Are You Ready to Invest in Arian Foster?
It was announced yesterday that Fantex Inc. has purchased a 20 percent stake in the future earnings of NFL Pro Bowl running back Arian Foster for a reported $10 million. But, the idea of investing in an athlete’s future earnings isn’t the trailblazing maneuver making headlines. Similar investments have been made in boxing (Sugar Ray Leonard), golf (Rich Beem), and horse racing. Fantex is taking their investment a step further with plans to open up their stake in Foster to the public by selling shares to other investors.
Sounds great right? Finally a way to make real profits based on your knowledge of NFL stars, without taking it from your friends or risking it at a sportsbook. Great investors like Warren Buffett and Peter Lynch always preach, “Invest in what you know.” And what do you know better than the fact that Foster has been one the most reliable statistical performers in the NFL for three consecutive seasons? And he’s well on his way to a fourth spectacular year.
Well, for those enthusiastic investors, reservations to purchase this new stock are expected to be taken in a couple of weeks, with the IPO possibly a month away. Before you take out your life savings and call Fantex, you should heed the advice of another respected and outspoken voice in the investing world, Jim Cramer, who encourages you to always “do your homework.”
There are many potential pitfalls to this endeavor including individual state approval and overall public interest. Plus, NBC Sports has already referred to this deal as a “Ponzi scheme.” And if you read the prospectus (148+ pages), you’ll find out that the company is losing money and they “expect to continue to incur losses for the foreseeable future.”
Losing money is normal of most startups, however. Fantex is still very young having incorporated in 2012, and they are planning to expand this business of investing in professional athletes and entertainers. Some are already talking about Fantex pursuing the up and coming stars of next year’s NFL draft. Past the prospect of this business model, the value of Arian Foster stock is of course going to be tied to his current and future earnings. He is currently serving a very nice contract freshly inked last year, but he also plays the most dangerous position in an incredibly violent sport.
NFL running backs have an average career of 2.57 years. However, Foster is no average running back, and Fantex points out in their filing with the SEC that Foster has an average career expectancy of 10.5 years as “a running back in the modern era (which we define as a running back who has retired from the NFL during the 15-year period between 1997 and 2011), who was the featured back on their team, selected to at least one Pro Bowl and rushed for at least 1,000 yards in at least three of their first four full seasons in which the running back played at least 13 games.”
Foster’s current NFL contract is worth $43.5 million with $20.75 million guaranteed. From 2013-2016, he has the opportunity to make $35.5 million if he fulfills the contract. He will then become an unrestricted free agent in 2017, the year he turns 31 and enters his ninth year in the NFL.
It appears there is plenty of money out there for Fantex to get a large portion of their investment back just based upon the figures in Foster’s current contract; however, the deal is still dependent on Fantex getting approval from the SEC and actually selling the shares to eager stockholders. If they are unable to do so, the contract will be nullified.
Given the nature of the investment, it’s hard to get overly excited about its prospects. Foster’s career could be headed into a decline as he’s dealt with many nagging injuries already this season (admittedly he’s still performing at an elite level). There is also a lot of unknown as to how Fantex can help build the brand of Arian Foster. Will Foster be inclined to make money related to football as a coach or broadcaster after his playing career is over?
By agreeing to this deal you could make the argument that Foster is betting against himself. Unless he strongly believes the management at Fantex has the ability to promote and expand his personal brand more than the wildly popular, multi-billion dollar entity that is the NFL has already done.
Fantex is planning to sell 1,055,000 shares at $10 per share of Fantex Series Arian Foster Convertible Tracking Stock, giving the outstanding shares a total value of $10,550,000.
So what do you think? Will you invest?
Here’s a video Fantex released this week hoping to expand Arian Foster’s brand, and encourage you to buy what they hope to soon be selling.