This week Fantex announced the newest public investment option made possible by the JOBS Act of 2012 [PDF]: stock in professional athletes. Arian Foster of the Houston Texans will be the first athlete to sell shares of his future earnings to the public. According to the Prospectus filed with the SEC on October 17, Fantex will offer 1,055,000 shares of “Fantex Series Arian Foster” at an initial price of $10 per share.

It is easy to understand why Fantex chose Foster the its first athlete stock series. At 27 years old, Foster is a three-time Pro Bowl running back with a broad fan base and several endorsement contracts. He has also begun to appear in other markets, like the television series Hawaii Five-O and upcoming movie Draft Day. Foster also seems like a stable investment: unlike other notable sports figures, he is not known for personal drama off the field.

Investment in athletes, often through management and promotional contracts, is not uncommon. The investor gives the athlete guidance or opportunities in exchange for a portion of the athlete’s income. In the past, the chance to invest in athlete has been limited to those with the money or power to develop direct access to him or her. But Fantex will change that by giving shareholders direct access to Foster’s income, right?

Not really. In fact, the price of the Foster stock will not be directly tied to his income, because shareholders will not really own a share of Foster. Instead they will own shares in Fantex, and Fantex will own a 20% interest in Foster’s future earnings. Shareholders will not even have collective control over the board of Fantex because the stock structure of the company vests 99% of the voting rights in a parent company. But shareholders can take some solace in the fact that the Fantex board has no more control over Foster than they do: Fantex cannot require Foster to “take any actions to attract or maintain or otherwise generate brand income.”

These details are not spelled out when a potential purchaser clicks “sign up for Fantex” with the intention of purchasing Foster stock. To their credit, Fantex does state that it “is not a direct investment in that athlete or brand contract” in the stock description.  But that does not alleviate the concern that inexperienced investors will purchase Foster stock based simply on name recognition without understanding the risks.

The Foster stock’s initial public offering will demonstrate some of the concerns with the JOBS Act of 2012: reduced information for investors and the allowance of general advertising and solicitation. But it also highlights one of the Act’s goals: to give small  investors access to more diverse investment options. Without many other test cases, the success of the JOBS Act may be measured in part by the  performance of the Foster stock. We just have to wait and see.

–Emily Gabranski

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One Response to Shares of Arian Foster? Not Quite.

  1. Shannon Han says:

    I am curious how Foster’s recent injuries and postponed “IPO’ will affect Fantex’s growth.

    I would love to see more information on how arbitrage opportunities arise under this arrangement. Other than the desire to “own a piece” of your favorite athlete, I am curious what factors would drive the price of the stock up (getting hurt seems to be the answer for driving the price down). What happens when the athlete you have invested in ends up under indictment for performance enhancing drugs?