Hoedeman’s 2016 Year in Review can be found here.
by DAN HOEDEMAN
Minneapolis City SC Chairman
Last year we opened our books and talked about what it takes financially to start a lower division soccer club.
This year we are going to open our books again and then, because that isn’t enough, will talk about how promotion/relegation in an American pyramid could impact us and what the jump to professional really means.1
The first year is always the hardest, but that doesn’t mean the second year will be easy.
When we started Minneapolis City we had a three-year plan to break even within the volunteer-run, amateur-player structure that we started with.2
It was great theoretically and, spoiler alert, in practice, but in our first year we lost money.3
|Mktg & Misc||$1,814|
|NET INCOME (LOSS)||$(6,638)|
Planning for our second year turned into a multi-stage rolling effort because, with alarming regularity, we had to deal with major changes to our assumptions. Though some were good changes, it very much kept us on our toes.
First, because of changes in the geographic make-up of the Premier League of America and an opportunity presented by the group of clubs that became the North Conference, we joined the National Premier Soccer League. Critically for us, we went from a league where our shortest trip was four hours to a league where our longest trip was four hours. That saved us a lot of money on travel.
Next, because of that move, we were controversially booted from the U.S. Open Cup after becoming the first amateur team from Minnesota to qualify for the tournament proper. Positively, we sold hundreds of #Undefeated t-shirts, but negatively we really wanted to compete, would have (likely) played Des Moines Menace which is an affordable trip, and who knows what would have happened had we gotten past them. This was a real negative, even from the budget perspective.
From the beginning, we set out to do more than just win games—we have a mission to use soccer for good.
Then, we were able to majorly upgrade our home field by securing an agreement with Augsburg College on the incredible Edor Nelson Field on the West Bank. The location was excellent, tucked into Cedar-Riverside. The stadium is the right size for us. The field is perfect. It allowed a fantastic gameday experience that kept people coming back—and had people raving to their friends. This was a game-changer for us.
Our original budget had us just about breaking even, but we looked at that as something to hope for and had in mind what we thought was a more realistic worst-case scenario that was considerably bleaker.
|U.S. Open Cup||$1,596|
|Mktg & Misc||$2,850|
|U.S. Open Cup||$3,214|
|NET INCOME (LOSS)||$(221)|
With actuals in for the season (and including some planned expenditures yet this year) we blew that original budget right out of the water.
|U.S. Open Cup||$1,596||$1,596|
|Mktg & Misc||$2,850||$3,762|
|U.S. Open Cup||$3,214||$3,214|
|NET INCOME (LOSS)||$(221)||$1,189|
Better than break even, baby!4
There are a few things to note for those following along at home with aspirations for running a lower division soccer team:
This income statement — like the phrase above5 — reflects the actual cash that came in and went out this season, with a little bit of forecasting to the end of the calendar year. It is the best way to show the fiscal reality of running a club at this level, though it does obscure things like in-kind donations or charitable community support that isn’t a specific purchase.
This has made a huge difference for our club and, though the above reflects just the cash, the in-kind support has also been critical. Sponsorship remains something that we need to focus on, certainly if other clubs’ claims to sponsorship revenue can be believed6, both in bringing in new sponsors and, more importantly, by delivering for our existing sponsors so they continue their support.
While we are hardly in the “in the offseason we’re a lifestyle clothing brand” category of Detroit City FC7, merchandise is both a significant revenue generator and a tool to generate cash flow in the offseason. Getting better at it really helped our bottom line.
The vast bulk of this line item is ticket revenue, both from annual members and from gate ticket sales. My advice here is to charge for your f—ing tickets. It helps you, it helps us, it helps set a real value for games at this level. For us, $8 online/$10 gate ticket prices have worked well.8
This is all facilities: our stadium, our training field and, for reasons that probably made sense at the time, the costs for streaming video. The cost is up significantly on last year primarily because we moved from an in-kind donation of training field, which was often problematic for scheduling, to one we paid for ourselves.9
We built the club, somehow, on the organic reach of Twitter.10 This year, we went beyond that with a specific focus on getting out into the city and meeting people, from marching in the Minneapolis St Patrick’s Day Parade to having a booth at Twin Cities Pride. Events have an entry fee, we ended up printing things like schedules and pulling together small giveaways, but our steadily increasing attendance is an indication that it worked.
From the beginning, we set out to do more than just win games—we have a mission to use soccer for good.11 We were able to raise money for Children’s Hospital’s efforts for cancer patients, University of Minnesota men’s club soccer, and other good things that don’t completely show up on a cash income statement like this one.12 Things that are missing include: money we did not collect from players we financially supported, our development player program, and the 300+ hours of service that our players and staff spent at organizations like Big Brothers/Big Sisters, the YMCA, Como Park and more.
NPSL yearly operating budgets typically range from $60,000 to $500,000, with Detroit City topping $1 million, AFC Ann Arbor at $250,00013 and Kingston Stockade at $125,00014. What we have achieved on a $46,000 budget is truly astonishing. Is something to celebrate. Is a validation of our idea that people power can achieve more than dollars, that our member-driven, DIY approach works.
We were able to start making money ahead of schedule and have incredible momentum in the leading indicators of success: season tickets, paid attendance, social interest, general awareness. And we did it in a market with all major pro sports and a brand new MLS team (oh, and two other NPSL clubs).
That’s not a guarantee of success of course. It’s still going to require blood, sweat, tears and hours of volunteer work to keep us going.15 But this year’s financials are an achievement to be proud of, and a reminder that it doesn’t require the vast fortune of a millionaire owner to compete with clubs backed by the vast fortune of millionaires.16
I will preface the coming reality check by saying that I believe that the Twin Cities can support a major and a minor league soccer club in the same way that it supports the Twins and the Saints in baseball. It’s a big enough market, there is enough (and growing!) interest in soccer, and the fact that the metro is two different cities is a unique positive.
I believe, specifically, that Minneapolis City can be the St Paul Saints to Minnesota United’s Minnesota Twins.17
Nobody thought we could get this far so of course they don’t think we can go any farther.
To avoid wishful thinking, consideration of this topic has to start with costs–and turning into a fully professional organization has significant costs.
USSF rules require someone worth at least $10 million to own at least 35 percent of the club. Let’s just say that advertising is going to have to get considerably more lucrative.
Let’s assume that because we’re the independent sort (and Nipun Chopra published some financial information on it18) we are going to join Peter Wilt’s NISA league. Even that league, probably the most affordable professional league, will require $250,000 to enter.
Though it is likely more a “performance bond” than an expansion fee, it’s still money required to play.
The rough guidance from Chopra’s article is $200,000-400,000 in player salaries. Let’s get a bit more specific.
At this level, I would expect (because SOURCES!!!19) to pay a blended wage of $1,500 per month on a seven-month contract for players. Assume 30 players and that’s $315,000 before health insurance and other potential employer contributions beyond topline salary. Assume that we are a potent mix of great negotiators and cheap and let’s call it $350,000 in salary.
Right now our front office is Sarah Schreier and me (total cost: $0). Even assuming major contributions from our talented and energetic volunteer corps, we are talking about adding salaries for the coaching staff, front office and sponsorship/ticket sales. S—t. Maybe the coaches are part-time? This is getting expensive.
The minimum for NISA is a 1,000 seat stadium.
I could write an entire series of articles on the details, realities, and frustrations of Twin Cities stadiums. For the sake of this article though, let’s just assume that with $500,000-$1 million20 for facilities upgrades we can access, but not own, an urban stadium like Edor Nelson Field or Parade Stadium (because if we build a 10,000 seat stadium we are talking $24-$45 million21).
The assumed result here is a stadium that seats 2,000-5,000.
Then, of course, we would need a training location for use every day with appropriate locker room, training room, coach’s offices, etc. completely available to us. No more renting time at Hopkins High School. We would also need office space for the front office.
Pure guesswork given that it’s unclear what the geographic footprint of the league will be. However, we know the geographic footprint of the country and we know just how relatively isolated Minneapolis is from other major cities. So…best case, we’re assuming at least a few flights to games, plus the need for a tricked out, Dakota Fusion-style coach bus, and extended overnights so the players are at their best on gameday. We scampered past six figures before the end of that sentence.
To summarize, a NISA-level professional team looks to me like it requires roughly a $3-million annual budget plus significant (another million?) first-year costs.
The longer season helps. We had eight home games this past season and one of them was against La Crosse Aris, so an increase in the number of home dates increases the revenue opportunities.
Being professional helps. I would expect to be able to charge a high average ticket price, expect greater interest and willingness to spend from potential sponsors, and greater interest from local media (though not a ton more…downside of being a pro sports town22).
Having a fully professional front office helps. Focused ticket and sponsor salespeople will significantly out-perform our part-time, amateur efforts. At least, they better.
Right now, our current rate of growth, which seems neither extreme nor impossible to replicate in future years, puts us on a five-year timeline to get to Ann Arbor’s budget. Of course, I hope that we catch fire. I can see scenarios where we can exceed our current rate of growth. We got this far by ignoring the siren call of wishful thinking though, so here we are at five years to be working with one-sixth the necessary yearly budget.
Given our club and our means, we can’t fund a front office to see how much bigger we can get with full-time employees selling the club, selling tickets, selling sponsorships. A rich investor could. I think that they would find success.
Let’s assume that we, because we have proven able to operate at a high level with a low budget, need to cover $2.5 million annually (and will ignore first year start-up costs for now and make up for them from profits in future years23).
Let’s assume that Peter Wilt is right and $800,000 in sponsorship is achievable from the hard work of our crack front office team.
No doubt the smart marketers in the front office would supplement the league games with at least two prestige friendlies which will bring in an additional $80,000 in ticket revenue.
Presumably the gameday operations team, through concessions and other great ideas, will deliver $220,000.
Our popularity and ability to design logos that people love26 could easily result in $500,000 in revenue from merchandise, wearables, etc.
Finally, events and other efforts, particularly in the offseason, could bring in $300,000 and close to gap, getting us to our $2.5 million budget.
It’s risky, but I can squint and see how this works.
It’s possible to make lower division professional soccer work in Minneapolis, and pretty quickly possible with a wealthy investor.
It’s possible for us too, building brick-by-brick like we are, except for that whole “must have a person worth $10 million who owns at least 35 percent of the club” rule27. It’s just not possible soon—and it’s not clear that our members would even want this—but I get the question all the time so I figured I would answer it.
You’re welcome, America.
On one hand, we don’t.
Minneapolis City was founded specifically to serve local players, to fill the gap by providing high-level soccer for Minnesotan players who weren’t ready for the jump to Minnesota United/MLS, and the community, by actively working with local kids to do good through soccer. We are making a difference with that we are doing right now.
On the other hand, we do.
The thing is, people who lend you money always want it all back.
With investment, we could significantly grow the club. Even within the current soccer structure in the United States, as I laid out in Part II, Minneapolis City could be successful at a higher level.
The key is “with investment.”
The key to attracting investment is opportunity for return.
The downside of opportunity for return is risk of loss.
Closed leagues create artificial scarcity, which both suppresses competition and limits risk.
In a regular, non-sports business that is very real. My day job is in advertising. As an illustrative counter-point to top level soccer in America, the barriers of entry are exceedingly low but, like with pro sports, the performance is public. Just like you can check the standings to see how good a team is, you can check the latest campaigns from an agency and see their performance too28. There are agencies of all sizes and types and locations competing, fiercely, for business, with new entrants all the time. And, occasionally, failures.
As with anything entrepreneurial, some of this is vanity of the “I can do better” sort.29
But, tied to that tightly, is the chance for a better return that drives people to start a new agency. They think they can do it better, and they certainly can make more if they go from salary to owner…as long as they are successful. Some are. Some aren’t.
Some don’t start because the risk of loss is intolerable.
Enter the critical innovation of American sports: closed leagues.
Closed leagues create artificial scarcity, which both suppresses competition and limits risk.
Look at the Los Angeles Clippers, for decades a poorly run team, no investment, losing record after losing record, terrible arena, and owned by a vocal racist. Despite that, because the NBA is a closed league, there was no risk that another team would pop up to take their spot in the league. They were safe from disruption. They were already in. Their only risk was that Americans would lose interest in basketball.30
Despite shocking mismanagement, the value of the franchise skyrocketed. Donald Sterling bought the Clippers for $12.5 million in 1981($32.5 million in 2014 dollars) and sold them for $2 billion in 2014. Why? Well, there is only one Clippers—and when will another team be up for sale again? Act now and become an owner of a pro sports franchise!31
Closed leagues make the franchises a lot more like real estate than a business. Just like there is only one LA Clippers in the world for a person to own, there is also only one 25,000 square foot house with six garages situated just-so on Wayzata Bay.
Only, unlike the house the sports team comes with famous athletes, celebrities, local media coverage, assorted hangers-on, and the ability to big-time your rich friends at yacht parties or whatever super-rich people do for fun because you own one of, say, only 22 teams in Major League Soccer.
Scarcity is both risk limiter and value creator—for the few.
So, for the few in the closed leagues, the investors can be found because the returns are there, and almost guaranteed.32
For everyone else, cut out of the closed league, its media visibility, broadcast money, and sponsorship pull, it’s minor league peanuts, and that’s simply not a good sales pitch to an investor.
To quote Dennis Crowley, “In order to encourage investment in lower-level clubs — across the country, and on the massive scale — the entrepreneurs and investors behind the clubs need a “pot of gold” to chase. This “pot of gold” could take the form of sponsorship revenue or broadcast/streaming revenue that’s split between the teams who earned their way into the league. The “pot of gold” could take the form of increased merchandise and ticket revenue seen from playing in a higher-profile league against higher-profile opponents. The “pot of gold” could take the form of financial assistance from the league itself for the purpose of helping to cover the additional travel expenses or necessary investments in stadium infrastructure (etc.) required to compete on a larger stage. The point is, if leagues are structured so that “pots of gold” are waiting for teams upon promotion, then you can be sure that there will be no shortage of clubs investing heavily in whatever it takes (player salaries, youth development, facilities) to find that path to promotion.”
This doesn’t mean that it’s top division or bust. As I showed in Part II, I believe that Minneapolis City can realistically be a professional Division 3 club with investment to get things started. If there were an organic way to get that investment, or at least the opportunity for it, via promotion…well, we’ve always been accused of dreaming so why stop now?
It doesn’t mean that success is assured.33 There should be a boilerplate about how investment returns are not guaranteed for anything that goes along with any discussion, but risk is a feature not a bug. Risk increases improvement, because standing still isn’t enough, and it encourages disruption, because there is a pot of gold for the challengers. It makes things better overall, though it’s never fun to be a fan of a club that struggles34… or the owner of one.35
It does mean that there is a pathway forward, driven by the “pots of gold”.
Maybe not for us — we have gotten really good at just missing the playoffs — but then again…
And it’s that “then again…” that drives investment and, most importantly, is what sport is all about.36
Minneapolis City SC will host its annual meeting tonight at the Local on Nicollet Mall from 6:00 p.m. to 9:00 p.m. The event is open to the public, and free. RSVP email@example.com.
2. Unlike many clubs started by a rich benefactor or on the back of a major sponsor, Minneapolis City is a group of regular people who DIY’d this whole thing.
4. As a quick aside, before our first season we were at a USMNT watch party and a well-known soccer figure in town told us that we would fail before two years were out. To that person: ?
5. Sorry. I couldn’t help myself.
6. Typically, they can’t. We have learned that lower division soccer often is, like Mos Eisley, a wretched hive of scum and villainy (and lying about attendance, financials, and how healthy clubs are).
8. Though, strangely, we often found ourselves undercut on price by Minnesota United this season. Shrug emoji.
9. We wanted a consistent day, time and place for training and, as generous as last year’s donation of field time was, it lacked the consistency in the above elements that we needed to best serve our players.
10. And people call Grumpy Cat a dead meme.
11. A coach from a club up the road made fun of us for this, saying that we should focus just on winning games, but it’s always been about more than just winning games for us. If that forces us to make sacrifices, we absolutely will. It’s the right thing to do.
12. For example, the money raised for the Undefeated campaign included a portion of ticket sales (included) and money raised from donations from fans, staff and players (not included).
13. In case you don’t believe me: http://www.mlive.com/sports/ann-arbor/index.ssf/2017/07/investment_in_afc_ann_arbor_pa.html
14. At least their first year: https://medium.com/stockadefc/stockade-fc-end-of-season-recap-2016-c2e4d318b364
15. Hopefully it doesn’t really require blood, but we have Band-Aids standing by just in case.
16. DIY FTW.
17. Though, like Dennis Crowley, I see a future for a true pyramid with pro/rel, right now that doesn’t exist. Major/minor league is a meaningful analogy in this specific case, and if you’re a pro/rel truther who can’t handle that, then before you say anything, prepare to shut the f— up.
18. You can read it here: https://www.soctakes.com/2017/04/17/new-diii-league-begins-to-take-shape/
19. SOURCES!!! equal a few friends who are/were mid-level USL players back when USL was still Division 3.
20. This number is 100-percent guess.
21. And that assumes that it’s as inexpensive to build in Minneapolis as it is in Albuquerque, which seems silly. Also, here is the source: http://krqe.com/2017/07/26/study-pinpoints-possible-locations-price-tag-on-stadium-for-albuquerque-sol-fc/
22. As the St. Paul Saints found out during last year’s wonderful season… that nobody covered.
23. LOL, right?
24. For context, the average non-reserve team attendance in USL last year was around 3,500. The St. Paul Saints average over 8,000 fans per game, and even at the old Midway Stadium were able to average around 6,000 per game. So this number is conservative. Unless you’re San Francisco Deltas — HEY-YO!
25. The $15 assumes varied pricing across season tickets, single-game tickets, group tickets, premium tickets, and all the variations you can imagine all blended into one flat number because easy math is my goal.
27. Not sure how to circle that square, though I promise I am not opposed to a net worth of $10 million (or more!).
28. You can rate my agency’s work if you want: www.rileyhayes.com
29. Which I actually find admirable. After all, if everyone was so humble that they never dared to try to do anything differently then the world would be a much less comfortable place.
30. Which is, for whatever reason, unlikely.
31. To quote Ferris Bueller, “If you have the means I highly recommend picking one up.”
32. Refer again to Donald Sterling, though he is just the most eye-watering example.
33. I’m just not that broken up about a poorly-run club going bankrupt. If the fans are there, they can rebuild like Fiorentina had to. If not, it sucks, but this strange demand that league rules insulate super rich, politically-connected owner types from losing money is senseless.
34. I know. I lived in Brighton and started supporting Brighton & Hove Albion in the dark years, and I’ve seen from a fan’s point of view what relegation can mean to a club and to the fans, in fears for the future.
35. I know this too, both in soccer and in my day job. Risk is hard. Losses suck. Worries of corporate oblivion haunt every major decision. I just don’t believe that it’s right to use the governing body or government to insulate myself from competitive risk, though maybe that’s because I’m not important enough to be successful doing it. Perhaps if I were a Kraft I would feel differently, but I like to think not.
36. Is there so much more to it? Yes. Are any of those things within the scope of a write-up about lower division soccer club finances? No. STAY IN YOUR LANE.
Tags: Minneapolis City SC