Debunking the myths behind Beckham's contract
In the furor following the announcement that global soccer icon David Beckham has agreed to what appears to be a record-breaking $250 million, five-year contract with the L.A. Galaxy, most of the questions have centered quite rightfully on what Beckham will do for the league and how Major League Soccer will fund the deal (and perhaps bankrupt itself in the process).
The simple answer is that MLS and AEG won't actually pay for the contract -- at least not the bulk of it. AEG, a subsidiary of the Anschutz Company, helps ensure MLS' financial backing and owns the Chicago Fire, Houston Dynamo and Los Angeles Galaxy.
On first glance, Beckham's deal appears to be the biggest contract in sports history (reportedly paying Beckham $50 million for 2007), dwarfing that of the heavy hitters and trendsetters in other major sports (MLB's Alex Rodriguez made $25 million in 2006 and the NBA's Kevin Garnett is making $21 million over the course of the '06-'07 season).
However, on closer inspection, one can see that the reported contract estimates have been carefully worded. AP reported that the Galaxy, citing industry experts, said the Beckham deal "is worth more than $250 million in salary and commercial endorsements." The key phrase to note here are the words "commercial endorsements" and not the word "salary." It's actually more an estimate of what people think he could potentially earn as opposed to what he will receive annually in paychecks from MLS and the Galaxy.
The reality is this: The salary portion of Beckham's deal is relatively minuscule compared to the huge figures being bandied around and is well in line with what most top soccer players around the world earn. Bear in mind also that Beckham probably decided only on Thursday to sign with MLS after Real Madrid's contract offer almost certainly would have required him to take a pay cut (this is conjecture, though, since the details of his negotiations with Real Madrid have not been made public).
A league source confirmed to ESPNsoccernet's Kristian Dyer two weeks ago that the offer on the table from MLS to Beckham was a four-year deal worth $36 million in salary (at $9 million annually). Reuters' Michelle Nichols reported Thursday that MLS sources say his annual playing income is only in the "single-figure millions." Even if MLS upped its original annual salary offer, the logical assumption is that it would only be by a few additional million or so per year.
Since Beckham is reportedly making $6 million to $7 million per year with Real, paying anywhere from a $2 million to $4 million premium to land him is just smart business.
This being the case, remember this: According to the Designated Player Rule, MLS is on the hook for only $400,000 of Beckham's salary, with AEG and the Galaxy stumping up the remaining $8 million to $10 million.
So where, exactly, is the remaining $39 million to $40 million a year coming from?
The simple answer is endorsements and creative clauses stemming from Beckham agreeing to play in MLS. It's rumored that Adidas will be paying an additional $5 million to $6 million a year just to sponsor the Galaxy's jersey, ironic since they already manufacture them. If that doesn't tell the story of Beckham's endorsement appeal, nothing else will -- and presumably Beckham will get a cut of that fee.
"Most of the value is from David's worldwide endorsement," MLS deputy commissioner Ivan Gazidis told Reuters on Thursday. "That's a separate deal. That's his deal with [Creative Artists Agency] and 19 Entertainment. That's not something we're involved in."
19 Entertainment, for those of you who don't know, is Simon Fuller's company. The same Simon Fuller who created and owns the rights to the "American Idol" and "Pop Idol" phenomenon. He's also the one-time guiding mentor behind the success of the Spice Girls and the former Posh Spice herself, Victoria Beckham.
It doesn't take a genius to figure out that as part of the lure to draw Beckham to MLS, one can assume the Beckhams will be given a varied array of choices in film and TV with which to conquer America. Whether this will result in the much-mooted talk show for Posh, a "Beckhams" reality TV show or Victoria's addition to the "American Idol" judge panel, one can only wonder. However, it's clear that a large portion of that additional $40 million or so annually factors in the prospective TV and film platforms.
Endorsement-wise, the figure also probably contains the values of any proposed deals that Beckham will sign pending his arrival in MLS. Again, it's pretty safe to conclude that certain domestic U.S. brands will only have agreed to use Beckham as an advertising spokesman if he's actually in MLS.
The exact parameters of his deal are still undisclosed and MLS has so far been unwilling to comment specifically, but there might also be language in the contract about Beckham's percentage of gate receipts or commission from shirt sales.
There's no doubt there are clauses about Beckham's image rights, the source of much contention with Real Madrid, which wanted to retain 50 percent control over his rights in any new deal. Presumably the Galaxy agreed to take a lesser portion of his image rights, or even ceded Beckham total control over his image rights. Perhaps AEG has lined up additional investors willing to invest in Beckham's soccer academy project.
It's hard to put an exact dollar amount on all of this without knowing the specifics, but it's clear at this point that the bulk of his $250 million deal factors in external elements outside of MLS and AEG that are contributing to the total valuation. Clearly the $250 million figure being bandied about is just another example of the clever marketing machine behind the Beckham brand, designed to raise the profile of Beckham and the MLS deal even further.
Case in point: When the NBA's Cleveland Cavaliers signed high school phenom LeBron James in 2003, they signed him to a three-year deal that paid him $12.96 million. If James' advisers used the same creative license that Beckham's advisers have done, they could easily have factored in James' reported $90 million shoe deal with Nike at the time and other various endorsements (such as Sprite) and reported that James had signed a deal "estimated to be worth up to $120 million-plus, richest ever for a teenager in sports history."
This being the case, the naysayers can stop panicking about the inevitable ruination of MLS finances. Yes, MLS will continue to pursue other high-profile players in the wake of the Beckham deal, but as in the case of the Beckham deal, they'll proceed with fiscal prudence and won't break the bank to get them.
"The league will continue to operate on a sensible stage," said Jon Oram of Proskauer Rose, one of the two lawyers who worked on the Beckham contract. Mention the possibility of player unrest and any potential labor dispute as a result of Beckham's salary, and it's something the league has already taken into account.
"Our labor lawyers have consulted with MLS, and [Beckham's contract] has been thoroughly vetted in that respect," said Brad Ruskin, who also worked on the deal.
So what does it all mean? No doubt there might be a jealous player or someone out to make his name who could choose to take an in-game swipe at Beckham, but it's hardly a situation Beckham hasn't already faced elsewhere in the world. The reality is that most MLS players are smart enough to realize that in the long run, the Beckham deal will probably mean more money for them all. As for MLS? Given the true rationale behind the figures, it's safe to assume the league or the Galaxy won't be bankrupting themselves anytime soon over this deal.
Jen Chang is the U.S. editor for ESPNsoccernet and also writes a blog Armchair Musings. He can be reached at: firstname.lastname@example.org.