https://soundcloud.com/thejockeyclub1750/the-new-season-at-cheltenham

02nd June 2015

A bond, but not just a financial one

The Financial Times has published an article about the use of ‘alternative’ forms of funding sport. I was interviewed ahead of the second anniversary of The Jockey Club’s Racecourse Bond, because that was the first retail bond issue in British sport. We raised almost £25 million from 2,100 individual investors towards our £45 million development at Cheltenham Racecourse that will be completed by the end of this year.

The premise of the FT article was spot on; today there is a huge, transparent, win-win opportunity for organisations with a loyal following to enter into deeper relationships with customers or fans by creating products that appeal to those particular interests and provide the chance to do something that benefits (in this case) the sport they are passionate about. They are more likely than others to choose to invest because they know you well and, assuming you have a good reputation, trust you.

This was the thinking behind us creating The Jockey Club Racecourse Bond. We could have borrowed the funds we needed to develop Cheltenham from the bank in the traditional way. Why does it matter where the money comes from if we’ve got to pay it back anyway? Don’t we just want to have the capital to ensure the Home of Jump Racing offers a world-class customer experience worthy of the great racing it stages?

Looking at the success of the bond John Lewis offered its customers previously and considering how we could be the first to make this work in sport, we felt this new approach presented us with an achievable and cost-effective way to raise capital, but with an added dimension revolving entirely around our core customer.

An innovative solution

We recognised offering people the chance to invest in The Jockey Club Racecourse Bond would give us the chance to build closer relationships with some of our most loyal customers and also others who we didn’t have a direct relationship with before, while offering them the chance not only to make a financial return, but also feel they were playing a part in supporting Cheltenham and our investment in their own experience.

We researched the idea among a sample of our customers to give ourselves a level of confidence required to take such an important step. We wanted to know everything from the likely amount available to invest through to what they wanted to hear from us.

Then we moved to launch our five-year ‘mini-bond’, paying 4.75% cash interest per annum and a further 3% interest in racing rewards, for investments of between £2,000 and £100,000. We worked really hard to communicate the offer, the vision of the Cheltenham development and The Jockey Club’s financial security, and received applications for more than our £15 million target. In a short time we closed the offer nearly £10 million beyond this.

What our bondholders receive from us

Clearly this isn’t free money; we have borrowed funds we’ll pay back, the same as most organisations do from the bank. The reason we have to borrow at all is so that we can invest in major capital projects. A publicly listed company raises large amounts to spend from issuing shares, but we are a company incorporated by Royal Charter without shareholders and every penny of profit we make gets reinvested back into British racing.

The cash element of our bond is similar to the cost of borrowing what you would repay a bank as a loan, but for our bondholders it’s a rate of interest they wouldn’t be able to get in this age of low interest rates. Then the racing rewards such as tickets to the races are worth face value to the customer, but are delivered by us at cost and the spends from increasing the frequency of return or the number in a party in the end pays for this aspect of the product itself. Everyone wins!

We also intentionally capped the maximum amount anyone could invest and decided against it being listed or tradeable so that it was not of interest to institutions who normally invest millions of pounds in bonds, or people who would trade their bonds the next day so we never got to know our bondholders. We wanted real people and real long-term relationships and I’m delighted to say that’s what we got.

Building a deeper relationship with our customers

Most importantly, our bondholders are happy. The University of Cambridge has a new department at its Judge Business School called the ‘Cambridge Centre for Alternative Finance’. After seeing we’d raised the £25 million, they got in touch to see if they could access our bondholders and find out some more information about them, including why they invested, their satisfaction to date and their likelihood of future investment with The Jockey Club and recommending it to others.

We’ve been delighted with the results; they found that 85% of bondholders were existing customers of The Jockey Club as we expected, almost all bondholders say their experience has not only met but actually exceeded their expectations, and almost all say they feel the bondholder experience has brought them closer to racing, which is a great added bonus.

When investing we were seen as a very low risk due to our heritage, assets, financial performance and sensible purpose for the use of the capital, and providing that opportunity for ‘purposeful’ investment into supporting either racing or Cheltenham (dependent on their affiliation) was a real motivator for some.

We also managed to use the campaign as a platform to increase the number of people in Britain who know what The Jockey Club does and why that matters – as an organisation acting as the guardian of some of Britain’s most iconic events and many of racing’s leading assets, working hard to grow their appeal and put our profits back into the sport.

As a result we were awarded a PR Week Award for Financial Services Campaign of the Year, picked up a PRCA Award for Corporate Communications Campaign of the Year and shortlisted for Best Use of PR in the BT Sport Industry Awards.

So far the Racecourse Bond has been a success for us on several levels. Will we do another in the future? At the moment we’ve made no decisions, but certainly the option will feature in any future discussion about raising capital. It would make no sense not to!