SportBusiness International

Analysis and insight for the global sports business

The Twelfth Man

The Twelfth Man

By: Elisha Chauhan

1 Jul 2015
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With investment from traditional financial institutions still difficult to secure for sports properties looking to develop their facilities, sports fans are stepping forward to help fund projects. Elisha Chauhan finds out how and why.

From Kickstarter to GoFundMe, the internet has a myriad of platforms that allows the public to donate money to a cause – whether that be for personal use or for a start-up company – growing this so-called crowdfunding economy to over $5 billion in 2013 according to Forbes, with a 2013 World Bank report also forecasting crowdfunding in China alone to be worth $50 billion by 2025.

Despite appearing to be in a wealthy and glamourous industry, sports properties have also taken to crowdfunding, particularly when it comes to raising funds for stadia and facilities – an area in which banks have been shy of investing in following the 2008 economic downturn.

The recently launched Tifosy – backed by former Juventus and Chelsea striker Gianluca Vialli – provided English football club Portsmouth with an online platform where fans could donate money so that the team could have permanent pitches for its academy.

Banking is an old school model – we bypass these institutions to get finance directly from the public

With a target of £250,000 set to fund the facilities – which would be added to its new £500,000 first-team training ground complex funded by the club’s executives and supporters trust in May 2014 – over 5,000 fans raised a total of £270,000 in just eight weeks of launching the campaign.

Fausto Zanetton, the founder and CEO of Tifosy – which is a variation of the Italian ‘il tifoso’ meaning ‘fan’ – said the Portsmouth project gave him the confidence to quit his job as an executive director at financial services firm Morgan Stanley to run Tifosy full-time from his London office in April this year.

“If there’s any sport that has a loyal fanbase, it’s football, so there’s no reason why clubs can’t monetise from their fanbase to build something that’s sustainable,” Zanetton told SportBusiness International.

“Portsmouth was in a situation where the club’s existence had already been saved by its fans [in 2013 when the club sold shares to its supporters to avoid liquidation]. The club hadn’t really considered to start an online campaign, so we approached them to explain the concept and benefits, including higher volumes to lower the minimum investment threshold, as many of the fans couldn’t afford the £1,000 needed to buy a share in the club.”

Zanetton – who also held positions at financial service providers Goldman Sachs and PwC – adds that he witnessed first-hand how difficult it is for football teams outside of the English Premier League to raise money to develop infrastructure.

“These [smaller] clubs don’t have a lot funding options out there, so we basically want to bridge the gap between getting the capital and the millions of fans out there that want to give something back to their club. It’s a global problem that really needs to be solved, and that’s where we come in to provide a solution,” he says.

“The traditional way of financing via a bank – even for a partial loan – is going to be really expensive to pay back. It’s an old school and old world model, and we bypass these institutions to get finance directly from the public.”

Crowd Mentality

One of the most notable cases where fans have contributed to the development of their football club’s stadium development came via second-division German football team FC Union Berlin.

The then-third tier club turned to its loyal fans in 2008 for the redevelopment of its Alte Försterei stadium having been given a “lack of support” by its local Köpenick district and the City of Berlin governance, according to the club’s president Dirk Zingler. However, that wasn’t the first time that Union Berlin had called upon its supporters for help in modernising its stadium that was first built in 1920, so the club was hesitant in requesting its fans to aid a complete overhaul of the venue.

“There was no other choice but to try it this way,” Zingler told SportBusiness International. “Because our fans have previously helped fund the stadium, it was a risk [asking for help], but it was even more of a risk not to ask them for their help as the club would have had to move out into another stadium.”

Starting in the summer of 2008 and completed a year later, the refurbishment included replacing the deteriorating terraces, covering the terraces with a roof, installing new seats and undersoil pitch heating. However, rather than directly donating money, around 2,500 Union Berlin fans instead donated their time – volunteering 140,000 hours of labour in total.

Union Berlin then sold shares for the ownership of the stadium to club members and sponsors – at €500 each with a maximum of 10 shares per holder – so that, ultimately, the club could reward its fans for their work with co-ownership. The club raised a total of €2.73 million by selling shares, which went towards funding a new main stand in 2012.

“We first introduced the idea at a very special club members meeting. This was followed by a huge outdoor campaign in Berlin – the catch phrase was ‘We’re selling our soul. But not to everyone’. The idea was, that the stadium Alte Försterei is the soul of Union Berlin, and fans had to be member of the club to buy a share,” adds Zingler.

“Despite the usual difficulties on every building site like delay from bad weather conditions, the only problems we had with crowdfunding is too many people showed up and there was not enough material or tools, or when we needed a specialist, like a plumber a for instance, but instead we had a teacher or a nurse.”

Joining the Club

Crowdfunding can come in various forms, as seen by the 2013 Jockey Club Racecourse Bond was the first mini-bond in British sport, raising £24.7 million towards the £45-million development of its Cheltenham Racecourse to be completed by the end of the year.

Whereas retail bonds tend to be for cash-only investment for straight cash interest returns, the Jockey Club’s mini-bonds were five-year fixed-term shares that offered a mix of 4.75 per cent per annum cash interest and three per cent on top of that in its loyalty points, known as Rewards4Racing. Investment was restricted from £2,000 to £100,000, with £10,000 the most common investment amount. Around 2,100 applicants funded the scheme and 61 people applied for the maximum £100,000 of Racecourse Bonds.

The initial fundraising target was £15 million, which was exceed by £3.6 million before the May 17 deadline was extended for around a fortnight to create the £24,743,500 total.

“We very closely analysed what [retailer] John Lewis had done with retail bonds, and I thought that it may work for the Jockey Club as it is a brand that people trust, there was a compelling case of what we were spending it on, and a significant number of our customers are hugely loyal to horse racing and the Jockey Club,” Paul Fisher, Jockey Club Racecourses’ group managing director, told SportBusiness International.

“Investment came from a variety of areas and demographics, because when we went out with a very good cash coupon rate of 4.75 per cent, we managed to attract a number of people who basically had money sitting in a building society and were only earning 0.5 to one per cent as an interest rate.

“I would recommend mini-bonds as a form of fundraising for other sports rights-holders. We’ve advised a number of other sporting organisations about mini-bonds on an informal basis and continue to do so.”

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