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Commonwealth Sports, a company that sells fractional investments, hit it big a year ago when one of its crowdfunded horses, Mage, won the Kentucky Derby. Now the company aims to push deep into funding athletes in golf and tennis through shares in future winnings.
Commonwealth is announcing later Thursday that it has secured $4.5 million venture capital funding from a group led by tech investment fund Social Leverage, with sports-focused VC Eberg Capital and recently retired NFL star Larry Fitzgerald Jr., among other, undisclosed, investors. At the same time, the company will announce it has secured regulator approval to purchase ALAO Invest, one of nearly 100 crowdfunding platforms approved by U.S. regulators.
Commonwealth’s approach is to provide the capital needed for an emerging player to compete for a year or two in exchange for a slice of income in the future. Last summer it backed golfers Cooper Dossey and Joey Vrzich and has a current public offering raising up to $262,000 for each specifically to use for entry fees, travel, caddies, coaches and equipment (the players would receive $225,000; the rest would cover a management fee and various offering costs).
In exchange, the players, each a pro for fewer than three years out of college, agree to hand back a portion of their income over six years, depending on the amount of the money that gets raised–a maximum 30% of income the first three years declining to 10% in year 6, with investors splitting about 80% of that money and Commonwealth getting the balance.
“We sell shares—fractionalized in industry speak—in sports opportunities,” co-founder Brian Doxtator said in a phone call. “While we were still in stealth [mode], we launched in horse racing and have had an unbelievably wild ride in horse racing … and then last spring we launched golfers and built out our tech to be able to expand into additional sports very easily.”
Doxtator started Commonwealth Sports in 2019, entering the world of fractionalized horse race ownership. The business struck gold twice: first with Country Grammar, the highest-earning racehorse of 2022, and then last year with Mage. Ownership of racehorses by groups of small investors isn’t new–Funny Cide most famously made a series of Mom and Pop investors big winners in 2003. With Commonwealth, Mage’s 400 investors have so far seen each of their $50 shares return $231; Country Grammar has returned its 270 investors $519 back for every $50 share, according to the company.
Athletes selling a portion of their income to investors isn’t a new idea either, but has been tougher to execute; last decade a venture called Fandex flopped trying to combine securing player marketing deals and selling shares in that revenue to fans, while a couple of years ago NBA player P.J. Washington couldn’t raise even 1% of what he wanted through a WeFunder effort. The most successful athlete funding venture to date has been open only to deep-pocketed investors who back Big League Advance, most famous for backing Fernando Tatis Jr. as a minor leaguer.
Commonwealth believes it has struck a balance of technology, regulator approval and equity between athletes and backers that will allow the still-developing field to thrive.
“The overarching theme is serving as the connective tissue between athletes and fans and enabling fans to be invested in athletes to express their passions in ways previously impossible,” said Eberg founder Roger Ehrenberg in a video call. “From the standpoint of athletes, they need money to train, especially at that early, steep inflection point of their career–athletes who aren’t necessarily at the very top [of their sport] or have enormous sponsorship value, but are really excellent and just need somebody to back them.”
To Ehrenberg and Doxtator, the investment side is just part of the appeal to the 16,000 people who have invested an average of $300 to date through Commonwealth. Last year, the company held about 50 events for its investors, with some 2,000 attending.
“They all tell us that return on investment is the third or fourth thing that they really care about. They really care about feeling like they’re involved in something they like, supporting something, being entertained. And then, of course, having a chance to go and experience it,” Doxtator said. “We can guarantee you fun, we can’t guarantee you ROI.”
Commonwealth says landing the already FINRA-approved ALAO platform will allow it to quickly expand its offerings, which, like other securities offerings, have to file detailed paperwork on expenses, uses of funds and risk factors. The company expects this year it will sign 15 golfers, 10 tennis players and five team athletes. (They have had preliminary discussion in football and basketball, according to Doxtator.) The company will continue in horse racing too, intending to offer shares in 30 ponies. ALAO will be linked with Commonwealth’s own app to allow users to buy shares starting at $50 and get player updates, exclusive content and learn of investor meet and greets.
On the athlete side, beyond money for competition costs and forming a fervent–if small–fan base, they aren’t locked into paying a portion of their income if they don’t so desire. Commonwealth’s offerings for Dossey and Vrzich include buy-out options, where the players can close the deal by repaying twice the amount of funds used to date.
With the golfers, the maximum income they would pay out over the six years is also capped to five times the amount of funds raised, meaning a surprise win of a major tournament won’t quite be as good a return as on Country Grammar. But that equitable arrangement is part of what they believe will make Commonwealth stand out from the emerging player fractionalization market.
“I do deeply believe that there is an unmet need for financing young athletes’ futures that is either being done [by others today] in predatory ways or is simply nonexistent,” investor Ehrenberg said. “This is democratizing athlete finance and elegantly pairing it not with hedge fund investors, but with fans. That, to me, is like soul food.”
(This story has been updated in the sixth paragraph to clarify the distributions from the two horses are still ongoing.)