An Athlete ETF? Maybe Someday

October 18, 2013

New exchange and broker-dealer Fantex securitizing athletes’ income.

When I was starting out as an investor in the ’80s, the pop-finance slogan was “Invest in What You Know.” It was promulgated by Peter Lynch, the then-manager of Fidelity’s flagship equity fund, Magellan.

I like to think I know football pretty well. But I can’t exactly invest in that knowledge the way I could, say, choose a great restaurant stock because I think I know the restaurant business. That may all be changing.

As of today, Fantex, a fledgling exchange and broker-dealer, is taking account applications on their system. It’s not a stock exchange though—you can only buy and sell one type of security in their system.

And that security is athletes.

The first athlete on the block is Houston Texans running back (and extremely common fantasy football first pick) Arian Foster.

As a guy who loves both financial innovation and football, I’m intrigued by this, so while most folks in the media are giving the whole thing a good slow-news-day guffaw, I actually went and read all of the SEC filings.

I learned a lot. It turns out, most serious professional athletes (or performers, or any other public figure for that matter) run their careers not as employees, but as businesses. After all, a guy like Foster doesn’t just make money from a paycheck, he has a personal brand that could generate income from all sorts of things: endorsements, broadcasting, books, you name it. So there’s a business entity, and that business entity can be bought, sold, optioned and whatnot, just like any other business.

Fantex figured this out, and is striking deals with athletes (eventually, right now, this is just the Arian Foster show), in which they forgo a lifetime percentage of their earnings for a lump-sum check. Last year, the combination of Foster’s NFL paycheck and other income was $11.6 million. That’s the income stream that Fantex is buying 20 percent of.

So theoretically, next year, if Foster makes $15 million, shareholders of the Fantex Arian Foster IPO will get $3 million. Foster, for his part, will get a one-time check for $10 million to do with what he likes.

That “sounds” like a fantastic deal. Who wouldn’t buy a $3 million a year revenue stream for $10 million?

Let’s go through some potential issues here:




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