Athlete IPO Tests Limits of Investing
By Jeff Macke | Breakout – Fri, Oct 25, 2013 7:59 AM EDT
Read this on YahooFinance.com
People gamble on everything these days, like fantasy football or sports in general. But what about Athletes? Well, now you can invest in an actual individual. Houston, Texas running back Arian Foster has signed with Fantex Holdings which will let investors buy "shares" in an athlete's future earnings. It's no fantasy.
Buck French, co-founder and CEO of Fantex, explains how it works. "We signed a brand contract with Arian Foster to acquire 20% of his future brand income in exchange for $10 million. So in order to fund the contract, we have created a... Fantex Inc. tracking stock that's linked to the value and performance of his brand."
It's worth a moment of your time to scroll back up and read that paragraph again. Arian Foster is going to get $10 million in exchange for 20% of the money he makes for being Arian Foster for the rest of his life. Investors will then be able to buy and sell actual portions of Foster's income stream — forever.
Normally these type of "exotic" investments would only be open to accredited individuals (rich people). Thanks to the JOBS Act and crowdfunding, companies like Fantex are now fair game for anyone with a Social Security number, a mailing address and seed money. Of course, that doesn't mean you should necessarily invest in Fantex or anything like it. It just means that you can if you want to.
High Risk Anyone?
As an actual investment, buying a share of anyone's future income via Fantex is a long shot. For investors to make money, Foster's share price would need to rise on the Fantex-controlled exchange. Assuming the exchange works and has sufficient trading liquidity to allow a shareholder to sell their stake and cash out their gains, it will work just like trading a normal stock.
The risks are laid out in the disclaimer and, it goes without saying, there is a lot of risk that comes with buying a portion of Foster's future earnings that aren't necessarily connected to his career.
If we stopped right there, buying shares of Foster would be a high-risk investment, but being a running back in the NFL is also a high-risk profession. Foster is currently nursing an injured hamstring and he hasn't even gone public yet. As French makes very clear, "If he doesn't play again, obviously that will affect the value of the brand."
Ethics still questioned though . . .
If you're a shareholder, you want your athletes — your shares — to play until they are dragged off the field. To be an effective investor in this type of market you almost, by definition, can't care about the players as people. To invest in anything successfully you can't be emotionally attached in any way. Once you're buying the earnings power of players' brands, your primary economic concern is their playing contract. Their personal safety isn't just a secondary concern, it's not a concern at all.
Beyond the extremely high-risk nature of any start-up investment, Fantex raises some unique moral and ethical questions. High on the list is the idea of buying a portion of a human being's income for life.
There are other questions raised by Fantex as a concept. John Elway is on the board. Is that a conflict of interest? Will Fantex give investors access to injury or personal information other NFL fans wouldn't have? Since other players and coaches can invest in players, does that in any way skew their judgement toward their jobs?
My personal view in this article is that this is a high risk investment opportunity not worth investing in. It's very dangerous to invest in one single thing that can be so easily changed by damages the individual may incur. Also, further moral issues could be the thoughts of rich white men investing in a black athlete, reminding some people of slaves being bought and sold for work. If you have unimaginable amounts of money, than go ahead, risk it and try it but doing a quick google search now you can see that just a few weeks after this article was published, he suffered a back injury. What now? Well, Fantex is also interested in signing up a player from the 49ers.
