Arian Foster is the smartest guy in the room. He’s an American football player who’s convinced a start-up to pay $10 million for 20% of his future income—and there’s little chance he’ll make enough money for the firm to recoup its investment.
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That’s not stopping a group of Silicon Valley veterans taking advantage of newly loosened securities rules from asking you, potential investor, to buy stock and fund the deal, which it hopes to repeat with other famous athletes. This is probably not the kind of ”emerging growth company” the US legislators who drafted the JOBS Act had in mind.
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“Third-party ownership”—purchasing a minority stake of an athlete’s future contracts—is new to the United States. It’s not new to the world, particularly in the free-market world of international soccer, which doesn’t have the same cartel-driven collective bargaining agreements that dominate big American sports leagues. Teams will pay tens of millions of dollars to other franchises just to purchase player contracts, on top of the salaries they pay the players themselves, and investors have occasionally stepped in to help clubs afford those contracts—and to benefit when those contracts are sold again.
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This summer, for example, Barcelona Football Club paid €57m to the Brazilian club Santos for the rights to sign their star player, Neymar. An investment fund who bought a share of his contract in 2009 for the equivalent of $2.6 millionreceived €6.84 million ($8.9 million) as part of the deal—a pretty nice return. But soccer’s global governing body is trying to crack down on the practice, worried about the potential for foul play.
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Nonetheless, a US company called Fantex is attempting a similar play. It’s created a platform to purchase shares of players’ brand income, including salary, endorsements and investment opportunities, with up-front payments. Foster is the only player on the Fantex roster, and if it succeeds in its plan to sell $10 million in equity, he’ll be the main beneficiary. For Fantex and its investors to break even, Foster will need to earn at least $50 million for the rest of his life, paying the company back in quarterly installments.
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