Investing in Athletes with Fantex

fantex-vdEarlier this week, Fox 5 New York opened their 10PM local news with a segment about investing in players, which specifically discussed Fantex and their deal with Vernon Davis. I was excited when they asked me to participate in the piece – here is the segment (my apologies for not having a better method available than videotaping my TV with my iPhone).

During the interview, they asked a few other questions that didn’t make the cut, so I’ll share my answers with you here.

Do I think this is a good potential investment?

In general, my feeling is probably not. Athletes in general (unless they are strapped for cash) are unlikely to undervalue their future potential earnings. If anything, they will most likely overvalue it. So, for them to be willing to set a percentage of their future earnings, they really must believe in the value they are getting, which to me prices out most of the upside. The downside on the other-hand, is very real, as one injury or bad year could have tremendous impact on lifetime earnings. This was a big reason the original Arian Foster deal never materialized. He got hurt last season around the time of the potential IPO, so whatever deal was negotiated probably just months or even weeks earlier was no longer appropriate. The one potential upside that I referenced in the interview was when an athlete goes on to have unexpected post-career success. This could be via coaching, broadcasting or some other brand extension, but this revenue stream is way too unpredictable in my view.

Who do I think the target buying audience is – investors or fans?

At this point in time, this feels much more fan and “casual” investor oriented. This is a brand new marketplace, and based on my argument above, one that potentially prices out a lot of the upside. But for fans, this could be a source of pride, the same way the Packers are able to sell shares that essentially have no economic value and are untradeable. At least in this case, the shares do have real economic value, regardless of how much that value ends up increasing or decreasing. With that said, I’m sure investors are monitoring, as brand new markets do not come along all the time, so if there is any potential arbitrage opportunity, they will look to find it. We’ll learn much more over time and with more athletes participating.

Would owning a piece of an athlete change the way fans view the sport?

I don’t think so, unless someone make a particular large investment. Even in the era of fantasy sports and athlete brands, fans at their core still care more about their team than the individual player. The closest parallel is probably like having a player you invest in on your fantasy team – when you happen to see them have a big game, you might get a little more, brief satisfaction from it, but nothing really changes. If more athletes participate and the market grows, there is potential for these investing fans to pay more attention to offseason news, but for the most part, that’s already happened with the massive increase in media attention in all sports year-round.

Any final thoughts?

The one idea that does peak my interest a bit is the idea of a “mutual fund” of athletes. The same parallels would exist when looking at a fund vs. an individual stock in terms on slightly lower upside but also mitigating your risk. If you were able to package the future earnings of multiple athletes together, especially if that includes younger athletes who will have much more variance in their future earnings, I could see this being a more viable investment opportunity.

Thanks to Brian Connolly from Victus Advisors for his last-minute help prepping for the interview. Follow him on Twitter at @BrianHConnolly for great sports business insights, especially around finance, economics and research.