Updated, 8:48 p.m. | First, there was old-fashioned gambling on football. Then came the fantasy leagues. And now, thanks to Wall Street, fans can buy a stake in their favorite player.
On Thursday, a start-up company announced a new trading exchange for investors to buy and sell interests in professional athletes. Backed by executives from Silicon Valley, Wall Street and the sports world, the company plans to create stocks tied to an athlete’s financial performance.
After considering a number of possibilities for its inaugural initial public offering, the company found a charismatic candidate in Arian Foster, the Pro Bowl running back of the Houston Texans. Investors in the deal will receive stock linked to Mr. Foster’s future earnings, which includes the value of his playing contracts, corporate endorsements and appearance fees.
The company, Fantex Holdings, has grand ambitions beyond a Foster I.P.O. — it hopes to sign up more football players and other athletes, as well as celebrities like pop singers and Hollywood actors.
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Document: S.E.C. FilingBut if such an investment sounds speculative, that is because it is. In a filing for the Foster deal with securities regulators, Fantex laid out 37 pages of risk factors, including a possible career-ending injury or a performance slump.
“You are potentially one hit away from losing your money,” said Bradley Shear, a sports management professor at George Washington University. “On any given Sunday, anything can happen to any player.”
Risks aside, the offering is intended to capitalize on the mammoth popularity of the National Football League and fantasy football, where fans draft players and score points for touchdowns, yardage and other notable plays during the season.
If thousands of fans are willing to pay as much as $250 for an Arian Foster jersey, the thinking goes, why wouldn’t they pay up for a few shares of Arian Foster stock?
Brian McCarthy, a spokesman for the N.F.L., declined to comment on the deal.
A market of star athletes calls to mind other unusual investments tied to entertainers. In the late 1990s, a financier created Bowie Bonds, a small bond issue that paid interest from the current and future revenue of 25 albums by the rock musician David Bowie. The brokerage firm Cantor Fitzgerald runs the Hollywood Stock Exchange, a marketplace for bets on the fortunes of movies and their stars, but participants use only play money.
Fantex wants its venture to be anything but make-believe. Investors can now register with the company and soon place orders for the I.P.O. The company will market the I.P.O. in the coming weeks, offering 1.06 million shares at $10 a share, or $10.6 million worth of stock. If demand is insufficient, the company may cancel the deal.
As for Mr. Foster, he will receive a $10 million payment from Fantex upon consummation of the offering. (The balance of the I.P.O. covers the deal’s costs.) In exchange for the payment, Mr. Foster has promised to pay Fantex 20 percent of his future earnings.
The company is effectively financing the $10 million payment to Mr. Foster by raising money from retail investors in an I.P.O. In its filings, Fantex says it believes that the stock is intended to track the economic performance of Mr. Foster’s future brand income.
Still, shareholders will not have a direct investment in Mr. Foster or any control over his brand. The company did say it expected to pay a dividend to holders of the Foster stock.
Shares will trade exclusively on an exchange operated by Fantex. The tracking stock will increase in value if Mr. Foster raises his earnings potential with standout play or increased sponsorships.
Then, the investor can try to sell his shares at a higher price. Fantex will make a 1 percent commission from both the buyer and seller on the trades.
Buck French, the company’s co-founder and chief executive, demurred when asked to predict how the stock might behave in a secondary market.
“We don’t know how it will trade,” he said.
A graduate of West Point and Harvard Business School, Mr. French made a fortune during the dot-com boom when, in 2000, he sold OnLink, a software company he founded, to Siebel Systems for about $600 million. One of his Fantex co-founders, David M. Beirne, was a general partner at Benchmark Capital, the venture capital firm that was one of eBay’s earliest investors.
Mr. French said Mr. Beirne conceived of the Fantex concept more than a decade ago when working on a sports-related venture with John Elway, the former Denver Broncos quarterback.
“Fantex represents a powerful new opportunity for professional athletes, and I wish it were available during my playing days,” Mr. Elway, a member of Fantex’s board, said in a statement.
Wall Street executives have also joined the company. Fantex’s president is John Rodin, co-president of the hedge fund Glenview Capital Management and a Goldman Sachs alumnus. Its chief technology officer is Joshua S. Levine, a former senior executive at E*Trade and Deutsche Bank.
A big question is whether other athletes are on the sidelines awaiting a Fantex I.P.O. Mr. French declined to discuss future deals.
On one hand, athletes and their agents could view Fantex as a compelling proposition, providing athletes with a large upfront payment for giving up a certain percentage of their future earnings. Such a payment could act as a hedge against an unexpected downturn in a player’s career.
But advisers could counsel against trading a piece of their future earnings for a big lump sum, as some athletes are notorious for squandering money.
Other considerations are the specter of insider trading violations, and complying with the federal securities laws. Mr. Foster, his friends and his financial team will have to be especially circumspect when discussing issues that might affect his earnings.
A fifth-year veteran from the University of Tennessee, Mr. Foster, 27, has led all running backs in rushing touchdowns two of the last three seasons, while racking up well over 1,000 yards each year. In March 2012, Houston signed Mr. Foster to a contract worth up to $43.5 million over five years. He has a handful of endorsement contracts, including with Under Armour and Kroger Texas.
Half Mexican-American, half black, Mr. Foster is a crowd favorite and media darling who trumpets his passions for poetry and yoga. When he scores, he clasps his hands together and strikes a namaste pose.
“We see Arian as a unique, multidimensional individual, a trailblazer,” said Mr. French, who added that Fantex cold-called Mr. Foster’s agent to pitch the idea.
Yet during the first six weeks of this season, Mr. Foster’s production has flagged. He has just one rushing touchdown. Heading into the year, there was concern over various injuries. Off the field, Foster admitted in a documentary released in September that he potentially violated N.C.A.A. rules by accepting money when he was a college player.
Those issues underscore the risk of betting on Mr. Foster’s brand, or that of any professional athletes, especially N.F.L. players. Unlike some other sports, N.F.L. contracts often are not fully guaranteed, meaning players are often cut and forced to find a new team, sometimes for a lesser contract.
For investors, the long-term outlook for a player will be difficult to handicap. If a player’s fortunes suffer and the tracking stock declines, there will be no rescue financing from a private equity firm — or an investor like Warren E. Buffett — to stabilize the share price.
And unlike a stockholder of a public company, investors have no corporate governance rights.
There are no plans to hold annual meetings with the athlete, or quarterly conference calls.
Despite all the risks, some football fans appear poised to buy in. As one tweeted on Thursday after reading the news: “Wow. This is awesome.”
91 Comments
Readers shared their thoughts on this article.
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Thomas Sirianni
new york November 5, 2013Interesting concept. Wall street is not much difffrent than las vegas. Just as people travel there and put their money on a throw of a dice, I guess they will bet on income of an athlete.
mivogo
new york city October 29, 2013Even better, you can invest in my success. I promise I have the creativity to become a multimillionaire in just one week.
First, 200 of you send me 10,000 dollars...
swiss
San Francisco October 20, 2013Not one mention or acknowledgement in this article of the morality of owning a human being. Capitalism is value neutral--to be sure. But there MUST be a countervailing force to the marketplace somewhere...right?
Rubyredshoes
Cleveland October 20, 2013The rather irrelevant rag published in Cleveland carried this story in today's edition. Well, MOST of it anyway- they 'forgot' to publish the parts concerning the important risk factors and history of this Foster individual. Given that this town is rather 'keen' on the bread and circus dogma, buying a piece of an athlete will probably go over fairly well. Great example of capitalism at its finest.
woodyspuds
chucktown October 19, 2013Basis 4 trust based economy. I'll wager based upon the name of the horse. Names based on kabalarian philosophy are sure bets. Maybe people will trademark their names?
Nuschler
Cambridge October 19, 2013This is crazy! We treat athletes as if they are pieces of meat already...let's just add them to the commodities market!
I can see the same financial companies who bet FOR mortgage default now betting that this guy won't play another down.
New Orleans was offering $10,000 to $15,000 for a disabling hit against Brett Favre. One side blow to the knee and this guy loses both anterior and medio-lateral cruciate ligaments.
Say goodnight Gracie.
skeptic
Stamford, Ct October 19, 2013I would love to short every one of these.
foster978
Boston October 18, 2013Hmm maybe this is the beginning of the new world, where we're all put on the stock market. Anybody want to invest in me? Starting at $.03/share
J Kirby
Chicago October 18, 2013There's a sucker born every minute. And it's why Vegas is Vegas. A few will make money, most will lose, and Fantex Holdings will make a killing off of the stupid. Yep, this is another rip off disguised as an investment. Shameful. Stay away. Stay away. Stay away.
Rationale
New York October 18, 2013The very fact that this football star wants $10M now is a bad sign for investors, he either has the insider information that his 20% stake is overvalued at $10M, or he wants the instant indulgence of an expensive lifestyle, neither is a very good sign for his future performance. On top of that, you have the morale hazard that he is now less incentivzed to perform because he already pocketed (or securitized) the money.
However, the idea could work for other situations. For example, a group of Harvard freshmen could auction off a small percentage of their collective future income to fund their education. Such a security that is tied to the average future income of highly educated young people would be a dream product for retirees. Also, the government could use the idea to design more effective taxation schemes, more dicussions of such ideas can be found in the following blog:
http://govcompete.blogspot.com/
Timur
Little Rock, AR October 18, 2013Doesn't sound much different than the collectible trading card market where signed and numbered cards wildly fluctuate on Ebay with a player's overall performance and popularity. At least an autographed football card will continue to retain some value after a career ending injury or an off-field scandal.
Mary
Los Angeles October 18, 2013It is outright gambling. There is no commodity. This is an illegal activity.
wilcs
NYC October 18, 2013false.
Shane
California October 18, 2013Guys this is ridiculous. You will never get your investment back. I invest into athletes at jockbrokers.com where you can trade your stock with other traders just like the stock market. If this dude gets hurt, your money is gone. I think this company stole the idea from Jockbrokers and they have a Patent! So I don't know how this flies.
3DMike
Middle America October 18, 2013And Pete Rose still can't join the Hall of Fame. Insane.
Dead Fish
SF, CA October 18, 2013Wow, a new angle at a more lucrative form of slavery, at least for the slave, for now.
Ernesto
Tampa Bay October 18, 2013What's next, investing in nail clippings of bench warmers spouses ?
Bill Harts
New York, NY October 18, 2013The Times only alludes to something that should be a huge red flag for potential investors, the fact that they will not be buying shares of Mr. Foster at all. In fact, they will be buying shares of a startup company--Fantex, Inc. And while Fantex may receive revenue from Mr. Foster, it may also deduct certain unspecified fees from that revenue, potentially leaving some fractional portion (or even nothing) for their shareholders. From their website:
"Fantex, Inc. will typically attribute 95% of the acquired brand income under the brand contract to the tracking stock. In addition Fantex, Inc. will attribute to the brand certain expenses of Fantex, Inc. including in certain cases specified expenses related to other tracking stocks that may be issued in the future. "
So the revenue from Foster may be used to pay the next player, which is good for Fantex (and those who buy shares of the next player) but not so good for investors in Foster. And if Fantex goes out of business for any reason, all investors lose everything.
Finally, I question the analogy to buying a player's jersey. While you can at least wear the jersey to a game to show solidarity or give it to your kid, what are you going to do with Fantex/Foster stock? Wave a copy of your statement from the stands every time he scores?
Dr. Ebbyguru
Gainesville, Florida October 18, 2013Are we so desperate that we can't find safe, stable things to invest in. Like a successful business or service. Phil Gramm, who sheparded the derivatives bill through Congress must be delighted.
Jesse
New York, NY October 18, 2013This is a great opportunity for an athlete with a plan for his money (and good advisors). The opportunity to take out as much insurance as you want for only a 5% premium - when your line of work is as unpredictable and dangerous as football? Wow!!! That's not just actuarially fair - it's a giveaway to Foster! He gets to convert $10.5M of highly, highly volatile "expected value" into $10.0M of cold, hard, zero variance cash.
And no, it's not slavery (it's sorta the opposite...), because as *explicitly mentioned in the article* investors have no control over the decisions Foster makes or the actions he takes. If he wants to retire tomorrow or start shouting out racist slurs and shaking babies and punching kittens and become unmarketable, he still gets to keep the cash.
The people who will lose are, as always, the retail investors chasing the next payday. In the long run they'll get hosed.
Although I will say that young athletes just out of college whose brand value is likely to be unscrupulously underestimated stand a good chance of getting ripped off, too. But for established players, it's great.
Jamie
NYC October 18, 2013Maybe I'm reading it wrong, but the premium is 20%, not 5%.
seanseamour
Mediterranean France October 18, 2013And here we go again, "financialization" or building castles with playing cards - just how far will they go in creating high risk unproductive financial instruments.
It is strangely reminiscent, going back a half century or more, of investment schemes built on future return on prize reproductive cattle - a few made big bucks while ensuring the inbreeding of black angus and hereford strains and the dwarfing of these once beautiful herds.
Malik
New Haven October 18, 2013considering the spending habits of so many professional athletes, agents everywhere are going to be advising against this. 20% of future earnings is absolutely ridiculous. It also leads me to believe that Fantex would end up going for kids just coming out of college who have promise, to maximize returns. I sense NCAA violations on the horizon
On Wisconsin
Racine County, WI October 17, 2013So if I own shares in 11 offensive players, does that mean I have a fantasy mutual fund?
anguskip
new york, ny October 18, 2013Only if you consistently underperform the index.
Eugene Gorrin
Union, NJ October 17, 2013I'd rather buy a bobble-head.
Real American
Chicago October 17, 2013and the stock "losers" will be whining for a bailout down the line
Paul
Long Beach, CA October 17, 2013I think it sounds like a "fun" idea that would entice all the fantasy football league folks, but at these numbers it's really a non-starter. Setting aside all of the substantive comments already made about why this is a bad idea, and just looking at the numbers briefly: $10M for 20% means a current value of $50M. The current balance on his contract is something like $20M (x 20% = $4M) I think that much is guaranteed. So, you are betting real money that this guy -- talented as he may be -- can turn $4M remaining on his career into $50M career income, just to break even on your "investment" over however many years it takes.
I say go to Vegas instead, and enjoy the "free" drinks at the tables..
91 Comments
Readers shared their thoughts on this article.
The comments section is closed. To submit a letter to the editor for publication, write to letters@nytimes.com.