This hasn’t been the best week for Major League Soccer.
The league opened its regular season on Saturday already embroiled in a labor struggle, having to use replacement referees because of a lockout. MLS and the Professional Referee Organization remain far apart in negotiations on a new collective bargaining agreement, and the league will soon have to enter talks for a new CBA with the players union as well. These kinds of disputes are to be expected for a league still in its infancy; established just 19 years ago, MLS has seen major promise in the past decade, as steady expansion has lured investors willing to fork over big bucks for big-name stars.
But while attendance and ratings show positive signs of growth, the league is still mired by financial uncertainty. MLS was recently forced to purchase Chivas USA from Mexican owner Jorge Vargaras, a failed experiment in cross-border sports branding. The team struggled to compete with the other club in southern California, the Los Angeles Galaxy, which built its popularity on David Beckham’s back. Commissioner Don Garber has also raised concerns about his members’ bottom lines: “Not nearly enough of our clubs are profitable today,” he told ESPN in December. Which is why yesterday’s announcement by nutrition company Herbalife should have MLS executives scrambling to do damage control.
Herbalife revealed that the Federal Trade Commission is investigating whether it is a pyramid scheme. Within hours of the announcement, shares had sunk as much as 15 percent before rebounding a bit, closing down 7.4 percent at $60.57. While this is certainly good news for Bill Ackman -- the hedge fund manager who first accused Herbalife of being a pyramid scheme and shorted the company to the tune of $1 billion – the picture is not so rosy (or green) over in LA. Herbalife has been a major sponsor of the Galaxy for years -- the two are in the middle of a 10-year, $44 million extension that runs through 2022 and represents the longest and most lucrative sponsorship deal in MLS history.
This isn’t just any soccer club caught up in a potential fiscal fiasco – this is the face of the league. The Galaxy’s success has been a primary booster for the national and global MLS brand; as the team wrote in its 2012 press release announcing the sponsorship extension: “The Galaxy have emerged as a truly international brand with worldwide recognition. The club continues to be the benchmark by which all others are measured in Major League Soccer.”
Herbalife is the official jersey sponsor of the Galaxy, who have several players on the list of the top-selling MLS jerseys. The partnership had only grown stronger in recent months, highlighted by the October launch of the “Be a Pro” Web series, a dual effort to enter the arena of branded content. In perhaps the most stark demonstration of the strength and tenure of the collaboration, Herbalife executive Des Walsh touted “our successful relationship with the L.A. Galaxy soccer team” as a key marker of the company’s brand-building prowess during an earnings call in 2008.
It remains to be seen whether Herbalife is truly a bottom-preying pyramid scheme, or if the investigation is simply the result of an extensive lobbying campaign driven by a powerful investor who stands to make a lot of money in the company’s downfall. It would be a hard pill to swallow for both the Galaxy and MLS if these accusations ultimate prove to hold water.
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