On Sunday, Houston Texans Running Back Arian Foster hurt his hamstring. Ordinarily such an injury would only worry Texans fans and Foster’s fantasy football owners, but as the first athlete to be publicly listed, there is another group worried about Foster’s hamstring: investors.
For his IPO, Foster sold a 20% stake in his future income to Fantex Holdings. Fantex has created a market for buying and selling shares in the earnings potential of athletes. Fantex offered 1,055,000 shares for $10 each of Foster’s future football and endorsement deals.
So what’s next? If Fantex becomes a viable exchange, will investors be clamoring to invest in their favorite athletes? To find out, NerdWallet spoke with Providence College Economics Professor Leo Kahane.
Who will invest in Fantex?
I think the typical ‘investor’ will be the fantasy sports folks who would look at it more as something that might be entertaining, but not really a serious investment, (the risks are too high, in my view, to think of this as a real, viable investment). Will Fantex succeed? That’s a tough question. I think on its novelty effects, it may be popular for a short while. But unless it can be shown to be a real investment with a solid potential for earnings, then I don’t see it surviving long-term.
How will Fantex affect professional athletes’ salaries?
Assuming other players (and agents) see it as a viable investment mechanism, then I could imagine there would be a fair amount of interest. In some ways it takes the place of a signing bonus as it front-loads a player’s earnings. This might be appealing to some young players (especially those with no signing bonus), as it would provide them with a potentially large chunk of cash up front. This may, however, exacerbate a problem that many young pro athletes already struggle with, namely how to responsibly handle their newfound wealth.
Will Fantex have any effect on college athletes?
It is unclear to me how it may affect college athletes. I suspect that NCAA rules would prevent college players from participating in Fantex-type contracts, as it would probably violate NCAA rules that prohibit student-athletes from being paid for the sport they play. On the other hand, if a student-athlete is on the margin of dropping out and starting a pro career, then this kind of up front payment may be enough to persuade them to leave college behind.
How will investors sell their shares? Will there be any liquidity issues?
I don’t know. If Fantex doesn’t garner enough interest in the beginning, I suspect they will close up shop and return investors’ money (whatever may be left).
Is Fantex good for professional athletes?
Maybe. It again front-loads contracts and protects them from possible losses due to injury and/or poor performance. But it also means that athletes will have, essentially, a 20% tax in earnings for the rest of their playing career (and perhaps beyond).
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