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Chattanooga FC Offering Supporters Chance to Buy Equity Stake in Club
Chattanooga Football Club has announced a limited offering (selling 8,000 shares or +/- 30% at $2.95 million valuation) that gives supporters of the local soccer team the opportunity to own a piece of the club. The capital raised is being used to fund the organization’s transition from amateur to professional players and to turn Chattanooga FC into to a year-round operation in preparation of fully joining the NPSL for the 2020 season. The club becomes the 1st American pro sports team to take advantage of reformed securities laws (see: Section CF) that now permit non-accredited investors to invest in corporations via online crowdfunding platforms.
Howie Long-Short: Section CF is part of the Jumpstart Our Business Startup Act (JOBS). As Tim Kelly, co-founder of Chattanooga FC, explained “the law was passed to move money from Wall Street back to Main Street; to give communities access to capital that wasn’t available prior. Smaller companies – including sports teams – didn’t have access to the public markets, they couldn’t afford to file a conventional IPO (think: $500K+ in legal fees). Most of America, on both the investor and the corporate side, had been frozen out of having access to that sort of capital”, which explains why the American sports landscape has been dominated by such a small group of wealthy owners.
Crowdfunding gives the average fan the chance to invest in pro sports, but don’t expect your favorite NFL, MLB, NBA or NHL franchise to raise money in that manner. $1,070,000 (per year) is currently the most you can take in under Section CF, just enough to buy .0036% of the cheapest NHL franchise (Phoenix – $290 million).
Chattanooga FC is the first U.S. soccer club to offer its supporters the opportunity to own a stake, but the practice is commonplace in Europe; in fact, Germany’s Bundesliga requires the public control 51% of each club.
The Big 4 sports leagues have bylaws designed to limit the number of minority stakeholders in a franchise, so I asked Tim why a pro sports franchise would want to raise public money (and have many minority shareholders)?
Tim: Ownership cements the fans to the club in a way that nothing else does, it’s literally and figuratively getting fans invested in the team; we liked the concept of developing true and deep community engagements with our supporters.
Do Chattanooga FC shareholders have any input on team decisions?
Tim: Yes, shares include voting rights. Shareholders will vote to appoint a Director, who will sit on our Board of Directors; with full voting rights. They can veto changes in colors, the logo and they get to elect players to the club’s hall of fame.
Soccer has a long history of clubs losing money, but Chattanooga FC operates a business model (predicated on ticket sales) that’s allowed them to cash flow positive “more years than not.” That doesn’t mean that shares of the club will return dividends though. While the shares Chattanooga FC is selling are registered securities, regulated by the SEC, that hold par value (and liquidation rights), there’s no secondary market for shareholders to sell their stake; supporters hoping to generate financial returns on their investment would need the club to sell at a profit to see any upside.
I asked Tim, what Chattanooga FC can do to increase its market cap?
Tim: Part of it is moving to this league. Revenue generating events for us are games, so moving to this league – with professional players – allows us to play more games over a longer period. The other part is promotion and relegation, which we hope will ultimately prevail in the United States. Should that happen, we’ll have the chance to fight our way up the ladder and move into much larger leagues that would increase the value of our team exponentially.
Fan Marino: Tim’s point about promotion and relegation is valid. If Chattanooga FC were to play at the highest level of American soccer, the club’s valuation would skyrocket, but MLS owners have long opposed that model; you may recall back in July ’17, the concept was a non-starter for the league despite a $4 billion media rights offer from MP & Silva (which has since defaulted on other league rights) sitting on the table. The reason MLS owners oppose promotion and relegation? They can’t sell expansion franchises for $150 million+ if there’s a chance the club could be relegated to a second-tier division.
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