Fantex Could Be Placed On "Injured Reserve"

Who used their first round pick on Arian Foster? I did, and I'm not pleased about his recent injury. However, as bad as my season's outlook is now that my top running back is injured, I'm in much better shape than Fantex, who was hoping to float shares in Foster in their first IPO. Who is Fantex you may be wondering?

Fantex, Inc. is a brand acquisition, marketing and brand development company whose focus is on acquiring minority interests in the income associated with the brands of professional athletes, entertainers and other high-profile individuals and assisting such individuals in enhancing the reach and value of their respective brands.

So, just how doomed are those who are looking to buy in? Maybe not quite as doomed as you think.

On Fantex's site they include a prospectus and right near the top is a passage about the convertibility of a share of Arian Foster.

This is also an offering of shares of our platform common stock into which the shares of Fantex Series Arian Foster are convertible, and references in this prospectus to an offering of shares of Fantex Series Arian Foster shall be deemed also to mean a reference to the shares of platform common stock into which the shares of Fantex Series Arian Foster are convertible.

So, on one hand, your shares appear to be convertible to their platform, so even if you think that Foster will end up a dud from a brand perspective, you can at least get in on Fantex's platform. But, looking at the company's second player signed, Vernon Davis, it is looking like Fantex is becoming rather adept at picking players who, while talented, pose an injury risk. As noted by Dealbook:

Fantex’s first I.P.O. prospect, the Houston Texans running back Arian Foster, was expected to have back surgery that will end his season. Then, the company’s second client, the San Francisco 49ers tight end Vernon Davis, exited a game in the first half after suffering a concussion and did not return.

Fantex acknowledged that the chance of injury was a significant risk when it unveiled its innovative business last month. The company is primarily a sports marketing and management firm that signs athletes and takes a stake in their future earnings, including playing contracts and brand endorsements.

Dealbook goes on to highlight the specifics of what would be purchased when an investor chooses to buy into a player's tracking stock:

Investors would receive a so-called tracking stock in Arian Foster’s or Vernon Davis’s brand. Unlike owners of a common stock, who have a claim on a company’s future earnings, investors in the Foster or Davis deals have no actual interest in the player’s future earnings. The tracking stocks are merely intended to benefit from the athlete’s economic performance, yet there is no guarantee that they will. Nor is there any promise of a dividend.

Further details are provided by Fantex itself, in particular the underlying assets and liabilities:

A Fantex, Inc. tracking stock is intended to reflect the separate economic performance of a brand. Fantex, Inc. will attribute the following assets and liabilities to a brand:

1) 95% of the brand income acquired pursuant to the brand contract entered into between Fantex, Inc. and an individual athlete or high-profile individual. Brand income can consist of income earned pursuant to an athlete’s playing contract and related income received from activities such as endorsements or broadcasting;

2) Any and all liabilities, costs and expenses incurred by Fantex, Inc. after the offering of a tracking stock that are directly attributable to the brand, such as direct costs arising out of the promotion of the brand or arising out of or related to the maintenance and enforcement of the brand contract;

3) A pro rata share of general liabilities, costs and expenses not directly attributable to any specific tracking stock (calculated based on the attributable brand income). Attributable expenses would include, for example, a pro rata portion of the service fee Fantex, Inc. pays to its parent company pursuant to the management agreement between Fantex, Inc. and its parent company (5% of Fantex, Inc.’s cash receipts).

The closing remarks in the Dealbook article shows a striking prescience on the part of Fantex about the potential risks of such an investment.

Fantex had hoped to offer its first I.P.O. at the start of the N.F.L. season, in part to avoid a midseason injury that could hamper a deal.

What do you monkeys think? Is this something you'd buy into as an investment? Perhaps something more akin to fantasy football? Or is this for suckers?