On a shiveringly cool morning in who-knows-where-the-hell-we-are-Arizona, Jeff Mallett is standing, venti Starbucks cup in hand, quite literally on the edge of an oasis: an island of verdant green in a dusty plain broken up by the occasional hot-rod shop. Just down the highway, a seemingly abandoned subdivision, where signs promising 102% financing flap in the wind, is a reminder that bubbles burst.
The Starbucks cup, in this case, seems unnecessary-a sand-to-the-desert type of accessory, since Mallett appears to be naturally caffeinated. In his old job-transforming Yahoo from a Silicon Valley start-up into a global digital media brand with $15 billion (U.S.) in assets-they used to call him Sparky. And now, as he stands on the patch of bright green grass, the 46-year-old Victoria native is radiating excitement. "I've got goosebumps," he declares. "You try to be in business mode, but when the whistle blows, I'll be a fan again."
On the pitch, the Vancouver Whitecaps-of which Mallett is part owner-are warming up before a friendly matchup with Real Salt Lake. This is the team's first action as a Major League Soccer (MLS) expansion franchise. They'll spend nearly a month training down here before returning to Vancouver in time for their season opener on March 19 against Toronto FC, a game that will be broadcast nationally on TSN.
Mallett has driven an hour into the desert south of Phoenix to see his next big bet come to life: building Canadian soccer into a commercially viable business, and helping lift the fortunes of the men's national team along the way.
And yes, he says, rolling the coffee cup back and forth, he did notice that subdivision on the drive in, a dusty symbol of the perils of unfettered optimism. "That kind of sums up everything that went on out here in the last few years, doesn't it?"
Predictions about soccer's bright future in North America have been bubbling up each decade since the 1970s, as youth soccer grew and soccer moms became their own demographic. But there's some evidence that soccer's time has finally come. For one thing, the Whitecaps' owners plunked down a $35-million expansion fee for the right to operate an MLS franchise in Vancouver. These aren't just a bunch of rich guys chasing childhood dreams, either-they have pedigree. There's Mallett, who'll soon be getting a 2010 World Series ring back home in San Francisco, thanks to his stake in the Giants; Steve Nash, the Canadian NBA star; Steve Luczo, chairman and CEO of hard-drive maker Seagate Technology and a minority shareholder in the Boston Celtics; and reclusive B.C. financier Greg Kerfoot, who threw a lifeline to the Whitecaps when they appeared to be going under in 2002 (the club, then playing in a minor pro league, had a staff of three and worked out of Kerfoot's West Vancouver home; he's still majority owner). The quartet sometimes gets referred to as the Fab Four, and Mallett cheerfully describes himself as Ringo, keeping the beat.
The Whitecaps join Toronto FC as the second Canadian entry in the 18-team MLS (a third is coming on stream in 2012-the Montreal Impact, owned by Quebec dairy scion Joey Saputo). TFC, owned by Maple Leaf Sports and Entertainment, has yet to make the playoffs heading into its fifth season, but the club's off-field success-routine sellouts at soccer-specific BMO Field and a rabid fan culture that has lent the team an aura of European authenticity-has made it an MLS success story. MLSE paid a $10-million expansion fee in 2006; company insiders now peg the team's value at close to $100 million.
Mallett has seen those kinds of returns before. He made his reputation during the Internet boom as a rigorous operator who actually managed to eke a profit out of a dot-com venture; he's convinced that soccer has significant upside in North America, and he wants the Whitecaps to help drive it. "We want to compete on a global basis," he says. "Eventually we want to be considered one of the top football clubs in the world."
That seems like a tall order for a first-year club in a loop that's been dismissed as "B League." But Mallett has been through this before. "The day I walked into Yahoo, we had less than six weeks of cash left, no revenue, no business plan," he says. "The size of the online advertising market at the time was estimated to be about $40 million; it's $22 billion today. It was in a stage where the majority of people-smart people-would tell you the Internet was probably not a good investment. It's speculative. We're not sure the business model translates. Are major brands going to come over? I won't correlate MLS exactly to that, but it's not much farther off."
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A lifetime ago-long before mallett made a fortune off the dot-com boom-he was a gritty, diminutive striker on the under-16 B.C. provincial team (at 5 foot 5, hockey and baseball judged him too small) who dreamed of a professional career in the beautiful game-maybe even at home in British Columbia.
At the time, that wasn't as far-fetched as it sounds, thanks to the rabid success of the Vancouver Whitecaps. The team was founded in 1974 as part of the North American Soccer League (NASL), which was itself part of the great inflationary trend toward sports expansion that marked the 1970s as definitively as disco, bringing the world the American Basketball Association, the World Football League and the World Hockey Association, among other ventures. In the space of a few seasons, the Whitecaps became a local phenomenon, playing to crowds of more than 30,000 at Empire Stadium (which the latest iteration of the team will call home until the renovated BC Place is completed later this year). Mallett's provincial team used to play warm-up games there before the Whitecaps took the pitch.
The peak for the Whitecaps, and perhaps the NASL, came in 1979, when Vancouver defeated the New York Cosmos and their roster of international stars-including Brazil's Pelé and Germany's Beckenbauer-in a two-game semifinal before beating the Tampa Bay Rowdies to take the Soccer Bowl. In 1983-a year after Mallett helped the University of Victoria team to reach the Canadian Interuniversity Sport championships final-the Whitecaps opened BC Place in front of 60,000. By 1984, the league was gone, buried under the weight of rapid expansion and escalating salaries. The Whitecaps were left to lurch from one minor professional league to another.
Mallett, meanwhile, moved south, to attend San Francisco State University, where he enrolled in the business program and played soccer; he spent a year on the SFSU squad, but a fractured heel killed his soccer dreams. After some rapid success in software and telecommunications, he strolled into Yahoo in 1995 as employee number 12 and the company's COO. By 2000, he had a personal net worth of $805 million (U.S.). Two years and one dot-com meltdown later, he quit after being passed over for the chief executive job.
One of his first post-Yahoo moves was buying a stake in the San Francisco Giants, then in the midst of a 48-year World Series drought. (Mallett had stashed away most of his money in "safe investments," but set aside a chunk to put into sports ventures and high-tech plays.) He'd also been keeping tabs on MLS from Silicon Valley since its debut in 1996; Yahoo had signed on as a league sponsor.
Through most of its first decade, MLS might as well have stood for Money Losing Soccer. The league's founding shareholders-Robert Kraft, owner of the National Football League's New England Patriots; oil baron Lamar Hunt; and Phillip Anschutz, whose company, AEG, is a global sports and entertainment conglomerate on par with Disney-owned all 10 of the clubs. By 2004, they'd absorbed a reported $350 million (U.S.) in losses, as teams played to crowds of family and friends in otherwise empty football stadiums.
Mallett knew the worst. "I've followed MLS intimately," he says. "I've seen the financials. I've seen the wobblies. I've seen teams contract."
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Mallett didn't plan on investing in a soccer team. He was inspired by Nash, a fellow footie fanatic who also grew up in Victoria. Though the basketball superstar was 10 years Mallett's junior, they'd crossed paths on the Victoria soccer scene-Mallett occasionally played against Nash's father, John-and finally met on the local charity circuit in 2005. Nash had grown up a Tottenham Hotspur fan (his dad grew up in the shadow of the English Premier League club's grounds in London), and he dreamed of buying part of the historic team. In 2008, he got in touch with Mallett to help him put together a bid for a minority share. When the deal fell through, Nash said to Mallett: "What about the Whitecaps?" "I love the Whitecaps," Mallett replied. He cold-called Kerfoot, and the new partners struck a deal.
The Fab Four beat out six other bidders in 2009 to land the franchise for Vancouver-the league's 18th. A year later, they made their first big splash in global soccer: luring Tottenham executive director Paul Barber-whom they'd befriended during their ill-fated Hotspur bid-to B.C. as the Whitecaps' CEO.
What possessed him to leave a club with $200 million in annual revenue for the soccer hinterland? Barber says he was attracted not just by the challenge, but by the favourable dynamics for the game in North America. MLS, too, appears to be turning the corner toward profitability, bolstered by a league-wide march into smaller, soccer-specific venues-the theory being that packed seats make for livelier crowds, which lead to higher ticket sales (attendance was up 4% last season). That, in turn, makes MLS a more attractive TV property. "When you're flipping channels with your remote and come across a Seattle Sounders game [the team leads the league with average attendance of 30,000] it's going to get your attention," says John Guppy, the former president of the Chicago Fire who now heads Gilt Edge Soccer Marketing, a sponsorship agency. "Something exciting is going on, and you're going to watch."
The Whitecaps will be sharing BC Place with the Canadian Football League's BC Lions, but a $563-million renovation will give the club an intimate, 22,000-seat soccer-only configuration within the larger venue. And the team expects to easily top out at 16,500 season's tickets; it took 5,000 reservations in the 48 hours after they went on sale.
Turning a profit will take time. But Mallett is taking the long view-much like the United States Soccer Federation, which sees the development of soccer in the United States as a 50-year project that started with the 1984 Olympics in Los Angeles. "We're not in this to flip," says Mallett. "We're believers, and we want to turn this over to our kids."
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Soccer's allure, from an investor's point of view, has always been its global appeal. The English Premier League, one of the world's most lucrative sports franchises, has revenue of $3 billion and 600 million viewers in 200 countries. Footie fever has slowly spread across North America-there are now more youth soccer players registered in the U.S. than in any other country in the world, and soccer participation outstrips hockey in Canada by 50%. There are also elite player development programs and an emerging professional culture, thanks in large part to MLS. "People don't realize that all of this has only come together in the past few years," says Guppy. "This didn't exist before."
Adidas-the leading global soccer brand, with $2 billion (U.S.) in soccer sales in 2010-sees MLS as a key beachhead in its battle against rival Nike, both in North America and abroad. The German apparel concern inked an eight-year, $200-million (U.S.) sponsorship deal with MLS last summer.
It's a major endorsement for the league. But making money is not simply a matter of sponsorships and ticket sales-though they will be the Whitecaps' bread and butter as it racks up operating expenses in the range of $13 million to $15 million. But league revenues, Mallett says, are "incremental" to the Whitecaps' business plan.
In most respects, the revenue stream for an MLS club is no different than for any of the more familiar North American professional sports: ticket sales, with a portion going to the league; local TV and radio rights; sponsorships (Bell is reportedly spending at least $4 million to have its logo plastered on the Whitecaps' jerseys); and in-stadium revenues. "Nothing you haven't heard before," says Mallett.
He believes that to make MLS work long-term, however, it must move toward a true European-club model. That means professionally run academies, where the best teenagers are invited to train-all expenses paid-with the aim of graduating to the big club. Due in part to the Whitecaps' insistence (Kerfoot serves on MLS's technical committee), all clubs are now mandated to have an academy. Vancouver is spending upward of $1 million annually on its program. MLS has also reinstated a reserve league, so players on the 30-man squad who aren't getting enough field time can play against each other and maintain match fitness-a missing ingredient for developing players. "You have to take more responsibility," says Mallett, "versus the original concept of MLS, which was: We'll go buy a player, we'll put them in a central pool, and we'll push them out to you guys. We won't worry too much about it, and some players will bubble up. But if not, we go rent a guy."
Some of the benefits of the European club system are soft. "The clubs serve as the aspirational destination for young players," says MLS commissioner Don Garber. "They can dream of some day playing on the same field they've been looking at from afar for years."
But it can also pay off in hard cash. Teams that run their academies well enjoy a competitive advantage, since league rules exempt homegrown players from counting against the salary cap. (In MLS, that sits at a low $2.6 million per team, though clubs can add designated players above the cap, which explains how international stars like David Beckham and Thierry Henry have suited up for the L.A. Galaxy and New York Red Bulls for salaries in the $6-million [U.S.]range.) And while the major North American sports leagues generally discourage the outright sale of players, in soccer, it's part of the game. Talent is a global commodity-one that can be highly lucrative (see "Playing the market," above). Toronto FC, for instance, reaped a $5-million transfer fee (one-third of which they shared with their MLS partners) from Glasgow Rangers for the rights to their No. 1 pick, Maurice Edu, after he had a strong rookie season in 2007.
The Whitecaps seem to have a similar end game in mind. At the MLS SuperDraft in January, they made 17-year-old Omar Salgado their No. 1 pick. He won't even be able to play for the Whitecaps until he turns 18 in September, but the 6-foot-4 striker has already been training professionally in Mexico for a year and a half, and he has the size and pedigree to be on the radar of soccer's über-rich. English Premier League clubs like Arsenal are reportedly tracking his progress. "Our philosophy is to develop players for the Whitecaps first, but also to develop players that we can sell," says Mallett. "We're in the business of buying and selling players. There's money in it. You develop one player and it can cover the cost of the academy for multiple years."
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The Whitecaps and TFC recognize that their efforts to grow the game and ignite passion for the sport can only take soccer so far. Its ultimate potential rests, to a large extent, in Ottawa, with the Canadian Soccer Association (CSA), soccer's governing body and holder of perhaps the most lucrative franchise of all: the Canadian national team. Adding a third major market (Montreal) should help the league's prospects as a national television property-MLS has partnered with TSN, which will broadcast a game each week throughout the season, featuring at least one Canadian franchise. And the hope is that MLS can, over time, replace the Canadian Football League as Canada's second-most valuable TV franchise, after hockey. It's ambitious: A good TFC audience last year was in the 130,000 range; CFL games can draw a million viewers for a key matchup. It won't get there without a catalyst-in particular, international success. "Let's face it," says the Whitecaps' CEO, Paul Barber. "National teams and World Cups drive interest in the game, not the other way round."
Which, on the surface, seems like bad news. Canada ranks 80th in the FIFA rankings and last appeared in the World Cup in 1986. Its sad-sack performance internationally is one reason soccer has yet to go completely mainstream here, and in turn casts doubt on MLS's potential to truly break through. "The professional teams in the three cities will drive things-to an extent," says Scott Moore, president of broadcasting at Rogers Media. "But the country is thirsting for some soccer success. I think the Canadian national teams, women and men, are going to be crucial to driving interest in the country."
The game would get a major boost here if, as expected, Canada is named host of the 2015 Women's World Cup. But the ace in the deck may be a change in qualifying procedures for the 2014 Men's World Cup, which could extend the process over three years in the buildup to the event in Brazil and see the Canadian national team hosting three games in each of those summers. (Since Canada has always failed to qualify early in the process, most Canadians barely noticed it.) The possibility that the Confederation of North, Central America and Caribbean Association Football may be awarded a fourth spot in the World Cup by FIFA only increases the possibility that Canada may end its World Cup drought.
If there's a perfect storm for soccer, say its advocates, it's a Canadian national team well-represented by locally trained MLS stars playing key roles for the Canadian-based teams, who in turn form the backbone of the national side as it plays meaningful matches on home soil for the right to go to the World Cup. "We're closer to that than people think," says CSA general secretary Peter Montopoli. "If we were playing home games with a chance to go to the World Cup, what do you think that would be like? I think the stadium would be sold out and everyone would be wearing red."
Mallett would be right there with them, and he's unabashedly keen about trying to make it happen. To the task, he brings his trademark enthusiasm. "He's like that for everything," says Barber. "If you ask him to talk about the grass, he would be overwhelmingly positive and enthusiastic about the grass, but you know what? You need that." Then there's his willingness to roll up his sleeves. Shortly before landing the MLS franchise, Mallett bought a minority share of Derby County Football Club, a 127-year-old institution that competes in the Football League Championship, one rung below the Premier League. He sits on the board of directors there, in part to absorb the nuances of the professional soccer industry firsthand, all with an eye to bringing what he learns back to Vancouver. He also sits on MLS's Canadian broadcast committee and the league's digital committee.
All this to say, he believes in soccer, but not passively. Guys nicknamed Sparky don't do passive. "It's not like some leagues, where you wait and see what the league is doing and wonder how much money you're going to make," says Mallett. "With the MLS, you're in it. We're doing it."
And so, on March 19, he will sit in Empire Stadium, a pitch he used to play on, cheering on a team he grew up supporting and now owns. He'll be accompanied by a quartet of his old B.C. soccer buddies and, hopefully, 30,000 of their closest friends, as the Whitecaps make their home debut as an MLS team.
"I'm a grower, a builder, an entrepreneur guy," says Mallett. "You have to work. When I go to New York, it's not like I go to the office and say, 'Nice to see you, Don. How much money are we getting?' It's, 'Okay, what are we doing? We have a problem? What's the problem? Okay, I know some people, I'll call them.' For some people, that'd be a pain. For me? Fantastic."