As U.K. banks "have withdrawn from lending, sports have had to be more creative about financing developments, and new research from the University of Cambridge suggests that there is a large pool of untapped money from supporters for the right deal," according to Malcolm Moore of the FINANCIAL TIMES.
Robert Wardrop, who runs a unit studying alternative finance at Cambridge’s Judge Business School, said that "it can be challenging for sports franchises to raise traditional bank loans." He said, "I have had bankers say to me that there is a level of reputational risk. If they lend to a sports club and then it all goes wrong, then you have a problem with a large fan base."
Instead, crowdfunding via the Internet and "mini-bonds" -- retail bonds that cannot be resold and are offered in small amounts direct to consumers -- "are becoming more popular."
Wardrop researched the £25M mini-bond launched by the Jockey Club in '13 "to help finance a new stand at Cheltenham racecourse," the first such bond in British sport.
He found that almost all the bondholders "were fans of horseracing, that their average age was over 60, and that they were largely diverting 'idle cash from building society accounts.'"
After the Jockey Club tested the water, Lancashire County Cricket Club "used the same tactic" last November to raise £3M from a mini-bond with a 5% interest rate and 2% for loyalty points. This month, the Wasps rugby club sold out a £35M retail bond in a few days.
Wardrop noted that most investors in sports bonds make an "emotional decision" and do not read "the fine print or the financials." Online crowdfunding for sports projects "is also on the rise." Football crowdfunding site Tifosy raised £270,000 last August for a new training academy for Portsmouth Football Club (FT, 5/24).
CHANGING BUSINESS: INSIDE WORLD FOOTBALL's Samindra Kunti reported Brazilian top-flight clubs "are moving away from a business model with TV rights as a main revenue stream, towards fan membership schemes and ticketing as now generating the bulk of the money." Major clubs Internacional and Cruzeiro "highlight this evolution."
While Brazilian clubs "have amassed huge debts, leaving the domestic state of the game perennially in disarray, they are increasingly trying to open up new revenue streams after last year's World Cup finals saw a widespread modernisation of stadiums across the country," a study headed by journalist Rodrigo Capelo has revealed.
Internacional of Porte Alegre, which play at the Beira-Rio stadium, "have succeeded in this attempt at capitalization" with 137,000 socios (fan members). In '14 it banked €12M from club memberships and ticketing, "far outstripping" the €9.7M income of TV rights and €6.4M generated by the commercial and marketing department (INSIDE WORLD FOOTBALL, 5/25).
