Want To Own A Stake In Arian Foster?
By Brett Spielberg
Think Arian Foster was worth the top pick in your fantasy draft? If you were willing to invest in him for your fantasy team, how about investing for some speculative cash?
Fantex Holdings announced the opening of a "stock exchange" for investors- anyone American 18 and older- to buy and sell a percentage of the future earnings of professional athletes. The debut initial public offering will be for a 20 percent stake in the Houston Texans' Foster. Shares will be tied to Foster’s future financial success, including his contracts, endorsements and business endeavors.
The Foster offering plans to sell roughly $10.5 million worth of stock, a 20 percent stake in his future income.
Foster will be paid $10 million for the 20 percent.
The I.P.O. will offer 1.06 million shares at $10 a share. No one will be permitted to own more than 1 percent to guarantee that there will be a deep pool of investors. Foster's stock will go up if he increases his potential earnings with big numbers on the field or additional endorsement deals. Investors can try to sell shares for a profit, but Fantex will make a 1 percent commission from both the seller and buyer.
The stock can also go down if his performance lags, endorsement deals dry up or if his popularity and prominence shrink.
Foster has led the league in rushing touchdowns in two of the last three seasons, while rushing for more than 1,000 yards per season. In 2012, Houston signed Foster to a five-year contract worth up to $43.5 million.
However, this season Foster has scored just one rushing touchdown and injuries have limited his quality playing time. His injury history, along with the short life span of running backs in the NFL, will be something that prospective buyers will literally have to gamble on.
While buying a stake of an athlete can appear to be both a great investment opportunity and a great chance to immerse into the game, the risks are clear.
Will Foster earn more than $50 million from now until he's done making money? Remember, though he may have inked his last big contract, Foster does have endorsements, sponsorships and his own stake in businesses that can continue to bring in big bucks well past his playing career.
If this becomes a popular trend, other athletes will be offered speculative deals, most likely early on in their careers. This will give athletes some insurance against injuries or unpanned potential as they will be given a cash payout well in advance of the majority of their earnings. This could backfire on the investor if the player is a bust, but can also cost a player a substantial chunk of their earnings if they sell themselves short.
Investors will have to hope they hit the jackpot. Putting a few hundred dollars on the career of Foster as a rookie would have been just that. As an undrafted free agent he wasn't expected to ever sign a mega-deal, or any endorsements for that matter. Combined with smart investments on his part, his millions could increase exponentially.
Imagine the return on say Magic Johnson or Michael Jordan? A piece of 20 percent would extend beyond the sport, to sneaker deals, Starbucks franchises and professional organizations in the NBA and MLB. If other players from multiple leagues hold I.P.O.'s of their own, expect this to be a vibrant industry with diverse investment opportunities ranging from long-shots to sure-things hoping to guarantee a few bucks or insure their potential earnings in a progressive way.
One thing is for certain, sports and business may never be the same, and Darren Rovell will be sure to have a field day tweeting about the "value" of players, now that it is literally quantifiable.