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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• This week’s topic is Lionel Messi’s unique contract that brings him to the MLS and what it means for the American soccer league.

• Want to show off your sports knowledge in a public setting but don’t have time to read the article? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• “Whoa of the Week”

• Reminders that sports are awesome

Hey team,

In case we didn’t have enough excitement last week with the PGA Tour/LIV Golf Merger, we had another bombshell drop: Lionel Messi, one of the greatest soccer players of all time, is leaving his current club, Paris Saint Germain (PSG), and reportedly coming to America to play for the David Beckham-owned Inter Miami CF in the MLS.

This is obviously a major coup for the MLS, but what’s in it for Messi? We’ll dig into the contract details, how the MLS’ corporate structure allows it to craft these types of mega deals, and why I think this is a great deal for both parties.

The GOAT On and Off the Pitch

For our non-soccer fans out there, Lionel Messi has one of the most storied careers in soccer history.

He’s won pretty much every trophy you could imagine while playing at European soccer titans FC Barcelona and PSG, he has hoisted the Ballon d’Or — the annual award given to the world’s best player — a record 7 times, and he added the cherry on top with a World Cup victory for his home country of Argentina in Qatar this past year.

As you can expect, both Messi and his clubs experience success off the pitch as well:

• Almost 500 million Instagram followers on his personal account.

• 1 of 6 athlete billionaires, courtesy of more than $1 billion in career earnings from both his player salary and endorsements with Pepsi Gatorade, Budweiser, and Adidas, to name a few.

• PSG sold over $130 million in Messi jerseys during his short two-year stint, and Barcelona was averaging about $200 million a year prior to that.

In short, Lionel Messi is that dude.

So, with his time at PSG coming to a close this summer and still plenty of gas in the tank at age 35, Messi had his share of suitors and ended up with two amazing offers to consider.

1. An eye-watering $500+ million/year over three years to join the Saudi Football League and reignite the interleague battle with his long time on-field rival, Cristiano Ronaldo, who joined the SFL last year for a pedestrian $200 million/year.

2. A chance to return to Barcelona, the club he signed with at age 13 and spent most of his illustrious career with, and complete his legacy.

Instead, he chose a much different path. He’s joining the MLS’ Inter Miami CF.

To put this move in perspective, the MLS is ranked somewhere between the 10th and 20th best soccer league in the world depending on who you ask, and is well below the competition of someone of Messi’s caliber.

Yes, the league has a history of bringing over European stars (i.e., Wayne Rooney, Thierry Henry, and Didier Drogba), but those players were well past their heydays and primarily served as household names to generate buzz and fill seats. Messi is still playing at a top level and could easily compete at the top leagues in Europe. Plus, Inter Miami is the worst team in the league right now!

So, this signing is essentially the equivalent of LeBron James going to a team in the Chinese Basketball Association, or Brad Pitt starring in a college film student’s senior project. Why?

What’s the Deal-io?

To get this deal done, the MLS had to get creatively, and it’s definitely unorthodox when compared to other traditional sports signings. The details have not been finalized, but here’s what we do know:

• Salary: Messi will reportedly make about $50 million/year in salary. This is normal for a player of his caliber but pales in comparison to the Saudi offer and far exceeds what is standard for the MLS — for reference, the current highest paid player in the MLS makes $8 million/year.

• Salary Cap: His salary will not count against Inter Miami’s salary cap. We’ll talk about how that works shortly.

• Apple Rev Share: Messi will enter into a revenue share agreement directly with Apple, which includes a cut of all new MLS Season Pass subscribers on Apple TV+ and a 4-part docuseries on his life/career that will be aired on the streaming service. For background, Apple and the MLS reached a first of its kind, 10-year deal last year where the streaming provider has the majority of the MLS’ domestic TV rights as well as the worldwide rights to air MLS games — meaning whether you’re in Rome, Italy or Rome, Georgia, you can watch the MLS on Apple TV+ for $15/month.

• Adidas Rev Share: Messi will also receive a share of Adidas’ increase in profits for his being in MLS. Adidas is the official apparel and kit provider for the MLS, and has endorsed Messi since 2006.

• Club Ownership: Messi will have an option to become a minority owner in Inter Miami CF upon retirement at an expected discount rate that is generous.

You’re probably asking yourself: how is Inter Miami pulling this off financially? Well, they’ve got help from the top.

MLS Bends it for Beckham

The MLS has been around since 1993, and it’s been fighting an uphill battle since its inception to gain legitimacy and financial stability in both a crowded global soccer landscape as well as a domestic market that features some of the biggest sports entities in the world in the NFL, MLB, and NBA.

The league has a unique, “single entity” corporate structure where there are owners who “own” the right to operate and reap the benefits of a specific team, but they’re ultimately investors in the league itself and they get a portion of it. Thus, the league has a piece of every club, player contracts are executed by the league itself instead of the teams, and the league can make decisions as unified group to benefit the overall operation.

This setup is different than the other professional leagues and gives the MLS specific advantages when trying to grow the league’s prominence. As noted in a prior section, the MLS has enticed big players from Europe to come over to play at the end of their careers, and on rare occasions they’ve gone a step further and reworked their rules and financials to try to get international stars who still have something in the tank and can elevate the league’s profile.

The two best examples are this Messi deal and when the league got creative to bring British heartthrob and star right winger David Beckham to the MLS in 2007. Joe Pompliano has an excellent write up on this deal, and the contract points look pretty familiar:

• A salary ($6.5 million) well above the league salary cap ($2.1 million per team). That salary is covered by all of the teams collectively, and it does not count against the salary cap because of his designated player status. A version of this designation status still exists for clubs today, and the process actually became known as the “Beckham Rule.”

• A share of all revenue generated by his club, the LA Galaxy.

• The opportunity to buy an MLS expansion franchise at a fixed rate of $25 million.

Beckham’s presence helped set the league on an upward trajectory, as the MLS has exponentially grown in key business areas the last 15 years:

• Average attendance: 2007: 15,000, 2023: 21,000 (~40%)

• Media rights: 2007: $8m, 2023: $250m (~3000%)

• Franchise value: 2007: $37m, 2023: $582m (~1500%)

The deal also worked out quite well for Beckham, as he reportedly made over $250 million during his 5 years in the MLS and ended up purchasing that MLS expansion team after he finished playing for about 25% of what the MLS expansion fees were at the time. Which team? Inter Miami CF.

A Rising Tide Raises All Ships

So, fast forward to now, and we’re in a similar situation with the MLS being at another inflection point. The valuations of the clubs continue to skyrocket due to both the league’s structure as well as tailwinds for soccer in the US:

• No relegation (which we talked about in a prior edition) and capped supply on teams due to league rules and no relegation.

• A friendlier revenue sharing agreement because of the single entity setup.

• Growing youth participation, increasing interest due to immigration from soccer-crazed countries, and the World Cup being held in North America in 2026.

That being said, more than half of the MLS franchises lose money every year, much of the revenue increases the last several years have come from the increasing expansion fees (which are split amongst the teams), and the league itself has stagnated in its quest to climb the global league rankings.

Essentially, the MLS is the equivalent of a tech unicorn that’s raised a bunch of money and has garnered an astronomical valuation (most clubs are valued at 10-12x revenue right now), and they need to flip the switch towards converting potential into profitability.

Messi is one of their biggest hopes to help accomplish this, and the deal they’ve set up with him incentivizes him to lean in to promote and grow the league. While there are a number of critics questioning why Messi would pass up generational wealth or legacy to try to help the MLS, I actually see this as a win-win for both sides, and here’s why.

MLS

This one is pretty obvious. The MLS needs bonafide star power — Messi gives them that, and then some. He’s arguably the most famous athlete in the world, and his presence immediately elevates the MLS’ standing on the global stage.

The announcement alone is already paying off. Inter Miami’s Instagram jumped from 1 to 8 million in just over a week, and they’re now the most followed team in all of the North American professional sports leagues.

And just wait until he actually joins the club. In just the past week since the announcement, Inter Miami jumped from the seventh-highest selling team to the fourth-highest selling team on StubHub. In addition, individual ticket prices for the matches when he may debut in July are skyrocketing, averaging anywhere between $125 (4.5x) for a standard MLS match and $1,400 (1000%) for a special match against the Mexican League’s Cruz Azul.

We can also expect similar exponential growth from Adidas. In fact, Inter Miami recently became a top-5 selling franchise across all of Fanatics’ sports clients, and this is before they’re allowed to release authentic Messi jerseys because the deal is not closed. I don’t expect $200 million/year numbers at Barcelona given the smaller size of the MLS, but it’s reasonable to think it will jump to at least $50-$75 million given his pull.

Lastly, the unique deal negotiated with Apple means that the MLS is not having to navigate a complex web of traditional linear TV networks both domestically and abroad to get people’s eyes on Messi. Instead, users around the world will have a streamlined experience by going right to Apple TV+, and the top of funnel growth attributed to his presence will be much simpler to calculate.

Messi

So, the less obvious question: why is Messi doing this?

First, this deal structure gives him essentially uncapped upside if he successfully helps the league accelerate its growth. Similar to Jordan back in 1984 with Nike, Messi has a vested interest in the MLS’ success. He’s going to be hyperactive in promoting and growing the MLS around the world, and there are rumblings he will begin recruiting other players from top flight European clubs to come to the States to join him. Notice the flywheel (and money machine) starting to turn?

Plus, American brands are going to be falling all over themselves to get Messi to become an endorser. In addition to being one of the most famous people in the world, he taps into the key younger, more diverse demographics that brands crave. He’s going to do big numbers in sponsorship revenue the next couple of years, particularly as North America builds towards the World Cup in 2026.

Similarly, while Messi is still performing at a high level, he’s definitely in the twilight of his career and needs to think about what’s next. He’s already got the option to step into MLS ownership after he finishes playing, and there are more non-soccer initiatives to feed his entrepreneurial spirit that he may not be able to get elsewhere. He’s been incredibly active in building his off the field businesses in the States the past few years, including a Silicon Valley venture capital firm and some real estate in Miami, and I expect that he sees this move as an immediate door opening to the next wave of business opportunities.

This last one is a bit different, but let’s look at what Messi told ESPN about his decision:

“After winning the World Cup and not being able to return to Barcelona, it was my turn to go to the league of the United States to live football in another way and to enjoy the day-to-day more. Obviously, with the same responsibility and desire to play well and do things well as always. But in a calmer way.”

This guy has spent more than half of his life in the global soccer spotlight, and he’s literally a god-like figure for millions of people. Just look at the mob that showed up when he was trying to eat dinner in Argentina a few months ago.

He’s obviously reaped the financial benefits of this stardom, but he’s got nothing left to prove on the pitch and may be growing weary of the frenzy his presence causes. Going back to Barcelona or being paraded in front of hordes of people in Saudi Arabia would be more of the same with this. As a husband and father of three, he may want some (relative) peace and quiet.

This is not to say that he’s not going to garner attention in the States or be active in promotion given his contract incentives, but being in the States brings him and his family to a much bigger, less-soccer crazed country.

I expect that he’ll be able to have a much more normal existence in Miami, where he can enjoy the last few years of his career and attempt to make a similar smooth transition to hot soccer player turned businessman like his new boss, David Beckham.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Lionel Messi, the record 7-time Ballon d’Or winner (best player in the world) and owner of almost 500 million Instagram followers, is coming to the MLS’ Inter Miami CF, which is owned by David Beckham (very hot).

• He turned down a $1.6 billion contract from Saudi Arabia and the opportunity to finish his career with the club he spent the most time with — Barcelona. The MLS is barely a top 20 league globally, so this is a big move.

• The deal is incredibly unique because it includes both a big salary (6x the next highest paid player in the MLS), revenue share agreements with the MLS’ media partner (Apple) and apparel provider (Adidas), and the ability to own a part of Inter Miami once he retires.

• Messi’s new boss, David Beckham (very hot), started this trend when he came to the MLS in 2007. Their deals look very similar, and the MLS hopes Messi’s presence will have a similar positive business and cultural impact on the league like Beckham did.

• The MLS can set up this type of deal due to its unique “single entity” structure, where the owners own the teams they operate but really are owning a broader piece of the league. This can allow for unilateral decision making and bending the league rules for special circumstances like this one.

• What does the MLS get out of it: legitimacy on the world stage, opportunity to reach new fans, and an expected financial windfall due to both Messi’s following plus the attraction of other stars. Ticket and merchandise sales have already skyrocketed since the announcement last week, and Inter Miami is now the most followed team out of all the North American sports leagues on IG.

• What does Messi get out of it: Expected salary plus sharing in the upside he brings to the league through the revenue split agreements, big endorsement and business opportunities in the US both while he’s playing and after he’s retired, and the ability to have a quieter, more relaxed final chapter of his career.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. A sign of the times - the Ottawa Senators just got sold for $1 billion

2. Cannnnnn youuuuu smell what the Rock is losing ($60m)?

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. Oklahoma’s softball team is a dynasty, securing their third straight College World Series title

2. Shoutout to the Pistons for taking care of one of the most important people in their organization: their head coach’s wife.

Thanks for reading! Let me know what feedback you have.

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Until next time, sports fans!

-Alex