Offsetting The Risks of Shorting Pork Bellies By Investing In a Tight End
I’m all about high risk investments. Most of my money is held shorting pork belly futures. But I recently made some space to invest in the future brand value of professional athletes. Fantex has created a market that allows you to invest in people. They are only listing athletes, and you are only investing in the branding opportunities for those athletes. Fantex signs a contract with an athlete for 10% of their future brand value. Then they chop that contract into shares and sell it to the general public at $10 a share. Then those shares float on a market.
This is a place where you should invest a very small amount of your money because you’re probably going to lose it all. Fantex is at the beginning of a trend in investing in people and we all have a lot to learn.
Currently there is only one person, Vernon Davis, being traded. Volume is pretty low and it’s only gone up about a dollar and twenty-five cents. They have three other athletes listed as upcoming IPOs but no dates announced.
What you are actually investing in when you buy a share of Vernon Davis is a piece of the 10% of the future earnings from Vernon Davis’ brand marketing company. This does include his contract with the 49ers, but you are not buying into his ability to pick stocks or short pork futures. The 10% of his income you’re buying is his player contract, an endorsement deal with Krave Pure Foods (purveyors of fine jerked meats), and an endorsement deal with NutraClick (creators of Force Factor, Peak Life, Stages of Beauty, Bona Clara, Femme Factor, and ProbioSlim). Vernon Davis made a bit over $4 million from Fantex and has talked about how it’s less about the money (he makes over $7 million a year in the NFL) and more about setting up his future brand value.
Sidenote: Most frustrating to me is that listed in the fine print of his Fantex contract is that any monies earned from “his performance as a painter, sculptor, or artist in any other fine or graphic arts medium” is excluded. I understand he wants this exclusion because he’s running an arts-nonprofit but I just really want to profit from his future fine arts career.
I love that Vernon Davis is willing to participate in this experiment and I think it speaks to his long term value, but I don’t expect the shares in him to correspond to that. The Fantex system benefits Fantex first, the athlete second, and the investor last.
Fantex is taking on the most risk. They are giving out millions of dollars and hoping these athletes have media careers after sports. The athlete is taking some money now and not giving up that much in the future, especially if Fantex goes under. The investors are helping Fantex hedge their bets, and only make money with small dividends or if someone buys their shares for more than they paid for it. A bet on Vernon Davis is as much a bet on the market that Fantex is creating as it is on Mr. Davis and those seem like long odds.
The popularity of the whole system will be based on the athletes that Fantex can recruit. And with recruitment being expensive (million dollar payouts to athletes) I can only hope they have deep pockets and can find under-brand-valued players that will mature over time. (Imagine if they had signed Tim Howard before the World Cup!) I want to see them move beyond football and I want more information about how they are helping those athletes increase their value. Acting lessons? Getting booked on Dancing With The Stars? Starting a YouTube channel or general social media coaching?
There is not much room for shareholder activism or involvement through Fantex yet, but I’m optimistic. This is the real beginning of the trend of publicly traded people and I’m happy to lose some money in exchange for being involved on the ground floor. Some investments are bigger than money. I’m happy to learn from Vernon Davis and the Fantex team with a little money and leave the majority of my investment portfolio in shorting pork belly futures.
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