What started as a successful sports tech company created in the dorms at the University of Wisconsin-Eau Claire, soon grew into a money-making fintech platform when it started processing payments and offering other financial products like insurance, lending, apparel sales, and more. Learn about the company’s journey from its origins building websites for local youth hockey associations to processing billions of dollars and creating a vertical SaaS juggernaut in youth sports.
Embedded Fintech Products
- Payments
- Lending
- Insurance
- Multi-Merchant Checkout
The world’s fastest fintech masterclass.
Go on a journey with Chief Fintech Officer, Casey Kipfer and discover how leading companies like Toast, Uber, and SportsEngine have achieved remarkable profits and customer satisfaction through embedded fintech.
The Cold Start
When he was a college student at the University of Wisconsin-Eau Claire, Justin Kaufenberg identified a significant problem with youth sports organizations.
His father was the president of a youth hockey organization in Minnesota and mentioned to Kaufenberg that he wished he could be back on the ice coaching kids and not spending his nights and weekends sitting behind stacks of paperwork and managing certifications, payments, registrations, and other business aspects of the hockey organization.
“That always stuck with me, that somebody who had been volunteering for 30-plus years had effectively lost their nights and weekends to manage the treasury for a youth sports organization,” Kaufenberg said.
Kaufenberg experienced this firsthand while working for a youth hockey club in Eau Claire. During registration, he was shocked to see nearly $1 million leave the building in a little tin money box.
“That was kind of the wake-up call,” Kaufenberg said.
He knew there was an opportunity for youth sports organizations to better streamline the financial and business aspects of their clubs.
Justin and a few friends started writing software to help youth sports organizations.
“When we put our heads down and started building the first version of the software platform, not only did we understand the need, but we were shocked to realize that there’s almost $100 billion per year transacted in the U.S. in the form of people signing up for recreational sports,” Kaufenberg said.
At first, the software helped youth sports organizations create websites and post messages and schedules. After about a year, they started getting pulled more into registrations. Clubs needed help signing up kids, collecting payments, filing paperwork, tracking down bad checks, and other business administration challenges.
Kaufenberg’s software faced a turning point when a Minnesota youth hockey club said they wanted to collect payments online for the first time – in just a few days.
“You do what you have to do in the early days, which is you just say yes,” Kaufenberg said. “Of course, we didn’t have a single line of code written. We had no payment processing tools and no player registration tools. We had nothing. We pulled all-nighter after all-nighter after all-nighter.”
They worked all weekend and built the first version of player registration and payment processing. They launched it on time and waited to see if it would work. When they opened the program, they had collected more than $100,000 in registration fees in about 60 minutes.
“It broke everything, but it told us that this is the future,” Kaufenberg said.
As the company grew and they were raising financing, they found mentors who helped them take a closer look at their business model. They quickly realized that the average youth sports organization is small and doesn’t have a lot of free cash flow to pay high software fees. However, it does have cash flow through player registration fees.
“Relatively simple math showed that our franchise business model, the real thing that was going to be our economic engine, should actually be payments monetization – not software fees”
“You could probably only charge a couple of thousand dollars per year for the actual software platform that ran their league or sports organization. But you could generate many times that in revenue if you could process payments effectively and generate margin per transaction. Once you start to realize that’s your economic engine, not the software, then, of course, you put an enormous amount of energy into figuring out how to increase margin per transaction.”
Becoming a Fintech Platform
Casey Kipfer joined the finance department in 2014. At this point, the team started to identify the rather large payment volume flowing through the sports platform.
Initially, they offered clubs the ability to sign up and complete paperwork on the platform – without submitting payments. But the organizations still had to collect checks, and parents still had to drop payments off physically.
This was a huge challenge – and a large opportunity for the sports tech platform when they realized just how much money was being collected for player registrations. Total payments could range from $10,000 to over $1 million per organization.
“Our first foray into an integrated payment solution for our customers was simply a gateway connection,” Kipfer said. “We allowed our organizations to then go out and get their own merchant accounts and plug those in. That was a step forward for the customers in that they could then collect – or had the potential to collect – online payments.”
“The next step was as much about the user experience as it was about the economics of our company,” Kipfer said.
Sports administrators needed a way to accept payments in minutes rather than days – or even weeks – and to eliminate the back-and-forth between the club and their parents.
As the company’s payment monetization strategy evolved, they made the decision to go from an independent sales organization (ISO) to becoming a payment facilitator (payfac), which allowed them to process payments, get more control over their costs, and set up each sports organization on their own sub-account.
This allowed the company to speed up the timeline between when a sports organization signed up to use the software to when they were able to also use financial services to process payments and collect money online.
But the decision to become a payfac came with consequences.
Making these changes required more attention to the financial side of the sports tech’s offerings, so they hired multiple developers and staff to build out the payment processing side of their business. This enabled them to take a closer look at the financial issues clubs were dealing with – including understanding the club’s cash flow and how it varied depending on different times of the season. This allowed the platform to embed additional financial products in the platform, such as insurance and lending.
For example, sports organizations might have a lot of money coming in during registrations but not a lot during the rest of the year. This gave the company opportunities to provide cash flow before registration ended through an embedded lending product. It also allowed them to expand their offerings to include financial protection against theft, give clubs a better vision of their financial situation, and even provide vertical offerings like the ability to run background checks or to purchase team apparel.
The Result
With payment processing and other embedded financial products becoming a larger part of the sports tech company’s revenue, they needed to adjust how they sold the platform.
“When we started, it was really all about how fast we could get a sports organization’s website designed and online. And then it was about how fast we could do that and get their first registration built and live. The natural evolution then was, how fast can we get them set up with their account and able to process payments and take advantage of all of the value that we could deliver within our platform,” Kipfer said.
This required the sales team to work on getting new customers onto the platform, and then take those customers and get them onto the registration and payment processing solution.
When positioned correctly, adding the financial tools made sense for many of the company’s clients.
“All of your features should be things that your current customers very much need. Or even are already getting from another vendor – that way, it’s a pure win, win. You’re not asking them for new budget. You’re just asking them to do it with you versus doing it from somebody else,” Kaufenberg said.
“If you think about a sports organization, first and foremost, they must collect payments every year from all their moms and dads. If they don’t collect payments and they don’t process payments, and they don’t sign kids up, they don’t exist. So, all you’re doing is telling them, ‘Processing payments with us native in the software platform is a better experience for mom and dad. It’s a better experience for the sports organization, and you need to do it anyway, so you should do it with us.”
Being able to offer payment processing options and other financial products – like lending, insurance, apparel sales, and even background checks — made the business even more valuable.
“The supermajority of revenue came from payments and funds, flow management and insurance and background screening, and all of the other items in the fintech stack,” Kaufenberg said.
“When we were selling the company, and raising money, that was specifically what we were talking about. That’s what we spent 90% of our time talking about because no longer did we have to explain why we were going to have this high cost to acquire a customer only to get a couple of thousand dollars a year from them in SaaS fees. We could talk about the cost to acquire a customer: they are first going to pay us a couple of thousand dollars a year for SaaS fees, but then they'll become worth 5x more when they add payments, 2x more when they add background screening, 2x more when they add insurance, 2x more when they add lending.”
“It’s the basis on which the company became profitable. It’s the basis on which the company was ultimately bought,” Kaufenberg added. While the sports tech company became a huge success and was ultimately bought for a significant amount of money, its path was not perfect. There are things both Kipfer and Kaufenberg would change.
“We basically wrote every line of code from scratch on every nook and cranny of the software platform,” Kaufenberg said. “I don’t think you have to do that today. I think you can, in most cases, partner and use best-of-breed payment and embedded finance solutions while achieving the same upside as becoming a payfac.”
Kipfer agreed.
“I would maintain the same emphasis on the economics of the payments and beyond payment products that we would be releasing into our platform, but I would build much less of it, frankly,” Kipfer said. “And I would try to be world-class at the things that make our platform better than any other solution in the market. Certainly, we spent a lot of time, a lot of resources, a lot of energy, internal tools, or even customer-facing products and features that really didn’t move the needle.”
The sports tech platform was acquired because it created a win-win scenario by adding financial products that fueled the sports organizations it served, becoming the platform of record in the youth sports vertical.
