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I tried to invest in a pro soccer team, and I still don't know what I got

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The Sounders 2 fan ownership situation and subsequent refunds explained.

Courtesy of SoundersFC.com

It was 16 months ago that the Seattle Sounders ushered in what seemed to be a bold new era of American pro soccer when they announced that fans would own 20 percent of their new USL team. Fan ownership was to be represented by the Sounders Community Trust, but details of what that would actually entail were always a bit thin. What's remarkable is that we know arguably even less now than we thought we did then.

With last week's decision to return the $250,000 raised during the initial membership drive, the whole situation surrounding the team's ownership is as unclear as ever.

But don't worry, we're here to try to make some sense of it.

Does the refund mean fans no longer own part of the team?

Actually, that's not what it means at all.

How's that?

Fans never actually "bought" into ownership. Rather, it was more of a gift. In talking about the decision to return the money, the Sounders made clear that all planned aspects of fan ownership will remain in place.

What was all that money for, then?

Technically, fans bought into the "Founders Club" and were automatically considered part of the Sounders Community Trust. The money was earmarked for "capital improvements" to Starfire Sports Complex, specifically a building that was supposed to serve as a sort of clubhouse for fans. It eventually evolved into improved locker rooms for S2, the various academy teams and even referees; and possibly other amenities.

What's the status of that project?

The Sounders have officially put the project on "pause," but with no movement in about a year those specific plans appear to be dead. That’s a big part of why the Sounders decided to refund that money.

Why weren't the renovations made?

When Garth Lagerwey was hired in January, a few months after S2 launched, one of his responsibilities was overseeing the big-picture aspects of the organization, things like the Sounders' future at Starfire being one of them. By all accounts, renovation plans were close to final when Lagerwey stepped in and put them on hold. His thinking was that before the Sounders invested $3 million-$10 million in capital improvements that they should have a longer discussion about the team's longterm training-facility needs.

When did that happen?

All parties seem to agree that it was at least March 2015 when the plans were effectively put on hold.

Wait, that's like a year ago?

Yeah.

So why refund the money now?

It's hard to escape the role ECS played in this. The organization put up $25,000 of its own money and another $25,000 from its members. As 20 percent stake holders in the Founders Club, they were easily the biggest organization. A few months ago, ECS leadership started asking questions about the money and eventually made a formal request to have it returned when it became apparent there was not a firm plan on how or when it was going to be used. Rather than only give ECS members their money back, the Sounders figured it was smarter to just give it all back.

Could the Sounders have decided to keep it?

The Sounders sold the Founders Club spots and it was technically their money, so they could have legally held it until they decided to use it. Aside from ECS, there doesn't seem to have been much call for the money to be returned. But without a plan to spend it, holding the money was starting to become an optics issue if nothing else.

Could they have given the money to the Sounders Community Trust?

It would appear they could have. Although the paperwork has not yet been finalized, the Sounders Community Trust has at least started the process toward becoming a tax-exempt organization. They've filed their paperwork with the state, obtained a tax ID number, opened bank accounts and were ready if the Sounders had decided to turn over the money to the Trust.

What would have happened to the money?

It would have sat in the Trust's bank account until the Sounders were ready to do their capital improvements at Starfire.

Could that money have been spent in other ways?

Not without drawing the ire of the IRS. The Sounders would have only turned the money over as a "restricted gift," meaning it could have only been used for the intended purpose for which it was donated. In this case, it was for capital improvements at Starfire. If the Trust had tried to spend the money in other ways, it's entirely possible they would have been in some serious trouble.

Back up a bit, can you explain the Trust?

The Trust was created as the group that would effectively control fans' 20 percent stake in S2 ownership, that will be the direct connection from fans to S2 and ideally be the guiding spirit of the organization through community building and charity efforts. They will presumably have some say over how the team is run, have been granted special privileges (like discounted season tickets) and will even have a seat on the USL's board of governors.

Go on...

Before they can really do most of this, they need to have a formal structure. That means drafting bylaws, getting registered as a non-profit, having elections and agreeing to a Memorandum of Understanding that will codify their role in ownership.

How much progress have they made?

Given we're 16 months in, not as much as you'd like. There's a board of directors that was appointed and they've drafted some interim by-laws. But they are still in the application process of becoming a tax-exempt non-profit (commonly referred to as a 501(c)3), have yet to hold an election and still haven't finished a MOU with the team (although they've apparently gone through more than a dozen drafts). They recently released a sort of "road map" indicating that getting these things done were their top priorities and have planned several public meetings to help inform the public about their progress.

Who are the members?

Right now, the only members are people who were part of the Founders Club. There's no formal process for adding new members and it's not even clear what being a member entails.

That seems weird.

Yeah.

Is creating membership rules the top priority?

If it is, they haven't stated it explicitly. The announcement the Trust sent suggests gaining legal non-profit status is actively in the works, along with finalizing a MOU and establishing more permanent by-laws that will formalize it as a membership-based organization. But the first elections aren't planned until mid-June. Further complicating the situation is that the Trust is filing a non-profit application as a 501(c)3, rather than as a classification that would explicitly make them a member-based organization.

Why not just be a member-based organization out of the gate?

Presumably because it will streamline the process and still allow for member-based status down the road. But that's probably something a lawyer would need to explain.

You're not a lawyer?

I object!

Hmmm...Does that mean the elected board won't be involved in crafting the MOU?

That appears to be the case.

How long is all of this going to take?

The non-profit status could take as long as a couple months, but the Trust's announcement says it hopes to have the MOU and by-laws established by mid-April.

Should we expect another call for donations?

The Trust will be hosting a series of fundraisers, but nothing that is on the scale of the Founders Club. The Sounders haven't shared any timeline for Starfire improvements -- although majority-owner Adrian Hanauer has gone on record stating they are 99 percent likely to remain there, which implies they'll do something eventually -- and they could obviously choose to build without involving the Trust, which was only going to cover a small fraction of the cost anyway.

At whom should I be #madonline?

There's no question that all of this is taking longer than anyone had anticipated and the lack of information has been, frankly, inexcusable. But this whole refund situation appears to have been a bit of a kick in the pants for all involved and things seem to have picked up pace. That said, there's some blame to go around. The Trust has lagged in getting themselves organized and the Sounders have been very slow to go public with information. The motives of everyone seem to be pure, but a lot of goodwill has been lost in the meantime. We can only hope that in in a few years, this is just a footnote in history and something other supporter-owned clubs can use to help avoid their own problems.