A new company launches tracking stocks linked to the brand of an NFL player.
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The Responsibility Project
Think of it as fantasy football, but more than betting on your player’s performance, you’re betting on his brand.
Fantex Holdings, a new company based in San Francisco, has registered with the SEC its first tracking stock – linked to the “value and performance of the brand” of Houston Texans Pro Bowl running back Arian Foster. Its IPO values Foster shares at $10 per share.
According to a New York Times blog, investors in the deal receive stock linked to Foster’s future earnings, which includes the value of his playing contracts, corporate endorsements and appearance fees. Sound a little bit more like betting on horses than a regular stock market play? It is, according to its critics – and even its supporters. Anything from scandal to a career-limiting (or ending) injury could result in the stock taking a dive. In fact, the Times reported, in its SEC filing, Fantex laid out 37 pages of risk factors. As George Washington University sports management professor Bradley Shear put it, “You are potentially one hit away from losing your money.”
Time magazine’s Sean Gregory warned readers to proceed with caution in buying stock in players. Here’s how it works: Fantex offers just over a million shares of “Fantex series Arian Foster Convertible Tracking Stock” for $10. No individual can buy more than one percent of the shares. Foster gets $10 million in proceeds: the remaining $550,000 pays for underwriters and other expenses. In exchange for the $10 million, Foster pays out 20 percent of his future earnings, from football and off-field income like endorsements, merchandising, coaching and football camps, and even movie appearances (if he plays himself of the role of a professional or amateur football player).
It makes plenty of sense for Foster, says Craig Pirrong, finance professor at the University of Houston’s Bauer School of Business. Foster has likely done the math on his career. Gregory notes that the average NFL career lasts 3.5 years, and running backs have even shorter careers. Plus, NFL contracts aren’t fully guaranteed. The $10 million acts as an insurance claim for Foster, and a gamble for investors.
Meanwhile, according to the Times, Fantex Holdings has ambitions beyond its Foster IPO – including more football players and other athletes, as well as celebrities like pop singers and Hollywood actors. Considering the variability in human lives, would you buy stock in Foster – or anyone else, for that matter?