Given their recent success this season, the timing of the Green Bay Packers’ decision to engage in another capital raise couldn’t be better. The Offering Document for their newest stock offering contains quite a peculiar sentence: “COMMON STOCK DOES NOT CONSTITUTE AN INVESTMENT IN ‘STOCK’ IN THE COMMON SENSE OF THE TERM.” Well, what does that mean?
The Green Bay Packers are unique in professional sports in that it is “community owned” rather than the property of a private individual or partnership. It’s a non-profit company that nonetheless has shareholders. Its Articles of Incorporation provide that any profits or proceeds of the sale of the team must go to the Green Bay Packers Foundation, which makes donations to many charities and institutions throughout Wisconsin. This provision was enacted to ensure the club remained in Green Bay by limiting any profit motive the company’s shareholders may have in trying to move the team. The company’s shares give stockholders voting rights, but no rights to receive any dividend nor any rights to resell the stock or make any transfer beyond immediate family members. Thus, there is no way for a shareholder to ever profit from owning a share.[1] No shareholder may own over 200 shares, making it impossible for any individual to take control of the club.
On initial blush, it seems difficult to imagine how the Packers could conduct a public offering of their stock. A private placement exemption would not work, since they are advertising the offering extensively and the offering isn’t limited to accredited or sophisticated investors. Nor would this company function successfully as a publicly traded company, since it is a non-profit.
The answer lies not in securities regulations, but in an obscure but important Supreme Court case called United Housing Foundation v. Forman. In that case, a cooperative housing corporation sold each resident “shares” in a corporation in order to live within the cooperative. Residents were permitted to vote in the cooperative, but the shares could not be sold, and when a resident left, they had to sell the shares back to the cooperative. In a sense, they functioned much like a security deposit.[2] The court held that the cooperative’s “stock” was not actually stock, because it had none of the characteristics of a stock investment. The shareholders had no rights to dividends or profits and there shares could not be resold, nor would they ever appreciate in value.
The Offering Document of the Packers’ stock goes on to say: “PARTICULARITY (sic) IN LIGHT OF THE TRANSFER RESTRICTIONS AND REDEMPTION RIGHTS OF THE CORPORATION DESCRIBED IN THIS OFFERING DOCUMENT, IT IS VIRTUALLY IMPOSSIBLE FOR ANYONE TO REALIZE A PROFIT ON A PURCHASE OF COMMON STOCK OR EVEN TO RECOUP THE AMOUNT INITIALLY PAID TO ACQUIRE SUCH COMMON STOCK.” Sound familiar? Essentially, by making the stock worthless (from an economic perspective; the sentimental worth to cheeseheads I’m sure is priceless[3]), they have essentially taken the offering of stock in the Packers completely out of the realm of securities regulation. So in this case, stock really isn’t stock.
Footnotes
[1] Of course a shareholder could conduct an unauthorized sale (which apparently does happen), but the corporation would never recognize it. It’s sort of the equivalent of scalping tickets: it’s not allowed but often happens.
[2] A more modern day example of a similar concept is the ownership interests in a condominium association. Owning a condominium also involves being an owner in a community association, which is also a nonprofit corporation. Condos are offered to the public, but the accompanying ownership in the association, which owns the common elements of the condominium and sets the rules for residents, is not considered a security.
[3] Indeed, the offering document makes this very case: “Purchasers of Common Stock will, however, become a part of the Packers’ great tradition and legacy as a community-owned team, one that is unique in professional sports.”
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© 2011 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
