How Crowdfunding Can Save Pro Sports
It’s easy to get cynical about the business of sports in 2014. The tickets cost too much. The players make too much The owners offer the players too much. Not everyone hustles. There’s no competitive balance. The list goes on.
At the macro level, there is a giant misconception about pro sports. We treat our teams as though they are public utilities — part of the fabric of a community that will be there no matter what. Yet, they are almost all private, family-owned companies — multi-million (and sometimes multi-billion) dollar small businesses. And the owners are all rich guys. Yet, we shell out billions of dollars a year to them, wear their shirts and hats, and whenever the new jersey of the new big time free agent comes in, our response is “Shut up and take my money!”
Since Oriole Park at Camden Yards opened in 1993, there has been a drive among the franchises in all four of the major North American sports to get the brand new arena/stadium/ballpark to play. These buildings are expensive, and no good business owner wouldn’t think about asking the public for a little a lot of help. With franchise free agency in the mid-1990s, we found out that, yes, these businesses might pick up and move if they don’t get what they want. So the building boom began.
And if you don’t think it could still happen to your team, why do you think Los Angeles, the number two media market in the country, hasn’t had an NFL team since 1995? It’s not because L.A. doesn’t want one. It’s because of one word: Blackmail. Any NFL team that wants a new building but is running up against political stonewalling always pays a visit to Los Angeles to see what’s up. Within weeks, the agreement in the home city is done, and the taxpayer is on the hook for most, if not all, of a home facility for a private business.
Oh by the way, now the NBA has that blackmail market in Seattle.
But that building boom is coming to an end. Just about every club in the four majors has their building or is getting it soon. So what comes next?
That question should frighten taxpaying fans everywhere. But there was hope recently in my adopted home of South Florida, where Miami Dolphins owner Stephen Ross just had his bluff called on a multi-million dollar renovation to SunLife Stadium (er, Joe Robbie to us true South Floridians). Ross wanted public money, and fresh off the backlash from getting fleeced by the Marlins, Miami-Dade County said no. Ross floated looking elsewhere. The county said, “Fine. Do it.” And then Ross backed off and decided to pay for the bulk of the renovation himself.
Maybe this is the wave of the future in sports stadium negotiations, post-Great Recession. Undoubtedly, the talking points we hear about the economic impact of professional franchises have largely been proven to be overblown. That gives leverage to the public. “You want to leave? Fine. We’re not really going to miss your money, since you weren’t producing much for us anyway. And since it’s too expensive to go to the game, we’ll just find something else to watch on TV anyway.”
The Packer Model
It is no secret that the Green Bay Packers are the only publicly-owned professional sports franchise in North America. But the beauty of that lies in how they do business with where they play and who roots for them.
The Packers were founded by Curly Lambeau in 1919. They joined the American Professional Football Association, the forerunner of the NFL, in 1921. Within two years, Lambeau was in financial trouble. He even lost the franchise briefly for violating league rules by using college players. But by 1923, things were catching up to Lambeau. That’s when he reached out to four other Green Bay businessmen, and together, they came up with an idea to keep the franchise solvent.
The “Hungry Five,” as they became known, incorporated the team as a non-profit corporation. At the meeting where they incorporated the Green Bay Packers Corporation, they sold 1,000 shares of stock at $5 a piece, raising $5,000 and keeping the franchise afloat. The only stipulation was that any stockholder had to purchase at least six season tickets. If the business went under, the proceeds would go to the local American Legion Post (In 1997, by a shareholder vote, this was changed to the Green Bay Packers Foundation, which supports a myriad of charities throughout Wisconsin).
Being a Stockholder
In 2012, the Wall Street Journal’s Laura Saunders asked openly if stock in Green Bay Packers, Inc. was “the Worst Stock in America.” And, as she said, “buyers can’t get enough.”
Unlike with the first sale, buying Packers stock doesn’t make you a season ticket holder, nor does it help you move up the 105,000-person waiting list. The only thing it gives you is a nice-looking stock certificate and the ability to show up and vote at the team’s annual stockholder meeting (although your voting power is severely limited. You cannot sell the stock for a profit — You can only transfer it to your next of kin. It pays no dividends and has no protection under U.S. securities law.
The team’s articles of incorporation prohibit any one person owning more than 200,000 shares, in order to prevent one person from taking over the franchise and doing what they please. The stock is not traded on any exchange. In other words, no one can make any money off of it. It’s essentially a lifetime membership to a club disguised as stock.
But the team certainly does. The most recent sale helped raise enough finds for $146 million worth of improvements to Lambeau Field, including a new sound system, two video boards, and additional seats. The team sold 269,000 shares at $250 per share. For some interesting fine print, here’s a look at the Stock Offering Document that the franchise sent out to potential buyers.
Including that first sale back in 1923, the Packers have held five stock sales throughout their history, also raising funds in 1935, 1950, 1997 and 2011. More than 350,000 people the world over own stock in the Green Bay Packers, Inc., holding more than 4.7 million shares.
I should mention here that the stock also gives you one additional thing that’s priceless, if you are a Packer fan: Part-ownership of your favorite team.
Today, league rules stipulate that an NFL franchise may have no more than 32 owners (it’s 32 in case the league itself has to take over an insolvent franchise). Because all of this took place before the NFL became the NFL, the Packers’ ownership structure is grandfathered in. It’s not changing.
Because the Packers are a publicly-owned non-profit company, their books have to be made public. As a result, sports business analysts use them as a measuring stick to determine the overall financial health of the NFL from year-to-year, because the other 31 privately-owned franchises keep those books secret. If the NFL ever claims it’s losing money, we have at least a means of checking their math. As a result, the Packers are the most financially transparent franchise in sports.
The Packers’ CEO, Mark Murphy, the Executive Committee, and the Board are accountable to the shareholders — i.e., the Packer fans, as opposed to the owners for every other team, who are accountable to no one except themselves. The franchise is entirely fan-supported. What they want, they get, either through executive action, or as with the Lambeau Field improvement stock sale, direct fundraising.
That, ladies and gentlemen, is accountability in professional sports.
They’re Not Alone
The Packers aren’t the only fan-supported professional franchise. So to, it turns out, is F.C. Barcelona. Although their structure is different, the end result is the same:
As Bob Simon of CBS reports in the above piece, Barca is also owned by the fans, although they purchase memberships, not so-called common stock. Nonetheless, FC Barcelona, like the Packers, is accountable to its fans, and not one rich person.
How Crowdfunding Helps
Ideally, every pro sports franchise would be structured like the Green Bay Packers or F.C. Barcelona. They would all be non-profit corporations (it should be noted that the NFL itself is a non-profit, but with the exception of the Packers, the teams are not) that raise funds through annual and lifetime memberships. The books would be open and transparent. If the franchise wants to build a new stadium, it’s the fans who say yes, and who raise the funds directly — not through tax giveaways.
But the NFL and the other three leagues will never let that happen, and they’ve written that into the rules. However, smart, progressive owners can avoid the distasteful political blowback of a publicly-funded stadium. The key is crowdfunding.
Kickstarting Your Favorite Team
Sites like Kickstarter and Indiegogo have proven themselves to be effective platforms for funding projects that fans of those projects — not necessarily the public at large — want to see. So why not scale it up to a pro sports franchise?
Here’s how it would work: Team X’s owner wants to build a new stadium. Instead of appealing to public officials for a giant public giveaway, he or she can appeal to fans through the team’s website to crowdfund the land acquisition and construction costs. Fans could also vote for what location the stadium can go based on several options. Once the dollar goal is met, construction begins.
Fans can also fund projects at different amounts. For example, depending on how much money you pledge, you can get apparel, discounts, digital content (like game DVDs or documentaries) and even ticket and event packages.
Best of all, the franchise cannot hold its city hostage. The team’s stadium is fully supported financially by its fans — not the taxpayers, many of whom are not fans. In an age of tightening political purse strings, this is how every franchise should fund large capital projects going forward.
Taking this one step further, in the absence of selling stock (which is prohibited by the leagues anyway) franchises could enhance their revenue by taking a page out of Barca’s book and selling annual club memberships. Fans could get many of the same perks by purchasing these memberships, and while they are not season tickets, selling a membership to your favorite team is something today’s fans would find valuable, and the franchises themselves would find easy and relatively cheap to administer.
Taxpayer funding of private sports franchises will never be acceptable again in today’s political climate. However, crowdfunding from fans can ensure sports franchises can still reach their long-term goals while further solidifying their bonds to their most passionate customers: the fans.
