There was a time in history not all that long ago that baseball players like Yogi Berra worked at Sears in the offseason and Willie Mays sold cars in the offseason just to afford to live. There just simply wasn’t much money in the business of sports.

The idea of sports teams being a high growth asset class is a new phenomena largely driven by TV deals, which help teams rake in large sums of cash that prop up what may otherwise be meager ticket sales.

For instance, in 2018 each Major League Baseball team derived about $425M in value from the MLB’s collective media assets. In the NFL, each team is allocated $255M yearly in TV revenues generated from an $8.2B contract for the entirety of the NFL.

It’s why sports teams like the Dallas Cowboys are worth $4.2B, why the New York Yankees, which were worth $8.8M in 1973 when George Steinbrenner bought the Yankees are now valued at $3.7B, and why teams like the Clippers get purchased for $2B, when most had estimated it was worth $500M prior to its sale.

Put simply, sports teams have become an interesting asset class to derive long term growth for investors. Unsurprisingly, of the 140 top sports brands, 109 of them are owned by billionaires. So how do everyday investors get exposure to this intriguing asset class?

Though soccer has not necessarily been huge in the US historically, soccer is truly the global sport of choice. It’s unsurprising then that the 2nd, 3rd and 4th most valuable sports brands in the world are Manchester United, Real Madrid, and Barcelona, all valued at over $4B.

With so much market opportunity and intrigue it is no wonder that the US is finally making inroads to invest in being a competitive soccer market. The current TV deal for the MLS is around $90M annually, which is obviously tiny when compared to the NFL, but it also leaves much more upside for growth.

The top teams in the MLS are worth $320M (LA Galaxy) and $310M (Seattle) with no team falling below $100M. A case for continued rapid growth of the MLS can be derived from the fact that a recent Gallup poll shows that soccer ranks only second in popularity to football among 18-34 year olds. Put simply, the next generation of viewers want soccer, and soccer they will get.

Over the next ten years we can estimate that we will begin to see some of the first billion dollar soccer teams homegrown here in the US. For these reasons, it is an intriguing time to be investing in soccer clubs.

Launched in 2009, Chattanooga FC is a semi-pro soccer team with a rabid fan base that turns out in droves for games with average attendance around 4,000 fans per game with certain games exceeding 10,000 fans.

The team has made a commitment to staying in Chattanooga permanently, “for better or for worse”, rejecting the tax-incentivized moves that many sports franchises have made comm onplace.

Even with its commitment to the community, it was able to generate around $750K in revenue last year, and has a couple of exciting initiatives to accelerate growth in the top line moving forward, which management expects will drive 30% revenue growth this year.

These include moving into the new NPSL Pro league, which is meant to elevate the level of play and professionalism from the broader National Premier Soccer League with 81 teams. In this newly formed league that Chattanooga FC helped form there will be 8 teams in the first season.

The second initiative is around developing a streaming strategy to get the soccer games to more fans and create a way to form an early “TV” type deal, which as I noted above can create tremendous value for the league and teams within it.

At a $2.95M pre-money valuation with quickly growing revenues that will be in excess of $1M in 2019, the team seems fairly priced and absolutely has long term upside for the business. However, there are a handful of major challenges to overcome in order for this team to present an outsized return to investors.

In European soccer, an “open” league system is utilized, which means that teams that underperform are relegated to lower divisions, damaging their reputation and brand and therefore bring in less revenue.

This traditional promotion/demotion system incentivizes team to optimize their team’s performance and also allows small markets to compete with large markets on a yearly basis.

In Major League Soccer or the United Soccer League, teams pay a fee to join the league, and automatically enjoy the benefits of viewership and sponsorship. It’s a “closed” system that keeps small market teams like Chattanooga FC from being able to be an MLS team.

If this system stays the same forever, than the upside for Chatanooga FC will be limited, because getting into the league will be key to this becoming a $100M+ entity. But with soccer gaining momentum in the US and the league experiencing such growth there is a chance that we could see these changes down the road.

Only time will tell, and we don’t have a crystal ball to predict if this league regulation will change.

The other rule that exist in Europe is that you have to pay transfer fees to get players from other teams and lower leagues. The highest transfer fee ever paid was by PSG to acquire soccer player Neymar Jr. from Barcelona in 2017 for $198M. Yes, you read that right almost $200M just to acquire the player.

Should the MLS decide to utilize transfer fees to acquire players from lower leagues and other teams, Chattanooga FC could have this as an additional stream of revenue. Don’t expect $200M, but a few million here and there could make a major impact on the top and bottom line.

Tim Kelly, Sheldon Grizzle, Krue Brock, Marshall Brock, Thomas Clark, Daryl Heald and Paul Rustand are the founding team of the club back in 2009. Brock, Heald and Clark first began the club, inspired by their shared love of soccer.

At the time, Clark was already a member of the Birmingham league, but knew he wanted to create something better. Leveraging their experiences in various start-ups and investing, the group began the Chattanooga Football Club.

Thus far, the club seems to have been managed well, having been operated for 10 years and generating $750K in revenues last season with a net operating profit.

Chattanooga FC is a Deal to Watch. The thesis for investing in this team has to do with believing the soccer market in the US continues to grow at a rapid pace leading to better TV/streaming deals, and that the MLS experiences structural changes in the coming years both from a closed to open system and one that allows for transfer fees.

Without these two pieces of the equation the upside on this investment will be more limited. Regardless, putting in place a strong streaming deal and continuing to grow the fan base in this new more professional league still has the potential to multiply the value of the business meaningfully.

The club’s current success with its emphasis on slow and sustainable growth through community-building efforts has paid off, with strong audience turnout in relation to other semi-pro sports events.

An investment in Chattanooga FC is therefore less an investment into a high-growth startup that may return 10x within a relatively short time-frame, but rather a long-term ownership commitment into a socially impactful football club, that has the potential to grow steadily onto the national stage.

The club has stated that it has no intentions on stock liquidation or dividends in the near future, but it is also a benefit corporation with a history of giving back to their community and supporters.