MPLS 2020 REVIEW: WHAT THE BLEEP JUST HAPPENED? (Part 2)
This is part 2 of a 3 part document, put together by MPLS City to review their 2020. Part 1 is here.
We left off part 1 with the NPSL canceling their season and the club revising their 2020 budget accordingly. If you want a more in depth recap, we suggest clicking the above link.
Looks okay, actually, except for the $27,472.59 sitting in the revenue column that might disappear. That goes away and, given that our only significant option to cut costs would be to close the store, we are looking at a five figure loss.
We took a look at a budget scenario where we lost all sponsor and gameday revenue, but continued to sell merchandise and receive donations up to our forecast amount. On the expenses side, we assumed we would get a full refund for travel not used and would close the store within the terms of our lease agreement. It was not a pretty scenario, but it was the worst case we were willing to put on paper.
In April we were still hopeful that we might be able to crush COVID and find a way to play in the summer (Oh, hope. You’re cruel), so we had a number of budget scenarios for that, too. No matter what was going to happen, we knew we were going to have to work hard to keep the club viable.
THIS ALL COSTS MONEY
“So you don’t know how expensive it is then, do you?” – Texeira to Turtle, Entourage
It’s easy to forget, especially in the fever swamps of Twitter, but someone needs to pay for the very real expenses that a soccer club incurs. There is always a Tommy from Staten Island-type who is raging at clubs, as though they can just wave their pro/rel wand and make the costs for facility rental, travel, equipment, gear, and all the very necessary things to play soccer just go away. They can’t. And I don’t think there even is such a thing as a pro/rel wand.
There are three ways that clubs at this level get the cash to pay their bills, and nothing that says a club can’t use more than one of these together—many do make it work by mixing models.
Pay-to-Play
Some clubs, like a youth club, charge players a fee to be part of the team. For clubs that use player dues to cover all costs, it can get expensive. To give an example, in 2018 I was told that an NPSL North Conference club was charging $1,800 per player for the summer season. That wasn’t necessarily gouging either. That is about what it costs to train twice a week, travel to games, pay referees and leagues fees, etc. for a team of 30 players.
Other clubs are actual youth clubs. They use a portion of the dues from the younger teams to pay for some or all of the expenses of running the senior team. This can make sense from a marketing perspective, as clubs with senior teams can pitch themselves as different than clubs without (and surely charge more, too).
Rich Owner
Some people just really want to own a soccer club. There are lots of reasons, good and bad, for this, and God bless the ones that want to for good reasons. For these clubs, their existence isn’t predicated on player dues, ticket revenue, sponsorships, or merchandise, though occasionally the idea is that the club will take the owner’s initial largesse and turn that into a sustainable business[12].
Own Two Feet
Among sponsorships, tickets, and merchandise, it is possible for clubs to stand on their own two feet as a self-funding, sustainable entity. The mix varies widely and, within this bucket, that is interesting in its own right. Some clubs lean heavily on sponsorship, often a large tentpole sponsor[13]. Others draw well enough that people through the gates keep their club going. Still others are merch machines. Most who choose this option rely on a mix of all possible revenue streams.
There is no good or bad model, there is simply finding what works to keep the club going.
I’ll take that back. The good model is to start a league. They all make money, with leagues, even at the amateur levels, supporting full-time staff, many on big salaries. They don’t do much for individual clubs, but they do well for themselves! To paraphrase Creed Bratton: “I’ve been involved in soccer, both running a club and running a league. You have more fun running a club. But you make money running a league.”
We can’t all run leagues, though.
INDEPENDENT & SUSTAINABLE
“They may take away our lives, but they’ll never take our freedom!” – William Wallace, Braveheart
Minneapolis City stands on its own two feet.
Our founding asked a question: could a group of regular people band together and create something that could live, grow, and thrive through our hard work and ingenuity? The question has been answered emphatically by the people of the Twin Cities, and the answer is yes[14].
We have a diverse set of revenue streams. Yes, if you break it all down, season tickets, merchandise, sponsorship, and gameday revenue all, foundationally, exist because of our incredible fan support, but it’s a lot more diverse than, say, “owner and/or player dues pay for everything” which is typical.
There is a man named Nassim Nicholas Taleb, a mathematician, scholar, hedge fund manager, Twitter warrior, and author. He has written a set of books on probability, uncertainty, and, above all, risk. The penultimate book in the set is Antifragile: Things That Gain From Disorder and it introduces the an important concept, which he terms antifragility.
“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.” – Nassim Nicholas Taleb
Taleb makes a distinction between fragile, resilient, and antifragile.
In soccer terms, a fragile club is like glass: strong enough under expected stress but stress it too much or in an unexpected way and it shatters. A fragile club might be one with a single revenue stream, say one sponsor or a rich owner.
A resilient club is like rubber: flexible enough to change under pressure, but able to bounce back once things are normal again. A resilient club might be one that can do enough to get through a crisis, no mean feat, but survival is the only aim.
The concept of antifragile is that the stress makes the club stronger. So not only is an antifragile club flexible enough to adjust to stress and pressure, it has the capacity and adaptability to use the circumstances of the stressing situation to become stronger. To put it simply, they are able to transform stress into strength.
OPTIMIZATION LEADS TO FRAGILITY
“It is perfectly possible to be both rational and wrong.” – Rory Sutherland
A few years ago, I began reading a lot of business and consulting books and articles. I was worried that my own experience and set of skills wasn’t enough for the club as it continued to grow, that perhaps there was this magical business knowledge I could acquire, like the Master Sword in Zelda or something, that would make all the difference. I told my aunt about this. She laughed at me, said I was suffering from “Terror of the English Major” and suggested that if we were growing by double digits and doing it profitably that we were probably okay[15].
Not believing her, I went deep reading blogs and ‘thought leadership’ pieces from the best and the brightest business gurus and management consultants in America. I even read stuff on LinkedIn. I was desperate.
Thank God I didn’t listen to a word of it.
Business as described by the people paid millions to advise businesspeople is a mix of simple ideas presented complexly[16] and anti-human bullshit that you would hate if someone did it to you. It’s all yield management, profit maximization, extreme optimization: the sort of behavior that sees fans as nothing more than ‘potential revenue.’
Spreadsheets are a fun way to monetize people!
Fans are people though. People who don’t want a big corporation owned by some of the richest people in the world to treat them as a mark: aggressively upsell them, harangue them to do more to support the club, or rope them into a season ticket referral scheme. People who don’t want to be priced out of watching sports because the average yield of a regular family pales in comparison to another corporate box. People who see authenticity not as a marketing buzzword but as an actual thing that humans, and the occasional company, do when they act in a genuine way toward other people.
Minneapolis City would fail a business review by a high-priced consultant.
We work hard to keep ticket prices low, to keep merch prices low, to get to know our fans in person at games, and we don’t even try to pressure them into buying a season ticket when we do! We hand write holiday cards and thank you cards and all that to our supporters because it’s the right way to treat people–even though there is no offsetting revenue for it and our hands hurt badly after. We don’t have ticket reps, we don’t have lobbyists, and we haven’t once thought about how to maximize the total value per customer—even though every other bigtime sports company does.
Optimization is a trap for the scared. Everyone in the sports and entertainment category has the same data, the same spreadsheets, and the same best practices and they are all going to optimize to the same conclusions. If you’re scared of failure or of your boss thinking you’re an idiot, then you best practices the shit out of it and slowly optimize your way to being exactly like your competition. Hope you’re already the market leader![17]
Optimization also makes companies fragile. It leads to extremes in efficiency, specialization, and risk. We are supposed to run this club like an MBA would and optimize our operations at every step to maximize value. Not only is that desperately inhuman—looking at a person like ‘potential revenue’ to ‘yield manage’ is bullshit management consultant-ism at best and rapacious profit-ism that takes advantage of people’s love of sport and city—but a single focus on ‘maximizing share of wallet’ is stupidly short sighted. It might work well at squeezing out incremental dollars when everything is going perfectly, but the moment the situation changes…
When our season was cancelled, we offered every Member a refund on their Membership (a full refund minus the cost for the scarf, stickers, magnet, and shipping costs for what that they already received). Only 6 people took us up on the refund[18].
That meant that $16,757.58 of revenue that had been in jeopardy wasn’t anymore.
Had we not treated our fans like people, we wouldn’t have had their support when the pandemic hit. It would have been over. We would have traded a bit more profitability over four years for bankruptcy in year five.
Instead, our supporters saved the club and they weren’t done yet.
DON’T BUY KNOCKOFFS
“Get in loser, we’re going shopping.” – Regina George, Mean Girls
Merchandise sales are an under-appreciated revenue stream for clubs.
Just how critical was made apparent this year when Leyton Orient were forced to forfeit their Carabao Cup match against Tottenham Hotspur because of COVID. Orient were due to lose the gate and television revenue, a massive blow to the small club. Spurs fans, though, stepped up. They made purchases from Orient’s club shop of more than £20,000. An incredible gesture, and hugely meaningful revenue for the club.
In a similar way, when City was facing a revenue crisis it was merchandise sales that made a huge difference. This was unexpected.
While we did launch a new scarf, sweatshirt, and t-shirts in the fall, we drastically scaled back the merchandise launches. Nothing in the spring. One new t-shirt in the summer. After all, with no home games and with, for a time, our store closed what was the point?
The real story though was our kit launch.
Designed by Matthew Wolff, Minneapolis native and high school classmate of club captain Aaron Olson, who, to paraphrase Mugatu, “is so hot that he could take a shit, smear it on a t-shirt, and sell it to the new USL team as their home kit”[19]. The kits he did for us, especially the home shirt, have just sold and sold and sold. We couldn’t keep them in stock. They are still selling fast today (and go check ’em out for yourself).
As of August 31, we have sold over 900 of our 2020 shirts between the club and Classic Football Shirts, which sells our jerseys in Europe (online and in their shops in London, Manchester, and Liverpool). While we were shipping jerseys all over the country and world, the vast majority were sold in Minnesota. Most to people who hadn’t bought from our store before.
We nearly doubled last year’s merchandise revenue, which was previously our highest ever.
It is not an exaggeration to say that these shirts were magic.
It is because I know just how important merchandise sales is to clubs, I get enraged at the cottage knockoff industry that has sprouted up in soccer. Every day, especially on Instagram, I get served ads from some smalltime company that is kinda sorta maybe doing enough to circumvent intellectual property laws to sell knockoff gear. Like these two I was served today:
Neat designs, and with Football Town maybe even cooler than what you can find directly from the club.
Buying it, though, means that you’re sending money to some shameless profiteer instead of to your club. Your club needs that money.
More than that, your club deserves that money. It’s their intellectual property, created over years of hard work on the field and off to create something meaningful—so meaningful that fans around the world are willing to pay for merchandise that reps the club. The knockoff artists may somehow do enough to skirt copyright laws, but what they are doing is wrong. They’re profiting off of something that isn’t theirs, that they didn’t build. They’re thieves and they are stealing directly from your club.
Especially now, when so many other revenue streams are impacted or impossible because of COVID, this money is critical. If you love your club, buy from your club.
IT WAS A BAD YEAR BUT ALSO IT WAS A GOOD YEAR
“And it all worked out” – Sarah Schreier
This year sucks, I think we can all agree on that.
We lost a season, and not just any season. Sports are about timing. There is a window where players and teams peak, and our 2020 vintage Minneapolis City team was in the middle of that window. I’ll always think back wistfully about this season, about what could have been given the group we had and how damn good they looked a few days before the U.S. Open Cup first round that never happened.
While, if you told me that fate would find a way to make sure that we didn’t play in the Open Cup again, I would believe you, I would not believe that with a cancelled season (and all that entails) we would set a new record for total revenue—and beat last season’s record number of Members. But we did.
The money didn’t come from where we thought it would and, again, holy jersey sales Batman.
A few FAQ-style notes on how things ended up:
Sponsors represents cash only and not the (significant) value of in-kind benefits.
Gameday includes Tax, since we are taxed on tickets and Memberships. Our tax bill for the 12 months of this fiscal year was $1,339.
Donations as expenses (money we gave away) isn’t broken out separately because it includes cash donations (like fundraisers donated to, both from cash donations and percentage of profit of items sold), donations of goods (either good donated and purchased for donation), and purchases from affected businesses and therefore is across a number of different line items. That giving is primarily represented in the Marketing line item, and also in Ops & Shop and Merchandise expenses.
Donations as revenue includes donations to the Futures Scholarship Fund, which is held separately and to be spent only on the Futures Program. As of August 31, 2020 we had $4,460.35 in the Fund. It has continued to grow at the same time that we have already begun awarding scholarships to players.
We paid full league fees for both NPSL and UPSL, with the NPSL amount offset by a credit related to playoff travel. League Fees as a line item also includes the $1,000 performance bond we paid to U.S. Soccer for the Open Cup which they are keeping until the next Open Cup, which we, for the moment, remain qualified for.
Since we use the cash accounting method, the numbers can slightly misleading.
For example, we have $658 in the travel line item which is reimbursements paid out for the 2019 season.
Equipment went over as a line item because we had to purchase items for the Futures Program in this fiscal year to ensure that they were delivered in time for the program to start in November.
Mainly, though, this method overstates our profit. For example, we haven’t been invoiced for all of the rental costs for the Fall 7v7 league we are running (which, at the time, was $6,728.67).
We were profitable this year. More profitable than we ever have been, in fact. Turns out the path to profit is selling season tickets to a cancelled season and having basically nobody request a refund[20].
Jokes aside, this is a powerful commentary on the Minneapolis City idea. The support from Members was inspirational because it showed belief the community, the club, and the mission—and it drove us to action. We had to do something to live up to the trust placed in us.
[12] And the risk, as we have seen over and over again, is that the rich owner loses interest in the team and/or in giving money away to soccer people, many of them rapacious, no-talent assclowns, and folds.
[13] At least one NPSL North team does this and one just hopes, since a lot of eggs are in that one basket, that the sponsor stays supportive as long as they want to keep playing.
[14] Probably more of a ‘fuck yeah’ but I’ve been told by Very Important People in Minnesota SoccerTM that my language offends them, so shrug.gif
[15] She’s incredibly accomplished. She started her first company with my uncle while finishing her MBA at Kellogg. They did well, sold it, and started another. And another. She’s been successful across categories while raising a family and making it all look easy. She also said having an MBA was like being in a club that people outside of the club thought was really valuable but people inside the club thought was expensive. My wife, who also has her MBA, mostly agrees. I just have an English degree though so what the fuck do I know?
[16] All the better to bill you for, my dear
[17] Because if you’re not, copying the leader won’t make you #1. You might avoid blame for trying something novel that your bosses don’t understand though.
[18] And, given how hard this pandemic has been on those whose jobs have been impacted, we are glad that they did and hope that they are able to get to the other end of this okay. It’s a hard time.
[19] And it would get rave reviews on Twitter, lauded for its St Pauli-inspired color, the daring originality of its swirls, and for the fact that Matthew Wolff is so damn good at design he would make it look cool. It’s almost unfair to be so talented, but he is.
[20] Right now one of those vaporware jersey club Twitter accounts is hatching a plan for virtual season tickets and, honestly, it’s not a terrible idea.