How much would it cost to buy the Lamar Hunt US Open Cup?

Let’s pretend that we could buy the Lamar Hunt U.S. Open Cup from the US Soccer Federation. It would not cost all that much, and in a sports universe where owners usually play the villains, we could be the heroes. A new owner would give life to a neglected tournament and return open soccer to the American consciousness.

This year the tournament was canceled for the second straight year due to the pandemic. Pretty much all sports are back to business as usual, which crystalizes a truth we’ve long suspected: this tournament is not a priority.

The U.S. Open Cup is an important tournament because any local pub team in the country has a chance to hoist the trophy. Similar Cups happen all over the world, with the most covered being the FA Cup in England, a tournament that boasts over 700 soccer clubs and plenty of TV coverage, even here in the US.

But in the US, where about 100 teams enter in a normal year, the tournament has value to only the most ardent American soccer fans. Fans have to be willing to find games on Youtube (or more recently ESPN+), search for information on websites built before mobile phones, and manufacture any David versus Goliath romance in their own heads. 

In England, the prize money was $21.8 million in 2020/21 , and teams get a share of television and gate revenue. In the US, the prize money in 2018 was $475,000, and the primary source of revenue for US Soccer were entrance and hosting fees they charged the teams.

The level of “investment” seems lackluster considering the Federation has had at least $100 million in undesignated and unrestricted assets sitting on their balance sheet for years, growing with stocks, bonds and other securities.

To the credit of the Federation, they have been spending some of the stockpile in recent years. It’s just not going to the Open Cup.

The time is now to move the Cup to a new owner. The price, as you will see, is surprisingly low. If you have rich friends, or are capable of running a solid GoFundMe campaign, you should be in position to make a compelling offer.

How much is the tournament worth?

How much would it take to wrest this tournament from US Soccer? It may need to be a hostile takeover, but soccer is supposed to be the people’s sport anyway. The Federation’s financials are publicly available back to 2005, and the revenues and costs of the Open Cup are accounted separately. Here is a chart of that ignominious past.

From the 2019 tournament, the last year they held it, U.S. Soccer claimed $1.5 million in revenues and roughly the same in costs. For some context around that $1.5 million, the average MLS franchise makes about $35 million annually, according to Forbes. So the entire tournament earns less than 5% of what one MLS team generates.

The growth of the tournament also underwhelms. There was a jump in revenue in 2013, when the tournament increased in size, but since then revenue growth has been 4% per year. That’s not enough to get macro economists excited, let alone someone connected to the business world. During that same timeframe, Forbes estimates that MLS revenues have increased 9% per year.

The missed opportunity is in plain sight. This tournament is both small and not growing. Meanwhile, soccer in the US is gaining popularity, especially among coveted younger audiences. While the tournament has some qualifying action for 2022 in process, the time is now for Kendall Roy to deliver a hostile takeover letter to US Soccer’s Logan Roy while he gets dressed for the wedding.

The Federation’s data provides a starting point for the offer. Valuing any kind of entity is always a mix of art and science, but we can get a solid range by trying a couple of accepted methods.

The first simple approach would be to find a revenue multiplier for this business. Forbes values MLS clubs with an average multiple of 5.8 in their last round of estimates. If we apply that multiple to the Open Cup we get a value of $8.6 million.

In the business world these multiples typically range by industry from less than 1 to almost 15, with an average of 3.0. MLS gets a higher score based on the growth rates and market size of their industry. Granting that same multiple to the Open Cup is generous, given the lack of growth and mismanagement. But funny things happen when you try to buy a business from someone who has been ignoring it – they suddenly want a piece of that potential. This number should provide an upper range price.

The more traditional hard-earned method for calculating the value of the company is determining the current value of all future cash flows. The wrinkle here is that the net income generated by the Federation is generated with a not-for-profit mindset, so it might not be completely fair, but it’s the data we have.

Let’s keep this simple and assume the average profit over the last 10 years will be the future profit going forward. The profits have been trending down lately so this seems like a fair, and maybe generous, way to establish a baseline value.

The average income of the Open Cup over the last 10 years has been $185k. If we assume this tournament makes the same amount for every year from here to infinity and decrease the value of that money by 12% per year, a standard assumption for cost of inflation plus the lost opportunity of investing your money elsewhere, we get a whopping value of $1.5 million.

This clearly represents a floor, but the value of this tournament, based on past results, probably does lie somewhere between $1.5 and $8.6 million. A fair offer for the US Open Cup is lower than the current USL expansion fee, last reported at $12 million.

This tournament has far more upside than a single USL side.

What could the tournament be worth?

We’re presumably interested in the US Open Cup because we believe we can grow it and increase the value of the tournament. So how big could it get? We’ve already spoken about the FA Cup, so let’s use the English system as a proxy.

Starting with a comparison of the top flights, the English Premier League revenues in 2019/20 were $4.0 billion, according to Deloitte. MLS earned revenue at 20% that level, or $0.8 billion, in 2019.

If we apply that ratio to the Open Cups, that would imply we could eventually grow the US Open Cup prize pool to $4.2 million, about 9 times it’s current level. It’s also then safe to assume we could make increase the value of this tournament by at least 9 times.

We wouldn’t get all of that money for ourselves, because some up-front investment is definitely needed to kick start this thing. Increasing the prize pool would be the first priority. Money, as we know, speaks loudly to our fellow owners, and if we want teams entering and starting their best teams, we need to dangle a bigger carrot. Investments in content, production quality, NFTs, whatever else, would also be needed to attract attention.

We just need a little bit of money, a desire to grow the Open game, and a vision. Those last two attributes are currently in short supply.