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The Story of Nashville FC: A Dangerous Precedent

Latest Soccer Results / Recent News / USA / July 19, 2016

The story you are about to read is driven by grief. Two weeks ago I was contacted by an unnamed soccer fan who felt hurt.

Not hurt by his team’s owners. Not by the players themselves. But by the community surrounding the club which he had once called home.

Nashville FC, Nashville’s only soccer team, was once the supporter-owned diamond in the corporate rough that is American sports. And more than just another club, Nashville FC was a community of members, friends, and to many, family.

“Nashville FC gave me hope to one day be able to travel to Nashville and have a family that would greet me.” The quote from Nashville FC member Jesus Orozco is in itself touching.

Orozco, who lives in Santa Barbara, CA, found Nashville FC as he searched across our country to be a part of a club that, as he described, “belonged to the people and really worked FOR the people.”

After deliberating on whether or not to purchase a membership, a phone call with Nashville FC President Chris Jones did the trick. Orozco immediately purchased his membership, a game-worn jersey, and the book, “Love Thy Soccer.” Who the hell ever gets a personal call from the a sports team’s President? That sort of personal touch is unique for a reason.

As Orozco explained, “the fact that he [Jones] was so open with me, willing to take time out of his night to speak with me, and to even offer advice and support really showed me what Nashville FC was all about.”

And, at least to me, that’s what all sports are about.

NFC

“Nashville FC: Our Town” is the slogan of a club that is made by and for the community.

Sports are about community. They’re about family. They’re as much about the crazy people screaming around you in the stands as they are about the players on the field.

Why else would millions of us spend our time, money and energy supporting entities we aren’t even actually a part of? Because the community, the family makes us a part of the overarching entity.

When this happened in Cleveland earlier this year, did one of the most magical moments in American sports history take place because all 1.263 million people from Cuyahoga County were a part of the Cavalier organization that lifted Cleveland’s first trophy since 1964, or because there is some indescribable quality behind sport that transcends the barriers we constantly build around us?

And although sport as an engine of community and togetherness is often nothing more than an ideal in America, Nashville FC was here to change that.

Nashville FC, who played in America’s fourth division, the National Premier Soccer League (NPSL), was founded with the intention of fan-ownership, which is unique within the American sports world. Jones drew inspiration from FC United of Manchester’s supporter-owned formation in the same market as soccer-behemoths Manchester United. Disenfranchised United fans rallied together to keep a supporter-owned club in Manchester after their storied club was purchased by Malcolm Glazer. Their club is still alive today and is democratically run by its members who have equal voting rights and own one share in the club each.

NFC

Some of the best ideals can travel all the way from Manchester to Nashville.

And through Nashville FC’s early years, they held firm to the somewhat lofty ideals proposed by their English counterparts. These ideals are perfectly illustrated by something that happened a little less than a year ago.

Eleven months ago, the Harrisburg City Islanders, a soccer club that plays in the third division, United Soccer League (USL), were having problems. The club was unhappy with its current field, the Skyline Sports Complex, and looking for a change of scenery.

In a series of moves that should feel familiar to most American sports fans, the Islanders appealed for their recently bankrupt city to front the bill for a new stadium. When that didn’t work, they began to look for a switch of location. (A little too familiar, St. Louis Rams fans? What about you, diehard Cleveland Browns fans?)

As you can probably guess from the overt narrative structure of this article, that location was Nashville.

In 2015, the Islanders averaged an attendance just over 2,400, 16th out of the 24 teams in the USL. While those numbers are not horrible for a USL team, the owner, Eric Pettis, thought that the Nashville market (29th biggest in the US) would be the perfect home.

However, one thing stood in their way: Nashville FC.

When the City Islanders came knocking on Nashville’s door with their offer, there was no doubt how the fans and owners of this community club answered.

Ron Deal, the head of Nashville FC’s support group, the NFC Roadies, told Vice, “When the news about Harrisburg’s interest in Nashville broke, a popular theme among the Roadies was #BuiltNotBought.”

The fans and owners rallied around the ethos of “built not bought.” Any sports fans who has ever felt like an underdog can empathize. There’s pride in the fact that your team went the road less traveled to the championship. We relish when our team is spending a fifth of what Goliath throws down; when we wield that sling and show that our guys are worth more than paper. Leicester City, need I say more?

The unity of Nashville FC sent the Islanders’ potential deal packing. The Islanders are currently playing their 2016 season at FNB Field, which is home to the local AA minor league baseball team, the Harrisburg Senators.

All’s well that ends well, right?

Well, this is far from the end.

So far, the story of Nashville has been milk and honey. The club seems like the community-owned team that I had been yearning for. The organization was at its unified best, but the interest of Harrisburg would bring on a new storm of investment interest that Nashville FC could not weather.

Just one season later, the club folded.

Nashville FC

These glorious fans will never cheer on the same Nashville FC again.


DMD Soccer, a group of investors from Nashville, were awarded a new professional soccer expansion franchise by the USL this spring. While the investor group initially bounced around many concepts for their new club, they eventually decided that the already-established Nashville FC embodied the spirit of the town more than anything they could create. But that doesn’t mean the members of the club were rushing to give up what they had created.

“I had no idea what DMD [Soccer] was or that they were working with the board. The fact that they were closely involved and then the details were never really discussed makes it seem like the board was deliberately trying to hide the deal from the members,” said Davis Barnhill, a founding member of Nashville FC.

The investor group, which consists of David Dill, president and chief operating officer of LifePoint Health; Christopher Redhage, co-founder of ProviderTrust; and Marcus Whitney, president of Jumpstart Foundry and former chairman of Nashville FC, hope that Nashville FC, a different club than the one that banded together to keep the Islanders out of their city, will begin USL play in 2018.

On its face, this looks like a sweet deal, like a small startup that got bought out by Google. The fans who bore and bred this club would have the opportunity to see their club move up the American professional ladder, the city gets a USL affiliated squad with large investors, and plus, there’s this sick pump up video.

But when an inquiring eye digs deeper into the story of the acquisition of Nashville FC, things begin to sour.

The history of DMD Soccer and the Nashville FC Board of Director’s involvement did not start this spring. The two groups have been working together on this deal for over a year.

An email from Nashville FC Chairman Chris Ferrell to the members sent on June 18th, 2016 included a letter from David Dill explaining how DMD Soccer became involved with the club.

Two very important things happened before investor interest began to form in Nashville.

First, Dill noted that the Islanders’ attempt to move to Nashville clarified that Nashville would continue to be a target of outsiders looking for a soccer home. Second, the USMNT played a match at Nissan Stadium and drew 45,000 people in the summer of 2015. Both these events confirmed the board’s belief that Nashville could support a professional soccer team.

After the 2014/15 Nashville FC season ended, the board surveyed certain dues-paying members that “represented a wide demographic” on their feelings about an investor group bringing professional soccer to Nashville FC. After receiving positive feedback, the board held informational meetings for potential investors. Dill was immediately intrigued and brought in Chris Redhage as a partner, and the two formed DMD Soccer.

DMD Soccer then worked closely with the board for what Dill describes as both, “months” and, “over a year” in the email. On May 16th of 2016, the man who had been the Chairman of the Nashville FC board throughout the previous year while working alongside DMD Soccer on the eventual deal, Marcus Whitney, resigned from the board and joined the investment group the following day, three days before the group announced that they were awarded a USL expansion side. They then put the deal to a member vote.

Nashville FC

These fans voted to fold their club, and that’s their decision and I respect that.

The dues-paying members of Nashville FC overwhelmingly voted to fold their club’s name and intellectual property into DMD Soccer.

But while all of these dealings were being negotiated by and with the Board of Directors, the members were kept in the dark.

Which, I have to stress, is not illegal. In fact, it’s hard to pinpoint exactly what, if anything, is illegal throughout the whole deal. But, we can all agree, this sounds next-level shady. The members were not told of these dealings while the negotiations were going on when this was supposed to be a community-oriented club. It flies in the face the ethos the club worked to build and protect.

After the offer by DMD Soccer, 95% of Nashville FC’s 266 dues-paying members voted (around 100 members abstained from voting, but the voting group met the 2/3 quorum the bylaws demanded) to fold the club’s assets into DMD Soccer, which would operate the new USL team. The deal agreed upon stated that the members that had funded (and they believed, owned) 100% of Nashville FC would now hold 1% ownership in DMD Soccer and one seat on the new board of directors.

Now, if you work with valuations, or regularly watch Shark Tank, you may be a little surprised by those numbers. For the rest of us (myself included before writing this piece), let me quickly explain.

If someone is looking for investment in their organization, they will value that investment against the value of the entire organization. For example, if you owned a soccer club and an investor wanted a 10% stake in your club for $200,000, that would mean that your organization was being valued in its entirety at $2M.

In other words, DMD Soccer valued that Nashville FC (USL) was worth 100 times what Nashville FC (NPSL) was. And, in the vein of honesty, that could be completely true.

However, the events that took place prior to this valuation is where problems started to occur.

When Ferrell initially reached out to the members with information that DMD Soccer had inquired about an acquisition of the club’s assets, it was, “in exchange for an [undisclosed amount in email] ownership stake and a seat on the board of DMD”.

Nashville FC

Supporter-owned through and…er….wait a second.

In the same email, Ferrell explained to the members that the board would circulate the LOI (Letter of Intent), which contained the terms of the deal but was not legally binding, and then circulate the APA (Asset Purchase Agreement), the legally binding document containing the details of the deal, to the members before the vote. Which makes sense. The members believed they were the owners of the club and, as would any reasonable person, would benefit from knowing the terms of a deal they were about to vote on.

However, the APA, which would contain both entities’ valuations of the club and the details of the deal, was never circulated to Nashville FC members prior to the vote.

In a letter attached to the June 18th email (the same email that provided the SurveyMonkey link to where Nashville FC members were to cast their vote on whether or not to fold their club), Ferrell wrote, “We previously had told you that we would circulate the actual APA. While it has always been the board’s intention to release the actual APA to the members, the document language presented by DMD’s attorneys includes broad confidentiality provisions that we, as a board, do not want to put NFC at risk of violating by circulating the APA beyond the board itself. We have reviewed the document with the club’s legal counsel, and are satisfied with the provisions as presently drafted.”

And this could actually make some sense. The board could have worried that members would disclose the information in the APA. Nashville FC had 266 dues-paying members, which is a large number of individuals to confidently distribute confidential information to. Nonetheless, if the board believed that the members were required to vote on the terms of the APA, was it proper for the APA to include a confidentiality provision that restricted the members from knowing those terms?

Regardless of the high number, the members were still the funders and, in many of their minds, owners of the club. The members received notice that they wouldn’t be able to view the APA in the same email that the board asked them to vote on the fate of their club, which is a little late to ask for a hold on voting. Members didn’t think they had the right to or didn’t feel comfortable asserting that they would want to see an APA before voting, especially when they had no way of knowing that other members wouldn’t cast votes in the meantime. This all culminated in the members voting to “sell” their club.

But actually, since Nashville FC was incorporated as a non-profit, they could only vote to fold the club and be absorbed instead of selling. This may seem like a semantic difference if non-profit law isn’t your specialty, but since there was never a sale of the organization, there never had to be a valuation. Valuations are important when selling something, but they don’t matter as much when you’re giving it away.

Regardless of what the receiving party decides to offer you, by giving away your entity without any form of valuation, you are essentially valuing it at $0. Which is what the Nashville FC members “sold” their club for.

And since the members voted without demanding to see the APA agreed upon between DMD Soccer and the Nashville FC Board of Directors, we may never know what the club was valued at, if it was ever valued at all. The groups either never valued the organization or valued it for the APA and decided not to show the community members after labeling it as “confidential”.

Which smells as fishy as the tilapia that’s been thawing in my fridge for the last two weeks, but I have to stress again that no actions throughout the deal were explicitly illegal. I’m not a lawyer and do not want to comment on that side of the deal, although I have recently become aware that disgruntled members have been in preliminary discussions with an as of yet undisclosed attorney.

The members were nothing more than members of this non-profit organization, regardless of what impression they were under. The fact that Board of Directors worked with DMD Soccer for a year before Marcus Whitney resigned and became an investor could possibly have been in bad faith, but there’s no proof of that. Since the club was a non-profit folding its assets rather than selling, the APA didn’t have to be distributed throughout the members prior to the vote. But, as we all know, legality is not always equal to morality.

I want to take a second to summarize, to keep things fresh in your mind and give you a break, o’ faithful reader. After working alongside DMD Soccer for a year on an investment deal, the board asked the members to decide if they should transfer 100% (air quotes) “ownership” over to the group in exchange for 1% of a new club with no valuation.

Nashville FC

These kids may have wanted to own this club one day.


And that does not sit well with me. At all. No matter how many times I’ve poured over it, the series of events that transpired in Nashville just wouldn’t pass a smell test.

One major point of contention about the deal that I heard when I initially talked to members about these events was that they had sold 100% ownership of Nashville FC for 1% ownership of DMD Soccer, which is not factually correct.

Not only was there no selling or buying in this deal, but the members were not owners when the deal was struck.

Many members may have believed they were owners, but they weren’t. As SCORE Association, ‘Counselors to America’s Small Business’, stated in their guide to closing or selling a non-profit: “A nonprofit business is not owned by any one individual or group of individuals.” It is instead a group that is protected against being taxed. Dues-paying members may have believed that they were owners or held some ownership stake, but in reality they did not.

“It really was sold as ‘Our Town, Our Club’,” said Joel Jackson, a dissenting out-of-town member who believed his membership fees were for an ownership stake, at least at the beginning. “Why would they go through the process of setting bylaws and organization charts if it wasn’t?”

The organization originally incorporated as a 501(c)7 but was informed by the IRS after their first year that they would have to restructure to continue selling merchandise, which, at the time, accounted for roughly 15% of their income. The group formed an unnamed for-profit entity to which they transferred Nashville FC’s assets. Whether or not this restructuring signaled a change from “owners” to “members” remains to be known, but it is clear that members who were sold the idea of owning the club prior to this switch were never informed outright of their position in the organization.

Barnhill said, “If there was any notice [of a change] I never saw it.”

Another founding member who helped found the club alongside Chris Jones but asked to go unnamed said, “The shift wasn’t stated by the club itself but rather a Twitter account called Yellow Hammer.”

These are just two of the many members I spoke with that expressed that they were never informed when the structural changes were made, if at all. Whether or not the organization promulgated this information sufficiently is obviously up to debate, but there’s no denying that many dues-paying members were purchasing a value which was being misrepresented to them.

So maybe it was all a dream (used to read WordUp magazine). Maybe member-ownership was always just an illusion. Maybe, just maybe, it was a lie. A very powerful lie in which many were swindled and few profited. Maybe.

Of course, the members should have taken more time to read the bylaws that laid out their role within the community. But the bylaws, an 18-page, 7,430-word document, reads like Terms and Conditions. And let’s be honest, we are not all lawyers when it comes to contracts we’re asked to sign before using a product (Looking at you, Apple). If you were to read the policies you are presented in a year it would take 76 work days to complete, and that calculation was for contracts that average just over 2,500 words.

So we can all empathize with the members that didn’t sift through the bylaws to deduce exactly what the term “member” meant after the organization had them believe that they were owners.

And it’s a big accusation to say that the organization falsely “had them believe that they were owners”, I know. Honestly, I didn’t believe it either, until the USL came in clutch for me, just like for Marcus Whitney.

A recent article written by Grant Czubinski for USLSoccer.com, which talks about Nashville FC’s rise to their league, showcases exactly this point about the club and media’s misrepresentation of membership. After discussing Jones’ idea to field a sustainable club in the Nashville community, Czubinski wrote, “The answer to Jones’ questions was establishing Nashville FC as a non-profit club that was wholly owned by its fans. The community-owned model made Nashville FC a unique entity within American soccer, and it worked.”

Was it really, Grant?

Then why weren’t the owners given a proper valuation of what they owned before voting to give it away? How did a non-profit have a group of owners anyways? And, most importantly, why did the bylaws not state said ownership?

Chris jones

Chris Jones already fits the executive look.

Czubinski went on to quote Jones as saying, “We sent communication to the members and took their direction, and so we started down this path with DMD Soccer and USL.” Which we’ve seen from the email correspondence between members and the Board of Directors a year ago and this spring is untrue. Plain false.

I weirdly couldn’t have been happier when that article came out. Although it confirmed all of the problems I initially saw in this deal, it also reaffirmed the uneasy feelings I had while researching the organization’s representation of the members in a very black and white manner.

The members weren’t granted the rights an owner would expect when selling “their” organization. The members weren’t owners at all.

It definitely was all a dream.

Nashville FC’s community was building something. It was going to inspire thousands and it could’ve changed how soccer communities grow in America. But it was a tower built on the sand of the lie that members were actually owners.

When the Asset Purchase Agreement was struck between the Nashville FC Board of Directors and DMD Soccer, the groups knew this. They knew that the members were nothing more than an avenue of income for the club and held no ownership. And in effect, they threw all of the supporters a bone by granting them 1% ownership and a seat on the board they were never even entitled to.

And beyond the problem of members believing they were owners, it’s even questionable if the Board of Directors should have been dealing with a group of investors in the manner that they did from the beginning.

Nashville FC

And in 2018, a new club with these same colors will take the field.

Section VII of the Nashville FC bylaws (“Prohibited Activities”) states, “A conflict of interest occurs when a person under a duty to promote the interests of the Corporation (a “fiduciary”) is in a position to promote a competing interest instead. Fiduciaries include all Corporation employees, directors or officers, and members of any Corporation committee. Undisclosed or unresolved conflicts of interest are a breach of the duty to act in the best interests of the Corporation and work to the detriment of the Corporation.”

At the end of the day, a person on a Board of Directors acting in their fiduciary duty must make decisions in the best interest of the nonprofit corporation; not in his or her self-interest. Whether Whitney’s decision to step down from the board and immediately join DMD Soccer was in the best interest of the Nashville FC community is debatable.

Whitney and the board could have recognized the interest in the Nashville market and thought the best interest of the community was to preserve their brand through this deal. Whitney could have hoped to reward the member community’s financial investment by giving them some ownership of DMD Soccer and a future place within the club. Or, more cynically, Whitney could have protected his own interests by accepting a quid pro quo deal for many Board of Director members from DMD Soccer.

But the real problem I found in this section is the last sentence. “Undisclosed or unresolved conflicts of interest are a breach of the duty…” Instead of illuminating this point with my own conjecture, I’ll let a dues-paying member tell you what they knew.

“I first heard about all of this [DMD Soccer’s involvement with Nashville FC] the day that the email was sent. Coincidentally, there was an article in The Tennessean that appeared that day. I read the article first, then the email hit,” said Jackson. And remember Barnhill’s quote from the beginning of the article?

It’s clear that some members were left in the dark about DMD’s dealings with the Board of Directors, not just Marcus Whitney. Whether these dealings were a “conflict of interest” all comes back to the question of whose interest was really being served by these board members.

Perhaps it’s foolish not to give them the benefit of the doubt, but the series of events that took place between the Nashville FC Board of Directors and DMD Soccer are surrounded by so much doubt it is hard to.

Again, faithful reader, let’s take a break and summarize. While Nashville FC paraded the motto of “built not bought”, the board was crafting a deal to gift the members’ non-ownership rights to rich investors in exchange for one step up the American soccer ladder.

NFCvDerby-640x360

Your voice. Your heart. Your passion.

 


If you’ve read this far, I hope you’re understanding that this story is one that is complex and has many layers. Realize that anyone telling you there is one simple conclusion to draw from these events is most likely serving their own self-interest, regardless of their side. Hopefully, intentions are pure. The people on both sides of the Nashville FC debate are probably protecting what they believe to be the best interest of the community at large, and while you may not agree with specific practices, this is not as easy as “*insert name here* is a crook”. Nashville FC did move up a tier, after all.

The saga of Nashville FC is a lot of things. It’s a confusing story, a sad disappointment for the community-owned sports model, and a guide for us to learn from.

America is seeing a (very) mini-inception of community-supported soccer teams, and although young, it’s amazing. But if this trend is going to prove its staying power, the people who actually matter, the community, must be smart. People, as individuals, must take the responsibility on themselves to not only put money and time into the team but also to understand their position in the organization and fight for the future they truly wish to see.

We have to be smarter than the big guys because this is their game. David used a sling to take down Goliath because the giant would have butchered him with sword and shield. Supporter-owned does not have the traditional weapons of wealth and power. Instead of stepping into battle with their sling, Nashville FC chose wealth and power, the sword and shield.

There seems to be an unfortunate tradeoff between supporter owned and success. As Jeezuz Orozco eloquently explained, “It seems as if the club and the people of Nashville FC (supporters, staff, etc) are/were more interested in having a ‘top-tier’ soccer team than an organic supporter-owned club.” And for members that wanted to be owners, that’s disappointing. But while there are definitely a strong group of dissenting and regretful members, 95% of the voting members still said yes.

The top-down model we witness in America will continue to dominate our world of sports until there is a clear and concise effort to foster the communities that are created, not undermine them.

Because to most of us, sports are about more than winning. They’re about more than money.

As Orozco always wanted, they’re about family.

They’re about finding a community that you never knew existed and feeling at home.

As I’ve quoted in similar context in the past, and as I’m sure I will again in the future, soccer legend Dennis Bergkamp explained it perfectly: “When you start supporting a football club, you don’t support it because of the trophies, or a player, or history, you support it because you found yourself somewhere there; found a place where you belong.”

 

 

While writing this article I reached out to both Nashville FC and the United Soccer League for comment. Both organizations never responded.






Noah Toumert
The three loves in life are Cleveland, Algeria and soccer. Looking to bring the world's most beautiful game to the world's most beautiful country.




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