Back in April, I wrote about a possibly real young woman* named Sarah Hanson who had auctioned off a portion of her future earnings in order to get capital for a website she wanted to start.
I thought at the time that it was probably a good deal for her, maybe not so much for her investor.
Before I go any further, I need to tell all you “Northern Liberals” out there to calm down. Buying shares of an athlete is nothing like buying a slave, even if the “investment” in question happens to be an African-American who performs sweaty, dangerous work for the profit of rich owners. That’s because you are not purchasing the athlete himself, but rather the athlete’s “brand.” Wait, let me rephrase that. It’s not the athlete himself who’s branded, it’s…well let the Fantex website explain it:
An athlete’s brand value is made up of certain income generated throughout both their playing and post-career. This includes income from items such as playing contracts, endorsements, and appearance fees, a percentage of which Fantex, Inc. is entitled to receive under the brand agreement. For more specifics, please review the prospectus for the tracking stock.
Yes, that’s right. There’s a prospectus and everything. Fantex even files with the Securities and Exchange Commission. This is a real investment with real money, just like investing in a corporation, except that most of your major corporations don’t run the risk of concussions, and their board members are slightly less likely than NFL players to be arrested on murder charges.
In case you missed out on the Initial Public Offerings of Facebook and Twitter, you’ll be happy to know that you can be part of the action on Arian Foster’s IPO for a mere $10 a share. Fantex intends to sell over a million shares at that price.
I was skeptical about this whole thing, especially when I saw the picture of Foster that Fantex used to announce the IPO (right). It looks exactly like the photos of wrestlers the WWE puts out (below). So I trawled around Fantex’s website to determine if this was a legit thing. I’m going to say that it is, because the stuff in the prospectus is just as incomprehensible as it is for any investment.**
As near as I can figure out, while you receive “tracking stock” with a price that is tied into the athlete’s on-and-off-field earnings, what you’re really buying is stock in Fantex, which seems to be something in between a talent agency and a PR firm that “signs a contract with an athlete to acquire a minority interest in their brand and builds a plan with a goal to increase its value, leveraging its marketing expertise.” The $10,000,000 in revenue from sales of stock in Arian Foster are used to actually sign Arian Foster to a contract with Fantex…kind of like a complicated Kickstarter with Fantex staying “help us fund our next signing.”
Except with Kickstarter, if the proposal doesn’t get funded, you theoretically get your money back. It’s unclear what happens if Fantex doesn’t raise the $10 million it promised Arian Foster. My guess is, it’s not exactly a refund kind of situation.
I also discovered that, as with any investment, there are risks involved in buying shares of an NFL player. Perhaps unlike some investments, there are over sixty (60) bullet points listing those risks, including:
To date, Fantex, Inc. has not generated any revenues or cash flow from any brand contract, and following completion of this offering, Fantex, Inc.’s brand contract with Arian Foster will represent Fantex, Inc.’s only source of revenue or cash flow. Fantex, Inc. may not receive the cash amounts that it expects, or any at all, from its brand contract with Arian Foster or from any future brand contracts and it may never generate sufficient revenue to become profitable.
Future negative publicity could damage Arian Foster’s reputation and impair the value of his brand.
Fantex, Inc. has incurred significant losses since its inception and anticipates that it will continue to incur losses in the future.
As a marketing professional, I can state with certainty that Fantax does not have the “marketing expertise” it claims to have. If it did, they’d manage to make their prospects sound as if there was a tad more upside potential.
Anyway, that’s as far as I got looking through the website before I began smelling toast and sensed that my head was about to explode. This is the same reaction I get when discussing any financial vehicle…or any project involving tools.
So I’m not exactly sure how investors can make money. I mean, how likely is it for a 31-year-old running back’s value to increase and, even if it does, how do you find investors willing to buy your shares? Or is profit not part of the expectation, and is buying a share of Arian Foster the same as purchasing an Arian Foster jersey, except that you can’t wear it with jeans?
One thing’s for sure: if this set-up works for Fantex, you know it’s only a matter of time before you’ll be able to buy shares in an up-and-coming pop star or actor, or maybe even a politician. Although I guess you can already do that.
I don’t know–the entire Fantex scheme seems vaguely like a structure you might find in Egypt, if you get my drift. And how the hell did I get back to slaves again?
See you soon.
*Long story. **At least for me.