In 2010, Sean Mann helped to start the Detroit City Futbol League, a recreational co-ed soccer league organized around neighborhood teams. It was a great success. But he couldn’t help but fume at the fact that Detroit was one of the few large cities in the country without a professional soccer team. So one day on the field, Mann and four of his friends and fellow league players hatched a plan: they would create their own minor league team.
A pro team, the young Detroiters figured, could satisfy the demand for soccer in downtown Detroit, represent the city in a positive light, and build community. In 2012, the Detroit City Futbol Club was born. The team, nicknamed Le Rouge, draws mostly from local players. It currently competes in the fourth-tier National Premier Soccer League (NPSL), but has ambitions to move up the professional ranks.
The co-founders didn’t know what to expect, but 1,000 people showed up to DCFC’s first game. And every season has drawn bigger and bigger crowds. By 2015, games were consistently sold out and it was clear that the league had outgrown its original home at Detroit Cass Tech High School. The owners explored other options in the city and quickly set their eyes on historic Keyworth Stadium, built in 1936 and located in the diverse Hamtramack neighborhood.
“The primary benefit of using MILE was leveraging those relationships”
DCFC signed a ten-year lease with the local school district that owns the stadium. Under the agreement, the team will pay just one dollar a year to use Keyworth for up to 25 games a season. In exchange, they will invest a quarter of a million dollars into renovating the stadium.
There was just one question: how would the scrappy young team pay for the renovation? Traditional financing didn’t seem to be an option, given the club’s lack of assets for collateral. But what they did have, in spades, were local supporters. So they turned to Michigan’s new community crowdfunding law: the Michigan Invests Locally Exemption (MILE).
Michigan’s law, like other state-based crowdfunding exemptions, have attracted lots of breweries and food makers. But a football club? As it turns out, a sports team with a rabidly loyal following is a very good candidate for community funding (just ask the Green Bay Packers).
It was home-team effort from start to finish. The DCFC cofounders worked with Sidewalk Ventures, a local consulting firm, to help them navigate the law, design the deal and figure out how to attract investments. When they launched the MILE campaign in October 2015, it was on Michigan Funders, the state’s first homegrown investment crowdfunding site.
Mann and his cofounders—Todd Kropp, David Dwaihy, Ben Steffans and Alex Wright—kicked off the effort with an event at a warehouse in Hamtramack that attracted about 200 people, primarily from the league’s core base of supporters.
“The primary benefit of using MILE was leveraging those relationships,” explains Kropp, the club’s chief operating officer and a former competitive soccer player at the collegiate level. “Our soccer club is based on grassroots support. We were able to take advantage of those relationships and improve a community asset. Part of the narrative is that you’re not just investing in a business, but also investing directly in a community asset that we’re not going to own.”
Using MILE, the club raised raised over $720,000 from 500 Michigan investors.
The lease ends in ten years, Kropp notes. But even if the club moves on, “we’ll leave the stadium for Hamtramack and the community in Detroit.”
Be early February, DCFC was nearing its minimum raise of $400,000. By the time the campaign ended, it had raised over $720,000 from 500 Michigan investors. Investments ranged in size from $250 to $50,000. Those that didn’t have the resources to invest got involved by helping to spread the word about the campaign to local investors.
The deal was structured as a debt-based revenue-sharing agreement, with investors being paid 21% of gross revenue, twice a year, until they have received 1.35 times their initial investment.
The money will fund the Keyworth renovation, including improvements to the grandstands, bleachers, locker rooms, restrooms and lighting. The renovations, which should be completed by the start of the 2016 season, will also expand the stadium’s capacity to 6,000—enough to satisfy the club’s growing fan base and ambitions. At least for now.
Todd Kropp of DCFC’s Tips For a Successful Crowdfunding Campaign
It Ain’t Cheap
From a financial standpoint, it’s not cheap money. You have to set your rate of return high enough to attract investors. You have to consider the return plus fees, such as paying a platform provider and broker and providing incentives to investors. It’s not like you’re just paying 7% or 8% interest back to a bank.
Cash Flow is King
From a business standpoint, it’s important to really understand your cash flows. We did a lot of work in thinking this through. You have to make sure that whatever model you chose, you’ll be able to pay it back.
Leverage Local Media
Leverage local media outlets. We received media coverage from local outlets including Detroit News, Detroit Free Press, Crain’s Detroit and WDET. This added legitimacy to the campaign and introduced us to people who may not have heard about DCFC or our local investment campaign.
Get Ready to Hold Some Hands
This is a new tool and you will be working with some first-time investors. We had to coach a lot of people who initially thought this was just a donation—it took a lot of work to message it. We even ended up using the hashtag #notadonation in our campaign.