My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, October 21, 2013

Will You Soon be Able to Buy 100 Shares in Sidney Crosby?

Would you like to buy shares in a young hockey phenom like Nathan MacKinnon, the first pick in last year’s NHL draft? What about owning shares in Andrew Wiggins, the Canadian basketball prodigy who many say is potentially the best player since Lebron James. Well, if Fantex Inc. ("Fantex") has its way, you will soon be able to buy and sell stock linked to a pro athlete as easily as buying shares in Bell Canada.

Fantex announced this week that it is filing an initial public offering for Houston Texans running back Arian Foster. The company has filed a prospectus with the Securities Exchange Commission to raise $10.6 million in an initial public offering priced at $10 a share.

Fantex is reportedly paying Foster $10 million for a 20 percent stake in his future income, including contracts, endorsements and other related business revenue.
"Fantex is bringing sports and business together in a way never previously thought possible," said Buck French, co-founder and CEO of Fantex Holdings. "By building a marketplace that allows customers to buy shares in a tracking stock linked to the value and performance of an athlete brand, Fantex is enabling a new level of brand advocacy through ownership. For the first time, people can now invest real money in a stock linked to the brand of a professional athlete."

Fantex says they intend to sign contracts with players to acquire a minority interest in their brand. They then intend to increase that player's brand value by leveraging their marketing expertise.

Fantex states in its prospectus that "the offering is highly speculative and the securities involve a high degree of risk". The company also says that because you will only be able trade athlete tracking stocks on the Fantex platform, there is no assurance as to the development or liquidity of any trading market.

The prospectus, located here, has some interesting comments. It includes a Q&A section in which the following two questions are asked:

Q: What happens if Arian Foster is injured or suffers any other illness or medical condition, retires or fails to make an NFL roster?

A: A significant portion of Arian Foster's brand income is dependent on his continued satisfactory performance in the NFL and is not guaranteed. If he retires from the NFL at any time within two years following this offering, other than as a result of injury, illness or medical condition, we may elect in our sole discretion to terminate the brand contract and he will be required to pay us approximately $10.5 million (net of any amounts previously paid to us by him pursuant to the brand contract). Otherwise, if he stops playing in the NFL for any reason, either voluntary or involuntary, his brand income would likely decline. Arian Foster has no obligation to take any actions to generate brand income, and subject to the limited obligation to reimburse us funds as discussed above, he may choose not to do anything to generate brand income following the date on which we pay the purchase price.

Q: What is brand income under the Arian Foster brand contract?

A: Brand income means any amounts that Arian Foster may receive from and after February 28, 2013, subject to specified exceptions, as a result of his activities (including licensing of rights) in the NFL and related fields (including activities in a non-NFL football league), including each of the following: coaching, football camps, television or Internet programming (with respect to which he either performs in the role of a professional or amateur football player, or performs as himself), radio (terrestrial or satellite), motion picture (solely to the extent Arian Foster appears as himself, such as in a documentary, or is an actor in a motion picture playing the role of himself or an amateur or professional football), literary works the subject of which is Arian Foster, publications, personal appearances, memorabilia signings and events, and the use of Arian Foster's name, voice, likeness, biography or talents for purposes of advertising and trade, including without limitation sponsorships, endorsements, merchandising and appearances.

Craig Pirrong a finance professor at the University of Houston’s Bauer School of Business in this Time Sports article discusses how the deal makes sense for Arian Foster. "Foster is hedging. He’s already in his fifth year: the average NFL career lasts 3.5 years, and according to prior research, running backs have even shorter careers. No player takes more of a pounding than the primary ball-carrier. And NFL contracts aren’t fully guaranteed."

I don't think Foster is the type of player you would want to invest in. While he is an established player, a two-time pro bowl selection and to date a solid citizen, he is not a superstar, has limited upside at this point in his career and is not wildly popular. If someone was going to consider investing in a player, I would suggest they would want a young player, who has huge upside, but has only scratched the surface of their potential.

Would you invest in an athlete? Personally, it is not where I would put my investment dollars. But, if you consider the investment a part of your speculative portfolio, it's probably as good as investing in a junior mining company.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

10 comments:

  1. I had to check the date on the calendar, it's not April 1. :)

    Fantex seems interesting...but not for me. Cool post. What will they think of next?

    Mark

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    1. Mark, you mean you don't see dividend potential investing in Jordan Spieth?

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  2. Interesting model. It seems very risky since the big deals aren't very common. But an athlete with good financial management skills is even more rare than a superstar. What they need is a way to turn a large sum into a steady income. This is the opposite. Does the investment go to 0 when they spend too much?

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    1. Richard, I think the prudent athlete would protect themselves by taking a guaranteed amount upfront and then hopefully invest it wisely. If an athlete went bankrupt, it may impact their brand. However, athletes brands only seem to be temporarily affected by off-field antics, if they perform spectacular on the field, their brand seems to recover quickly.

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  3. It's an interesting concept but since the risk falls to the athlete to make sure people get compensated accordingly, it's a high risk gamble. This might give the athletes more incentive to stay healthy perhaps?? Also, could this affect their salary? Too many questions and not enough answers.

    With that said, if someone is interested in trying this out, I'd recommend keeping it as a very small part of their investment. This would be more for fun than anything else, like gambling money. You won't catch me doing this though.

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    1. Thx Kat.

      Definitely risky, but I bet if this was Phil Kessel or any Toronto Maple Leaf, this would be oversubscribed.

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    2. "you will only be able trade athlete tracking stocks on the Fantex platform" -- So not only is there "athlete risk", there is platform risk too (ie: what if the exchange goes bankrupt).

      Spoken as someone who really enjoyed trading on InTrade until the US government killed it...

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    3. Hi Anon

      I guess your not keen on this :)

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    4. Actually, my comments sounded too negative. I would be interested, if (1) I could get more assurances that the exchange wouldn't go belly up and take my investment with it (after all, this investment is made for many years) and (2) any US regulatory risk has been properly addressed.

      Of course this would be for a very small portion of any portfolio, and done in the interest of uncorrelated diversification. And instead of choosing one star, I would try to find the equivalent of a "pool" or ETF.

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    5. I think the US regulatory risk is hopefully somewhat addressed by the SEC application, but your issues are valid concerns.

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