Cup bonds - ever been tried?

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Cup bonds - ever been tried?

Post by OliverH on Sat Jan 30, 2016 5:16 pm

This is just me procrastinating from doing some work, rather than a serious suggestion.

If you go back and look at City's FA Cup and FA Trophy performance over the last ten seasons, and figure out how much we would have won in prize money at 2015/16 levels, it comes to an average of about £18K a season, with the highs and lows varying from £4.5K to £42.5K.

What if the club offered, say, 400 "Cup Bonds" for sale in the off-season for £50 each (i.e. raising a maximum of £20K), with each bond entitling the bearer to 1/400th of the FA prize money for the season? In three of the last ten seasons, that would have yielded a profit (doubling your ££ in 2009 and 2014); in another three you would have got half your money back, and even in the worst season, you would have got about a quarter of your money back. The club gets a guaranteed upfront income at the start of the season and cup games become REALLY exciting for bondholders. And the club would still benefit from a good cup run through gates etc.

Has anything like this ever been tried anywhere? Maybe there's some legal reason you can't do it, and I guess maybe you'd have to factor in player bonuses etc. Anyway like I say not a 100% serious suggestion, just wondering.
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Re: Cup bonds - ever been tried?

Post by Beau Nash on Sat Jan 30, 2016 6:30 pm

Nice idea Oliver, if the lawyers agree, this ought to be explored more.  Basketball
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Re: Cup bonds - ever been tried?

Post by Notters on Sun Jan 31, 2016 7:57 pm

I think the legal aspects could prove quite costly - i.e. determining whether this would be considered as capital gains or form of gambling. If capital gains then we would probably need to be monitored by the FCA (and anyone who makes a profit will have to declare it to the tax man) or, if considered gambling, then we would probably need a gambling license.

I love the idea and initiative, though, and I would have a go for £50.

Collectively, the fans have some great ideas that could, potentially, make the club some decent money. It may be worth having a "pitch-to-the-board" day so that fans can have a chance to get their ideas across.


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Re: Cup bonds - ever been tried?

Post by SteveBradley on Mon Feb 01, 2016 12:34 am

It's not unheard of for clubs to forward-sell their income (e.g. Rangers and season ticket revenue), but it's not considered good practise. To do so in cup games that may or not transpire would be tantamount to gambling, and I wouldn't be surprised if there were league/FA rules against it.

Personally I'd be uneasy about mortgaging the club's future income, even if we thought we were more likely to benefit from it than not. Firstly - every year there are one or two non-league teams that get good money out of the FA Cup, and it would be ridiculous if we had flogged the benefits of that (e.g. an away fixture at a Premier League club) for £20k up front. Secondly - I also think we need to get the club to the stage where it doesn't feel the need to use gimmicky initiatives to get £20k at the start of the season. We need to be fully exploiting traditional channels to generate the income to mount a decent channel at whatever level we're operating at. That will involve slowly growing our matchday and non-matchday revenues and our appeal to people in Bath and environs. There's no way to shortcut that I'm afraid, and a bond initiative would be a distraction from that boring but necessary work.

It's definitely an interesting idea, a good example of creative thinking, and probably worthy of looking into some more. But it's not the sort of direction I personally would like to see Bath City going down. Let's build our club on solid financial foundations the proper way.

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Re: Cup bonds - ever been tried?

Post by OliverH on Mon Feb 01, 2016 12:47 am

I'd argue that guaranteeing a steady annual £20K income rather than hoping to get lucky is sound financial risk management, particularly for a club committed to a debt-free existence - the more you can lock in income upfront the better surely. And of course the real ££ benefit of a home game against Man U would be the gates and TV money anyway, not the FA prize money.

But it would be a distraction from the much-needed bread-and-butter marketing at this stage, yes.
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Re: Cup bonds - ever been tried?

Post by SteveBradley on Mon Feb 01, 2016 1:07 am

OliverH wrote:I'd argue that guaranteeing a steady annual £20K income rather than hoping to get lucky is sound financial risk management, particularly for a club committed to a debt-free existence - the more you can lock in income upfront the better surely. And of course the real ££ benefit of a home game against Man U would be the gates and TV money anyway, not the FA prize money.

But it would be a distraction from the much-needed bread-and-butter marketing at this stage, yes.

In principle I'd agree, but the club isn't short of cash at the start of the season as it's got up-front season ticket money etc then.

The crunch periods financially come in January and (I think) towards the end of the season, as those are the periods when we have traditionally really needed injections of cash. When does the FA pay out for Cup ties - after the final in May ?

I just think the idea is looking for clever short cuts when surely we should be focusing our time and limited energies on sorting the financial basics as a club first e.g. driving attendances, maximising bar income and sponsorship, decent merchandise, our visibility within the city etc. It could also end up being more of a burden than a benefit. For example - what would happen if the club cocked up its admin and had a cup result expunged for fielding an ineligible or cup-tied player ? We'd be open to legal challenge by bond holders as the club would have been responsible for a reduced pay out. Or what if someone accused the club of having a financial incentive for losing a game ? All a potential minefield.

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Re: Cup bonds - ever been tried?

Post by OliverH on Mon Feb 01, 2016 9:26 am

Don't worry, it's not going to be the 1000BC team's "big idea of the summer" Very Happy

I'm not sure I follow your logic on the below, though:

SteveBradley wrote:

In principle I'd agree, but the club isn't short of cash at the start of the season as it's got up-front season ticket money etc then.

The crunch periods financially come in January and (I think) towards the end of the season, as those are the periods when we have traditionally really needed injections of cash. When does the FA pay out for Cup ties - after the final in May ?

Surely it goes without saying that if you bring in an extra £20K at the start of the season, the crunch period will come in Feb rather than Jan? "Don't give me any money now, I'm not planning on being broke until later" scratch

But more importantly this goes beyond cashflow management to overall financial risk management. There's two basic ways to end up in debt: unexpectedly high costs and unexpectedly low revenues. If I were sitting on the budget committee of a community-owned club, I'd want to see both costs and revenues contractually locked in as much as possible on a season-by-season basis, regardless of when the cash from those contracts actually became available, to reduce the risk of such surprises. Even if this means giving away potential upside - the security of the club comes first.

E.g. if we think the bar can make £120-140K per season, outsource it for a guaranteed £130K. If the bar operator plays a blinder and brings in £160K well fair play to them, we can renegotiate the price next season, but the important thing is that we saw off the risk of the bar only bringing in £100K and leaving us with a shortfall that would be very difficult to deal with.

Again it goes without saying that those contracts have to be properly priced - and I wouldn't give away years' worth of revenue streams at discount just for a big lump sum up front.

But seen through this lens, I think cup bonds could be positioned as an innovative way to provide a steady revenue stream by sharing risk and engaging supporters, within the context of a wider developed marketing campaign, rather than simply a marketing gimmick. And obviously bringing in £20K a season is hardly a silver bullet.

Again though - I'm mostly just procrastinating from work Smile

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Re: Cup bonds - ever been tried?

Post by Beau Nash on Mon Feb 01, 2016 10:28 am

Well done Steve for playing devils advocate; your arguments against the idea AND Oliver's replies have persuaded me that the idea has a lot of merit.  I don't see why it should detract from any other initiatives?

Where are our "learned friends" to say can't be done without a gambling licence or FA rules prohibit this sort of thing?  It strikes me that this is similar to factoring and is something that already exists in financial markets in various forms so is not illegal as such.  

The biggest problem could be setting the terms of the bond, especially the levels of revenue expected, budget forecasting is often very difficult at the best of times and with our cup records it could be fun.

Good to see reasoned debate.
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Re: Cup bonds - ever been tried?

Post by OliverH on Mon Feb 01, 2016 10:35 am

"Bond" is probably the wrong term as it suggests a fixed income payout - this would be more like a share in the proceeds of a particular revenue stream. And yes, probably better to run it as a gambling promotion (like the 50:50 and Bath City Lotto) rather than an investment vehicle, to avoid capital gains and FCA regulation etc.
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Re: Cup bonds - ever been tried?

Post by SteveBradley on Mon Feb 01, 2016 2:37 pm

To make this attractive to anything other than a handful of people, you'd either need to price participation low (as the National Lottery does) or have decent chances of a pay-out.

In the scenario outlined at the start of the thread (I appreciate it's a straw man), a £50 investment would've resulted in a loss in 7 of the last 10 years. I'm not sure how big the 'win' would've been in the other 3, but probably not very big (with the exception of our very rare Trophy ru last year ?). I'm not convinced that those sort of odds would attract £50 out of 400 people. You'd need over half of the club's 'active' fan base (probably only 750 or so) to participate, which would be extremely unlikely.

The bottom line is that the only way the club would attract more than a handful of people to something like this would be to put more of its own potential cup money at risk as a lure/prize. In short, there would have to be a decent chance of the club foregoing money on this, and that's not something that I personally would feel comfortable with.

Clubs like Glasgow Rangers have tried various permutations of getting money in up front, usually because they're desperate. If this hasn't been tried already by one of the many other desperate clubs in football, there's probably a good reason why Very Happy At the risk of sounding like a broken record, I think we should do the basics right before we try to be too clever (and also risk foregoing revenue).

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Re: Cup bonds - ever been tried?

Post by OliverH on Mon Feb 01, 2016 2:51 pm

It's definitely one for the dedicated fans, to be launched once the basics were in place and interest was up - not now.

I would think of it as being an evolution of the "Supporters Pledge", where people were invited to put in money directly into the players budget. I respect anyone who did this, but to me that's like paying for the same thing twice. But if I knew that my £50 had a good chance of being at least partially recouped, or even turning a profit, and it added to the fun of cup fixtures, I'd have a punt - knowing that at the very least, I'd bolstered the squad for the league (maybe you'd want to explicitly say that the £20K would go to the playing budget).

Regarding past performance, you would have doubled your money in two of the last ten years and made about a 50% profit in another. And yes, I am suggesting the club gives away all of its FA prize money (but not cup gates/TV) to the scheme.

What's really interesting though is the principle around "should clubs try to get money upfront off future revenue streams" - again I'd argue that there are bad/desperate ways and good/prudential ways of doing this. I would argue that we need to get used to the idea of foregoing future *potential* revenue (upside) in return for certainty now (removing downside). That's a discussion that goes much wider than my harebrained scheme Smile
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Re: Cup bonds - ever been tried?

Post by Beau Nash on Mon Feb 01, 2016 4:00 pm

I don't think it is harebrained at all;  the more I read about this, the better it sounds.

Taking Steve's scenario with losses for investors in most years...If we were successful in the FA Cups, the club would benefit greatly from the usual sources so could afford to sweeten the "bond" with say a freebie for the investors to the big games, eg 3rd round FA Cup and Semi Final / Final of FA Trophy...could that be written in?  

Given the National / Euro Lottery costs of £2 per entry, £50 for a season sounds a better gamble from all sorts of viewpoints,  I would be in for £50 if it is framed like I suggest.

Paul Williams king  is very astute, hope he is looking at this.
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Re: Cup bonds - ever been tried?

Post by BenE on Tue Feb 02, 2016 8:02 pm

I think it is a good idea and despite some good points from Steve I think it would be beneficial to the club as they would have certainty of income. You're not promising togive something away you haven't got. If it isn't earnt you don't pay it out.
From a fans perspective it is not particularly attractive as a money making venture but it is better than just pledging money for which you get nothing back at all. For a fan it is quite a decent benefit.
Good thinking Oliver.
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