Tuesday, November 5, 2013, by Christian Landreth
Even though a back injury has prevented Houston Texans running back Arian Foster from making news for his on-field performance in recent weeks, he has remained in the headlines for his latest off-field business venture.
Foster has partnered with Fantex Brokerage Services, which bills itself as “[t]he first registered trading platform that lets you buy and sell stock linked to the value and performance of a pro athlete brand.” Essentially, Fantex plans to serve as a trading platform where investors can buy shares in a truly unique type of company – a professional athlete.
Fantex has planned an Initial Public Offering in which it will make 1,055,000 shares of stock available, at a price of ten dollars per share. Fantex is paying Foster $10 million in exchange for a 20% stake in Foster’s future earnings, including contracts, endorsements, and other related business revenues. In theory, if Foster does well on the field, and companies decide to use Foster as an endorser for their products, or he is rewarded in bonuses from the Texans, Foster’s stock will go up.
Fantex also announced this week that it had reached a similar agreement with San Francisco 49ers tight end Vernon Davis.
From a legal perspective, trading stock in NFL players raises some serious questions.
From a legal perspective, trading stock in NFL players raises some serious questions. The biggest may be the offering’s availability throughout the country. Because Fantex is not a nationally recognized trading platform, filing with the Securities Exchange Commission is only the first hurdle for Fantex to clear before potential investors can buy stock in Foster.
In addition to national securities laws, every state has “Blue Sky Laws” that regulate the sale of securities within their borders. It remains to be seen which states, if any, will allow trading of the Foster stock. While Fantex CEO Buck French feels confident that a majority of states will permit sale and trading, he recently stated that “[m]y guess is that there are states that will not allow our trading to happen.”
If states do decide to allow this rare type of trading, a host of other legal issues remain that Fantex may be forced to tackle. David Lariviere has outlined a few of the potential legal questions, including:
- What would happen to investors if Foster or Davis were arrested like Aaron Hernandez?
- Shouldn’t the conditions of these kinds of deals be spelled out in the NFL collective bargaining agreement?
Lariviere also argues that what Fantex is offering may be sports gambling, as money is directly tied to a player’s performance. In 1992, Congress adopted the Professional and Amateur Sports Protection Act (PASPA). PAPSA bans betting on sporting events except in those states where such betting was legal at the time the law was approved. Only four states qualify for this exemption, and Nevada is the only state that currently allows sports gambling. Essentially, if courts likened Fantex to sports gambling, trading athletes’ stock may be illegal as violating state gambling law.
While innovative, it is clear that Fantex faces an uphill battle in implementing its athlete-trading platform. Even if Fantex overcomes the various legal hurdles, it remains to be seen what sort of investor interest the plan will generate. Either way, it will be interesting to watch this IPO going forward.