In a no-action letter issued earlier this week, the Staff of the Division of Corporation Finance granted relief to LA Fan Club, “a fan club for loyal fans of the Rams football team,” to offer fan memberships for sale and resale without triggering registration requirements under Section 5 of the Securities Act or Section 12(g) of the Exchange Act. The Office of Chief Counsel was swayed by LA Fan Club’s argument that such memberships would not constitute “securities” for purposes of the Securities Acts.
Echoing prior grants of no-action relief by the Staff involving similar fan membership programs or services to facilitate sale of seat licenses for sporting events, LA Fan Club successfully argued that its fan club membership program falls outside the scope of the term “security” as defined by the Section 2(a)(1) of the Securities Act and, by extension, Section 3(a)(10) of the Exchange Act because such memberships “will be purchased by Rams fans for recreational use and consumption and not acquired for investment purposes or with the expectation of profit.”
LA Fan Club also relied on the analyses described in the Supreme Court’s keystone securities law cases on the definition of “securities” (e.g., Forman, 421 U.S. 837 (1975), Landreth, 471 U.S. 681 (1985), Reves, 494 U.S. 56 (1990), and Howey, 328 U.S. 293 (1946)) and highlighted the following as additional indicia that the membership rights should not constitute “stock”; “notes,” “bonds,” “debentures,” or other “evidence of indebtedness”; “investment contracts”; or another form of securities:
- The membership rights include no dividend rights, cannot be pledged or hypothecated, have no voting rights and have no ability to appreciate in value;
- The membership rights include no resemblance to a debt instrument since there will be no return of funds to the purchaser; and
- The membership rights involve no investment of money in a common enterprise where a person is led to expect profits arising from the efforts of others.
The incoming no-action request sought a prompt response from the Staff to ensure that the membership program was up and running prior to the commencement of the NFL season but did not provide an indication of the expected demand for participation in the membership program including whether the underwhelming performance of the Rams over the last decade would be expected to dampen sales of membership interests or if the Rams’ new headquarters in Los Angeles is expected to spur interest from an optimistic fanbase.