s associated with our league. That is the federation’s policy, and, again, we’re serious people. We understand that this relationship which is so strategically important for the growth of the sport is one that needs to be beyond any question. So anybody can look at our minutes and see the fact that we’ve been 100 percent recused from those discussions.”
“The negotiations were done with Dan Flynn, who’s the CEO of the organization, and that’s his responsibility. So it was something that was free of any conflict. So I was surprised to hear those comments.”
“And as it relates to Eric’s comments, there is absolutely no monopoly. The SUM agreement with MLS and the United States Soccer Federation is about us putting together an engine that can drive the economic growth of the sport for all members. Not just the federation, but for anybody that’s involved in this sport commercially.”
“Just to give you some stats that have never been communicated before, between the first agreement we’ve done and 2022, we will pay the federation over $300 million in guaranteed revenue. Money that guarantees their budget, that eliminates all risk—like if you don’t qualify for the World Cup—and in essence is an opportunity for us to use the expertise of hundreds of employees who are experts in the business of soccer marketing and television and media negotiations and licensing to provide funding for the federation so they can achieve their goals. So I disagree with Eric’s position, and I wholeheartedly disagree with Carlos’s statement.”
Here are SI.com’s written questions to Garber about Soccer United Marketing, as well as his responses:
What is Soccer United Marketing, and what does it do?
Soccer United Marketing is a company that was formed by the owners of Major League Soccer to raise the commercial value of soccer in America and grow the fan base for the sport. Since its founding in 2002, SUM has become one of the leading marketing, media, sponsorship sales and licensing companies devoted to the sport of soccer.
What is the origin story of Soccer United Marketing?
In 2001, we learned that no broadcaster in the United States was prepared to bid to acquire the English-language broadcast rights for the 2002 and 2006 FIFA men’s World Cups. The owners of MLS felt strongly that not having the World Cup on English-language television would have been devastating for fans and set the sport back for a generation.
Imagine that just 17 years ago, no broadcaster had expressed interest in buying and airing the World Cup from Korea/Japan and Germany.
We pitched the key MLS owners at that time—Anschutz, Kraft and Hunt—to spend $70 million to acquire and produce the broadcasts. We then negotiated an agreement with ABC and ESPN to broadcast the tournament.
Although SUM recouped some of that cost from the sale of advertising, we incurred a net loss.
We started hiring sales and marketing people, media experts and other sports executives. Today, we have more than 150 full-time staff people 100% dedicated to generating revenue and promoting the game.
It is important to remember that in 2001, the prospects for our sport were not bright. In addition to the fact that no broadcasters were interested in bidding for the domestic rights for the World Cup, the U.S. men’s national team had performed poorly in the 1998 World Cup and MLS clubs were losing significant amounts of money.
Despite these challenges, the owners of MLS remained committed to their vision of growing professional soccer in America and were prepared and willing to make significant financial contributions to ensure that the World Cup was available to a wide audience.
What did SUM go on to do right after 2002?
Once we had full-time commercial soccer staff, we recognized we had an opportunity to work with other soccer properties to help create a vibrant commercial market for the sport. You have to remember that at that time in the United States, sponsors and broadcasters saw little to no value in our sport, as evidenced by low sponsorship and broadcast revenues for MLS, U.S. Soccer, FIFA, etc. For MLS and every other soccer property in the country to succeed, we needed to change that and it became a major focus.
We first signed an agreement in 2003 with the Mexican Football Federation to promote its games in the United States and represent its commercial sponsorship rights.
We then learned that IMG, which had been the commercial agent for U.S. Soccer, was losing money and was looking to get out of its agreement. There were two years left on that contract. We bought IMG out of its agreement in 2004 and formed our first agreement with U.S. Soccer. We lost money for the first few years.
In 2014 you told me: “[U.S. Soccer’s] Sunil [Gulati] and Dan [Flynn] had this view that as the governing body of the sport they would make commitments on the commercial side and on the competitive side to have MLS be the leader of the sport. That’s not something that exists in other parts of the world. I believe that Sunil could have made a different decision when he came in as president [in 2006], and had he made that decision MLS isn’t what it is today. Because we are joined at the hip.”
What exactly was the decision that Gulati made in 2006? What other options were there? Why was it Gulati’s decision and not the U.S. Soccer board’s decision?
There was no single decision, but rather a commitment to a relationship which recognized the importance of a strong Division I men’s league to help develop the sport at all levels in our country—from providing an opportunity for American players to play professionally, to building stadiums and training infrastructure, to building a fan culture and growing the sport overall.
As that relationship has continued to develop, the U.S. Soccer board has always supported the important relationship and has independently approved all SUM agreements with U.S. Soccer.
You have said that you think Soccer United Marketing has been great for soccer here and continues to be great for the sport. Could you elaborate on why?
By creating a vibrant commercial market for soccer, SUM has helped the most significant professional soccer organizations in the United States increase their revenues, which they have then been able to use to help further their respective missions.
Importantly, since 2004, SUM has paid U.S. Soccer more than $190 million to help the federation fund its operations and programs. When you total the amount of our guaranteed payments through the term of our agreement in 2022, it’s more than $300 million.
Once U.S. Soccer made the decision to continue working with a commercial representative, U.S. Soccer recognized that SUM is unique in that we are the only commercial soccer company in the U.S. that reinvests its profits back into the growth of the game.
It is important to note that SUM profits have helped fund the overall development of the sport including:
· Creating significant job opportunities in soccer in this country by employing more than 3,000 full time staff at Major League Soccer’s league office in New York and all of our clubs.
· Player Development Academies that currently include 3,000 young players in the club academies and at least 3,000 additional players competing in MLS club youth teams and affiliates.
· Coaching programs that now include 80 professional first-team and youth coaches
· Referee development and training (including an annual multi-million-dollar investment in video review)
· Purpose built soccer stadiums (19) and training facilities.
Additionally, MLS owners own and operate four National Women’s Soccer League teams.
How many different contracts has SUM had with U.S. Soccer—for what tasks and what timeframes?
IMG represented U.S. Soccer’s commercial rights from 1999 to 2004. As I mentioned, IMG was losing money on the contract (which went through 2006) and wanted to terminate the relationship. SUM purchased the contract from IMG in 2004 and has represented U.S. Soccer since then.
Were there competitive bids for those contracts? If not, why not?
U.S. Soccer is probably best to speak to the details on that.
There certainly was not a competitive bid when we bought the contract from IMG because no one else was interested.
In all subsequent agreements, we have had a traditional Right of First Negotiation clause in our agreements that allows us collectively to renew the agreement before they go to market. This is similar to just about every other commercial representation agreement in our industry, and not just for commercial representation agreements, but also for many commercial and broadcast agencies as well. In short, it is standard practice. If we are going to take the financial risk and hire professional staff, etc., it is typical in the sports business to have the first right to try to agree on continuing the relationship. If we were not able to agree, U.S. Soccer was free to go to market. That’s an incentive for us to pay more, provide more value, etc.
We have been able to prove that we over-delivered on everything that we committed to do, from our financial guarantees to sponsor activation and other benefits to U.S. Soccer.
Could you explain the process by which SUM pays U.S. Soccer an annual set amount of money, and then both organizations share in upside revenue above that threshold?
SUM pays U.S. Soccer an average annual guarantee of nearly $30 million per year. Under this structure, with SUM paying meaningful guarantees, it is SUM, not the federation, that is taking the economic risk on the deal.
When did the TV rights for U.S. Soccer and MLS start getting bundled together for sale on the market? How did the decision to bundle the rights get made?
Just as there was limited interest in the World Cup broadcast rights in 2002, networks were not prepared to devote significant economic resources to broadcasting either U.S. Soccer or MLS. To help both organizations, U.S. Soccer and MLS agreed to jointly sell their rights to ABC, ESPN and Univision in 2006.
When the rights deals for 2014-22 were made, why weren’t the TV rights to the NWSL included as part of the bundle?
It is my understanding that the NWSL had already negotiated a deal with Fox.
The eight-year domestic TV deal for U.S. Soccer and MLS from 2014 to ’22 is worth $720 million. How much of that $720 million goes to U.S. Soccer? How much goes to MLS?
ESPN and FOX pay a single amount for the programming for both MLS and U.S. Soccer and their contract doesn’t allocate the rights fees between MLS and U.S. Soccer.
The concept of jointly selling strategic programming is not unusual in the sports industry. The USTA does it with the U.S. Open and select privately owned tennis tournaments, the NBA does it with the WNBA, etc.
Is U.S. Soccer leaving money on the table by choosing to bundle its TV rights with MLS? Do you think the rights will still be bundled for the next deal post-2022?
No. It is important to note that the SUM agreement eliminates all financial risk for the federation. We pay a guarantee with no clawbacks for market conditions (such as the 2008 financial crisis), or other issues or if any national team fails to qualify for key and valuable tournaments like the Olympics or the upcoming World Cup in Russia.
This has allowed U.S. Soccer to invest more deeply in the growth of the sport at all levels and to engage in long-term planning based on a guaranteed consistent cash flow.
There hasn’t been a discussion about the sale of rights after 2022, and each organization will have to determine what’s in its best interest at that time.
Have any of the current board members of U.S. Soccer received any payments from Soccer United Marketing? Do any current board members of U.S. Soccer hold any equity in SUM?
The answer to both is NO.
Has Sunil Gulati ever been a member of SUM’s board of directors? Have you? Is a position on SUM’s board a paid or unpaid position? Who is currently on the board of SUM?
The board of SUM is comprised only of the owners from each of our MLS clubs. Neither the commissioner nor any MLS or SUM executive is a board member.
The owners are the only members of the board. Although Sunil attended MLS and SUM board meetings when he worked for Kraft Soccer (a role he resigned in the beginning of 2015), he was never on the board.
A follow-up: You mentioned that Sunil Gulati worked for Kraft Soccer, an MLS owner, until he resigned a few years ago. What were the years in which Gulati worked for Kraft Soccer? Also: Gulati took a paycheck from an MLS owner for years while he was U.S. Soccer president at the same time. Why was this allowed despite the obvious conflict of interest? Was MLS concerned about this conflict?
Sunil’s relationship with Kraft Soccer was publicly disclosed over a decade ago and has been public knowledge since. Sunil recused himself from our board meetings when any extension of the agreement with U.S. Soccer was discussed or voted on.
The current longform, binding contract between SUM and U.S. Soccer finally got executed in October 2017. For nearly four years SUM and U.S. Soccer were operating under a non-binding memorandum of understanding. Why was that the case? Why did it take so long to execute the longform, binding contract?
We have had a long relationship with U.S. Soccer and agreed to a Memorandum of Understanding (MOU). Both organizations had been operating based on the terms of the MOU, and that is not uncommon in our business. We then proceeded with a long-form agreement. After the basic business deal was agreed to in 2014, both U.S. Soccer and SUM turned their focus to increasing U.S. Soccer’s revenues and did not finalize some of the detailed legal language until last year.
How much have SUM’s profits over the years counteracted the losses that have come from running MLS?
As discussed above, all of the profits from SUM have been reinvested back into initiatives to grow the sport in this country.
Will SUM stand to lose significant money in 2018 with the U.S. men failing to qualify for the World Cup? If so, how much? Does that keep U.S. Soccer from losing too much money as a result of not qualifying?
Under our current deal, U.S. Soccer receives the same guaranteed payment from SUM whether or not the U.S. men’s national team or the U.S. women’s national team qualifies for the World Cup. This is one of the many benefits of the deal to U.S. Soccer. I do expect that SUM will generate less revenue from the sale of U.S. Soccer commercial rights as a result of the failure to qualify, but as noted SUM, not U.S. Soccer, bears this risk.
Are SUM and MLS exempted from U.S. Soccer’s conflict of interest policy?
Of course not. All board members of U.S. Soccer are subject to the conflict of interest policy. Remember, U.S. Soccer is a membership organization and, as with member organizations generally, has a board comprised primarily of people who represent the organizations (youth, adult and professional) that are the members of U.S. Soccer. As such, each of these members of the board has interest in the policies of U.S. Soccer.
Why doesn’t U.S. Soccer have an independent ethics committee to review possible conflicts of interest, as USA Track and Field does?
The Federation has a Risk, Audit and Compliance Committee that serves that function. It is chaired by Donna Shalala, an independent member.
How many different contracts has SUM had with the Mexican Federation—for what tasks and what timeframes?
SUM has been representing the Mexican Football Federation since 2003. The agreement is slightly different in that we promote its friendly matches while we have no game promotion responsibilities for U.S. Soccer.
We also have been representing CONCACAF since 2005. Under the current agreement, SUM promotes the Gold Cup matches that are held in the United States. Also, following the Traffic scandal, SUM took over responsibility for the sale of sponsorships, but not broadcast rights, for the Gold Cup and CONCACAF Champions League.
It is important to note that both the Mexican Football Federation and CONCACAF have renewed their agreements with SUM and we don’t have board representation on either entity. They have many choices, but I think it is fair to say that they have chosen SUM because we have done such a good job delivering value for them.
It is worth highlighting that when U.S. Soccer, CONCACAF and CONMEBOL decided to bring Copa América Centenario to the U.S., they recognized that SUM had a unique ability to manage commercial sales and ticketing in an unprecedented short amount of time. Getting that tournament off without a hitch (and it was the most attended Copa América of all time) was nothing short of a miracle.
Were there competitive bids for those contracts? If not, why not?
We have had renewal rights in all of our agreements. Whether the Mexican Football Federation or CONCACAF bid those rights is a question for them.
Could you explain how SUM’s relationship with the Mexican Federation differs from its relationship with U.S. Soccer?
Under the U.S. Soccer Agreement, SUM sells broadcast rights and sponsorships for the federation. SUM does not promote any U.S. Soccer matches (friendlies or qualifiers).
Under the Mexican Football Federation Agreement, SUM promotes friendly matches played in the United States and sells sponsorship, but not broadcast rights, for the Mexican federation in the United States.
Could you explain the relationship over the years between SUM and Providence Equity Partners?
Providence made an equity investment in SUM in 2012 and was a shareholder in SUM until June 2017 when SUM repurchased that equity interest.
While Providence Equity still had a stake in SUM, a company it has a stake in—CSM Sports—partnered in July 2016 with U.S. Club Soccer and purchased a stake in Blue Star, a company that was subsequently awarded a contract by U.S. Soccer as its official software provider. How would you describe the relationship of Providence Equity to these companies?
I don’t know. That is a question for Providence and U.S. Club Soccer.
Has anyone who is in a position of power in U.S. Soccer, MLS or SUM ever personally profited from one of these marketing relationships mentioned in the previous question?
As it relates to MLS and SUM, the answer is no. Anything related to U.S. Soccer is a question for them.
This is a document that has been floating around the Internet. Is it accurate? Could you explain what it is and what it represents?
My understanding after speaking with U.S Soccer is that it is part of U.S. Soccer’s tax filing. The schedule lists any transactions (and the amount of those transactions) between U.S. Soccer and an organization with which a board member has a relationship. In this case, because I am a board member of U.S. Soccer and the CEO of SUM, the schedule included the amount received by U.S. Soccer from SUM pursuant to the SUM agreement in 2014 for the overages over the guarantee.
I have never seen this document and as we have discussed and as is noted on the form, I am recused from U.S. Soccer’s decisions on the SUM agreement.
Are you comfortable with the relationship between a non-profit like U.S. Soccer and a for-profit company like Soccer United Marketing?
Yes. SUM has generated hundreds of millions of dollars for U.S. Soccer which have been used for programs that benefit all the constituents of U.S. Soccer. It is not unusual at all for a for-profit company in the world of non-profit national governing bodies. The NBA has a commercial representation agreement with USA Basketball (with NBA executives on their board) and the NFL has a relationship with USA Football.