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Venture capitalist argues Chivas USA failed because of MLS business model, and LAFC won't work either

Food for thought - what's your take?

Eric Hartline-USA TODAY Sports

Here's some interesting reading from a website called Silicon Beach VC I came across. Published last week, the person behind the website, Robert Wilson, argues there were two main causes of Chivas USA's failure, and that LAFC is doomed as well.

The post says the two causes of CUSA's demise were the brand itself being a mere copy of something more robust elsewhere, and the de facto treatment of Chivas USA as a B team to Chivas de Guadalajara (not strictly true on the field throughout the team's history, but certainly true in 2005 and 2013) led to discerning consumers turning away from the MLS team. That's a fair point in the end, and one we've seen leveled at the team from a variety of sources.

But Wilson also argues that it was the business model of Major League Soccer, and not Chivas USA's actual business dealings, that sank the club. On this count, I don't know that I entirely agree.

Wilson's clear point in the piece overall is that MLS' business model, which presumably is referring to the single entity concept, is hampering teams from actually investing properly and growing their individual clubs to global competitors with Europe's behemoths.

That point is also not unique on some level, since even those who agree with the single entity approach (in which the league technically "owns" everything, and the actual owners are more like stakeholders in the league overall as well as their local teams) also think it's time for MLS to expand spending from its currently frugal limits, compared to other American pro sports and soccer leagues in other countries.

And there is a segment of those, MLS fans or not, who also believe that club owners should have absolute control over their teams, akin to other American pro sports (let's ignore salary caps in those sports), and should be allowed to spend as much (or, presumably as little) as they like on their club.

But I dispute Wilson's assertion that it was the MLS business model that did Chivas USA in. If that was the case, why was Chivas USA the outlier, the only team to be folded since expansion began again in 2005?

To take the agency of Jorge Vergara out of the equation, and place the blame at the feet of the system and not on the stakeholder who truly worked to slash operating costs, payroll, truly turn his MLS team into a farm team, omits a significant part of the story for why Chivas USA failed. I understand Wilson's point, but from my vantage point, I understand why prudent spending is a hallmark of MLS, considering the checkered history of professional soccer in the United States.

And if the shackles had been removed from MLS, so to speak, and Vergara had the freedom to spend as much as he liked, would he have turned Chivas USA into a real player in the world? How about just in MLS?

I'd argue that based on what we saw under the circumstances, he would not. In fact, CUSA would have fallen even further behind, since other teams could have run dozens of laps around the Goats in an investment sense.

Ok, so the Chivas brand was bad, and new MLS team LAFC won't worry about that, will they? Interestingly, Wilson argues the current LAFC placeholder brand is bland (which is valid, though one could argue it's "classic" for soccer) and could doom the new club.

As Wilson states:

We argue here that to maximize LAFC's return on investment (ROI) and Los Angeles' full potential as a football venue to rival London, Madrid, Barcelona, Rio or Buenos Aires, two things must occur:

(1) the choice of an exceptional brand that breaks the mold of the past and

(2) changes to or better, a restructuring of the business model.

The Big 4 (the NFL, the NBA, MLB and the NHL) comprise 122 teams across the United States and Canada that generate USD 25 billion a year in revenue. The Big 4 also represents a generic branding model that has saturated the marketplace. There is simply no room left.

MLS and all prior attempts dating back over 40 years of current and failed professional football leagues have adopted the Big 4 branding model. The biggest brand created to date, which comes directly from the Big 4 mold, has been the New York Cosmos, and we know that story.

Obviously, it's easier to critique the current situation than to offer solutions to problems, and I think Wilson provides considerable food for thought. Maybe in a dozen years, his conclusion about the suitability of adding another second MLS team in Los Angeles will be accurate:

The third lesson is this: we know definitively that given MLS's branding model and the revenue generating restrictions of the current MLS business model, two teams in LA cannot make it.

I mean...that's bold. I'm obviously pretty far inside this whole thing, but to hold up the terribly-run Chivas USA, attribute the flaws of the team to the brand (a common point) and the MLS business model (a more novel argument) as the reasons why LAFC will fail, two weeks after the team was announced, and to argue it won't work seems pretty overreaching. Clearly, his entire case hinges on the argument about the MLS business model ruining everything, and I don't think it's nearly the harbinger of doom Wilson does.

Obviously, positive changes can be made to the system, and it seems like a worthy goal to appeal to a global audience in order to build a club's clout. But isn't the establishment of local ties the entree to those bigger heights? No team has become a truly global big club without having deep roots in the home city first, something that, among other things, Chivas USA largely failed miserably at.

What do you think? Leave a comment below!