You might be forgiven for thinking football clubs are the equivalent of Stock Market giants. Not the case. Fausto Zanetto of Tifosy explains how the crowdfunding model can help big businesses with big fanbases.
Mike Ashley puts Newcastle United up for sale with a notional £400m price; analysts predict that the UK TV rights for the Premier League will break the £6bn barrier in the next round of bidding; Neymar is transferred to Paris Saint Germain for £198m… sound like huge businesses, don’t they?
This masks the fact that only a handful of clubs around the world have access to capital markets and are backed by institutional funding. Trading volumes and liquidity are generally low; even Manchester United, one of the world’s most valuable clubs and a publicly listed company with listed bonds, has a tiny market cap compared to other global media and entertainment companies.
Outside of the United States only 20 or 30 sports clubs can access equity or debt capital markets. Others automatically default to owner funding or secure debt financing, using assets such as the stadium, or future revenues, as collateral.
For all that the glamour of top-flight football creates and dominates headlines, most clubs are SMEs. Financing is scarce, local and prohibitively expensive, because from a pure institutional investor point of view, most clubs have a difficult financial profile; the risk-return profile means it is not worth getting involved. Except for some of the very large clubs, owners are often the lender of last resort.
However, sports clubs have major intangible assets which the institutional market does not value properly: they are global brands with international, online fan bases. Millions of engaged supporters all over the world are one click away, following the club’s every move and consuming every new piece of content. The 30 most followed clubs on Facebook have more than 720 million followers and more than 1 billion across all social channels.
The interconnectivity of social media has created an opportunity for clubs to build more than just a support base, it has created an opportunity to build a community of investors and partners. This is where the idea of crowdfunding for sports clubs came about, or as we have termed it, ‘Fanfunding’.
We recently launched our own equity raise and hit our target of £1 million in just six weeks. There couldn’t be a better demonstration that the platform works than to build up our own investor community. Our next step is to scale up the business – using our own platform to create a community of sports investors. We hope they will participate in a wide range of projects, regardless of the club they support.
Technology and social media has made the potential of crowdsourcing a reality; from a standing start in 2010, the crowdfunding market is already worth $432bn, and it has evolved into a phenomenon that has overtaken venture capital globally as a source of financing. Clubs have a huge opportunity to open up an untapped digital source of financing. For smaller clubs, wrestling with the challenge of trying to re-build an ageing stadium, or improving outdated training facilities, this form of retail funding could be a lifeline.
There is no reason that investment in our leading sports clubs should be the sole prerogative of billionaires. Sports clubs have an unprecedented opportunity to make fans their partners and co-invest in projects that promise a more sustainable future.
Four years ago, I started discussing this idea with Gianluca Vialli, the former European Cup winner and Chelsea manager. We wanted to give ordinary fans a way to invest in their clubs, and after many long discussions around his kitchen table, we developed the concept of Fanfunding.
Even the smallest club can count on passionate fans all over the world. Your average League Two club will have up to 10 times more people connected to them online than physically going to the stadium on a match day. For larger clubs, multiply that number by 1000. These millions of people are digitally connected, want to have their voices heard, and want to engage with and show their love for their club.
By tapping into this global fan base, clubs will no longer be solely dependent on traditional sources of revenue: ticketing; broadcasting; commercial activities; sponsorship. If a club makes a fan a long-term partner, it has a real alternative. While the world is clearly moving peer-to-peer, the sports industry is lagging.
Tifosy means ‘fans’ in Italian, and we launched the platform to test the concept of crowdsourcing for sports clubs. Our pilot project with Portsmouth FC in 2014 raised £270,000 from fans in 35 countries in just 62 days, which the club invested in two new academy pitches at the training ground.
In August we launched English football’s first mini-bond, under our proprietary FCA licence, raising £600,000 for League Two club Stevenage FC in just six weeks. More than 200 supporters took part in the push to build a new north stand, buying five-year bonds paying 4% interest or 8% in club credit.
This is just the beginning. Fanfunding will transform the way clubs interact with their supporters. Fans will become partners, not consumers. The engagement between clubs and their fans will be deepened, liberating clubs and allowing ordinary fans to become sports investors.
Fausto Zanetto is founder and CEO of Tifosy, the first Fanfunding platform to be regulated by the Financial Conduct Authority.