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Bad Vibes: The Story of Houston Dynamo's Ownership (Part 1)

With LAFC, the ownership picture is light-years away from where it stood just a decade ago. Looking back into the early 2000's, Dynamo Theory begins a two-part series, tracing the roots of Houston's much-maligned owners into San Jose to examine why fans just don't feel the love from AEG.

Tom Szczerbowski-USA TODAY Sport

Less than 48 hours after the greatly lambasted Chivas USA folded, Don Garber stood on a stage with 22 star-studded investors to herald the answer to the "LA2" conundrum. It was with these owners that a stadium would be built, a club would earn an identity, and the fans would flock. Finally, the biggest entertainment capital of the world would be able to sustain two teams and, here's the twist, it would happen in two seasons -- far less than the 10 years that Chivas USA languished through.

Seeing images of the crowded stage and a highly polished presentation, it was difficult to not feel the optimism about the direction of MLS and what, in 2020, it may look like. MLS isn't concerned with survival anymore.  Everyone wants in on this action; baseball and basketball team owners, sports legends, and even the founder of YouTube. It's an enviable sight, especially coming from fans of, say, the Houston Dynamo.

Heading into the tenth season, Dynamo fans have grown exhausted with ownership, particularly 50% stakeholders AEG, despite having tremendous success in the course of their existence. It's true that as far back as 2004, Don Garber has desired having AEG (then owners of five MLS clubs) divest their multiple-team ownership. And yet, after peeling away over the years until just Houston and LA Galaxy were left, AEG finally approached the precipice of selling ownership to Rockets owner Les Alexander and then backed away. Garber, too, seemed to back away from prodding AEG to sell. Speaking during the 2012 MLS Cup (which featured both AEG-owned teams vying for the trophy), then-president and CEO of AEG, Tim Leiweke, was asked about the failed sale to Les Alexander:

"We tried to do the right thing for the league, but it didn't work out. They ought to leave us alone now."

The Origins of Ownership

To understand the ownership of the Houston Dynamo is to retrace its history into the infancy of MLS. Take a snapshot of MLS in 2000. Don Garber has been commissioner for one year with orders to find new investors. The league still owns the Dallas Burn but have divested the rest of the clubs to AEG (5; Colorado, Chicago, LA, NY, DC), Lamar Hunt (2; Columbus, KC), and the Kraft family (2; San Jose, New England). There hasn't been a new investor since 1997.

In late 2000, though, that changes. Hunt agrees to pick up his third franchise (Dallas), thereby having no league-owned clubs in MLS -- an important milestone. Kraft, with MLS' help, brokers a deal with Silicon Valley Sports and Entertainment (the business arm of NHL's San Jose Sharks), becoming the first new investor/operator group in over three years -- another important milestone. SVS&E, however, would be sure to have an escape clause, effective after Year 1, in the event that MLS isn't as profitable as they thought (to this point, only Columbus, with the sole Soccer-Specific Stadium in the US, turned a profit).

SVS&E turned out to be quite good as operators. A personnel overhaul established Frank Yallop as head coach, secured a struggling young player from Bayer Leverkusen (that would be Landon Donovan, by the way), and the Earthquakes would cap SVS&E's first year in charge with a MLS Championship win over the Los Angeles Galaxy.

But while SVS&E were respectable operators, investment wasn't their strong suit. The investment group was still in their early goings and weren't turning profits with the Earthquakes. Their overall business was hurting and they wanted out with their escape clause. MLS, having just hit a major milestone with new investors, would not want to lose that investor just a year later. AEG, already the largest investor in the league, was called upon for help:

"We jumped into San Jose as a favor [to the league]. That franchise was going to fold." - Tim Lieweke, 2005

AEG was brought into a partnership with SVS&E to provide investment while leaving team operations to Silicon Valley. However, this deal was not struck without concessions from the MLS Front Office. Major League Soccer was pressured to make changes to its operating structure with teams, thereby giving a greater share of revenue from ticket sales, sponsorship, and television back into the investor's pockets. With this new structure in place, AEG could feel more comfortable with moving into San Jose, bolstered by increased revenue from their existing five clubs.

The following year, however, SVS&E was still struggling and soccer, as successful as San Jose might have been, was a distraction. Silicon Valley needed to divert attention back to their primary business and away from MLS. Club operations fell to the reluctant AEG.

Tim Leiweke:
How He Learned to Stop Worrying and Sell the Club

AEG entered San Jose as a favor and now assumed full ownership of an inherited team they didn't want with no local investors, playing in a college football stadium with an unfavorable revenue split from parking and concessions. Speaking some time later, Leiweke would speculate that AEG lost more than $20 million during the few years spent searching for a local investor.

From Day 1, San Jose had been playing in the decrepit (and appropriately named) Spartan Stadium, situated across I-280 from San Jose State University. There were football lines, the field didn't properly fit into the stadium, and, thanks to early league negotiations, AEG was losing money with every game played in the cavernous building. Spartan Stadium was a blight and the biggest reason that the Earthquakes were a drain on ownership. To secure investors, there would need to be a plan for a stadium.

In 2002, securing a stadium for an MLS franchise was not easy. Columbus built theirs, sure, but no one else was fortunate enough to do the same. Hunt Sports Group was close in Dallas and Kansas City, but those negotiations fell through, too. In the few years following full ownership, AEG wouldn't come very close to finding a site for a new facility.

And so, around 2004, rumors began to surface about the club potentially moving to a new market. San Antonio sent Mayor Ed Garza to MLS HQ for a discussion on a 2006 franchise. There were even whispers about AEG and Club América, the Mexican league team eager to invest in MLS a year after Chivas USA entered the market. Perhaps, the theory went, América would take the club off AEG's hands and move it to Houston.

These murmurs put pressure on the City of San Jose to get plans together for a stadium. Passing up an offer to renovate Spartan Stadium, AEG and the Earthquakes were seeking a publicly funded stadium deal at a cost of more than $40 million to the taxpayer.

"In this economy... the whistle has blown the game over before we've started to play." - San Jose Mayor Ron Gonzales, 2004

City officials didn't budge and AEG prepared for sale. In August of 2005, AEG and then-Quakes GM Alexi Lalas organized a meeting with Soccer Silicon Valley to make them aware the team was leaving. SSV was a group of Quakes die-hards from grassroots beginnings that put away their banners and donned suits to meet Leiweke and Lalas. After a pleading from SSV at their sit down meeting, AEG instead decided to give a lifeline. SSV would have one month, until September 17th, to find a local ownership group willing to build a stadium.

It was close. According to a 2006 City of San Jose memorandum, Silicon Valley Sports & Entertainment even re-entered the picture, ready for a more stable investment. SVS&E began closed-door discussions with the City of San Jose on how and where to build a stadium that might finally make financial sense for the Earthquakes. But the City of San Jose continued to have detractors and the deal would go cold just before the deadline. The last hope for the San Jose Earthquakes quietly retreated and, in November, AEG would ask the MLS Board of Governors for permission to move the club.

On Thursday, December 15, 2005, Don Garber and AEG announced that the team was being relocated to Houston. According to Leiweke, Houston seemed a more fruitful environment to find a local investor willing to put money into a soccer-specific stadium. There was even rumored support of a 17,000-seater after (what would become) the Dynamo had put in a couple years at Robertson Stadium.

Instead, AEG continued to be an owner of an inherited team they didn't want with no local investors, playing in a college football stadium with an unfavorable revenue split from parking and concessions.

In the next part, we'll look into how AEG was finally able to find ownership for the Dynamo... in Los Angeles. Also, after years of local politics, AEG was able to foot the bill for a downtown stadium. So, why do fans have such a contentious relationship with our owners?