Want a piece of a star athlete?

New York TimesOctober 19, 2013 

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.

Last week, a startup 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 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 IPO – it hopes to sign up more football players and other athletes, as well as celebrities like pop singers and Hollywood actors.

But 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 NFL, declined to comment on the deal.

Fantex wants its venture to be anything but make-believe. Investors can now register with the company and place orders for the IPO. The company will market the IPO 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 Foster, he will receive a $10 million payment from Fantex upon consummation of the offering. (The balance of the IPO covers the deal’s costs.) In exchange for the payment, Foster has promised to pay Fantex 20 percent of his future earnings.

The company is effectively financing the $10 million payment to Foster by raising money from retail investors in an IPO. In its filings, Fantex says it believes the stock is intended to track the economic performance of Foster’s future brand income.

Still, shareholders will not have a direct investment in 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 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 big question is whether other athletes are on the sidelines awaiting a Fantex IPO. 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, since some athletes are notorious for squandering money.

Despite all the risks, some football fans appear poised to buy in. As one tweeted on last week: “Wow. This is awesome.”

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