Over 33 million Americans played fantasy sports in 2013 - a staggering 1550% increase from the two million playing in 2000. Imaginary games decided by the efforts of real players have have spawned books, television shows and their own industry-within-an-industry - and the ripples are being felt in sectors not traditionally associated with sports.
Fantasy teams are made up of athletes who players think will perform well - in essence, they're betting that the athletes they choose will outperform the athletes picked by their competition. Listening to passionate fantasy owners talk about the sleeper they picked up makes it easy to draw parallels to the stock market - and San Francisco startup Fantex intends to capitalize on those similarities.
Fantex lets users buy real shares of stock tied to the future financial earnings of an athlete - at the moment, 49ers tight end Vernon Davis is up for sale, while Buffalo QB EJ Manuel was recently announced as the next in line.
Here's how it works:
Fantex pays Vernon Davis $4 million for a 10% stake in future income generated by his 'brand'. This covers future NFL contracts, endorsement deals and post-football endeavors - if Davis earns $40 million over the rest of his career, investors make their money back. If he makes more, shareholders are entitled to dividends paid out at Fantex's discretion. The shares are bought and sold on a SEC-regulated platform developed and maintained by the company itself, and the price for each share during the initial public offering is set at $10 - cheaper than the buy-in for many fantasy football leagues.
"We intend to pay out dividends," Fantex CEO Buck French told us in an exclusive interview last week with Chat Sports. "People will be getting dividends linked to both the post-career and current-career cash flow."
While the cash flow linked to athletic performance is what draws in the fantasy crowd (and gets the headlines), it's the focus Fantex puts on brand-building that makes the investment enticing. Fantex, in addition to issuing shares and operating their exchange, uses their connections in the sports, media and advertising worlds to ensure their clients are positioned for long and lucrative careers after they hang up their cleats.
Vernon Davis (the first athlete to have share available on Fantex) for example, traveled to Sochi this month as the honorary captain of the US curling team. While there, he made a variety of media appearances - several facilitated by Fantex.
While Fantex is open about their plans to diversify their portfolio to include other sports and entertainers, it's clear they're looking for athletes who fit a certain mold. Davis - who wants to model his post-playing career after Magic Johnson's - was perfect.
"Vernon Davis is articulate, thoughtful, and has clear plans for his personal brand after his football career ends," French said. "...but not every athlete meets those criteria."
While that's bad news for anyone anxiously awaiting Andrew Bynum's IPO, it speaks volumes about how highly Fantex values post-career endeavors - a key component of their offering that they feel doesn't get enough attention.
"What we’re really trying to do is position them for a successful post-career," French said. "By definition, if you see yourself as the CEO of this brand, your brand has to extend past the playing career, because that career, by definition, will end."
Fantex won't have to look far to find athletes who've capitalized on their brand after retiring from the game. Jack Nicklaus is on the company's advisory board, and John Elway - an instrumental figure in getting Fantex off the ground - sits on the board of directors.
"I wish a platform such as this existed early in my professional career,” Nicklaus said in a company release. “It allows athletes and entertainers to invest in their future while developing a group of brand advocates who will support them throughout their career."
"Everyone we work with is trying to lay a foundation for their post-career," French said. "The earlier they understand it, the better off they’ll be."
Buying Fantex shares isn't a risk-free proposition, though - the Arian Foster situation made that painfully clear.
It's impossible to talk about Fantex without mentioning the story that first brought them to the public's attention. Last October, Fantex had announced plans for their first IPO - a $10.5 million offering that would have seen them dole out 1,055,000 shares of tracking stock in Foster, a star running back for the Houston Texans.
A cerebral, charismatic player coming off a Pro Bowl season, Foster seemed like the ideal athlete for Fantex to debut with...but just weeks before the IPO, Foster injured a hamstring, then learned he needed season-ending back surgery. Fantex, to no one's surprise, postponed the offering.
While the media coverage of the postponement ranged from skepticism to outright dismissal, to French and the Fantex team, it was merely a bump in the road.
"Trying to sell the shares when he was having season-ending back surgery obviously wasn't ideal," French said. "Once he gets back on the field and people can see that he’s still Arian Foster, we’d still consider putting it out there, but people need to see that he’s back to his old form."
An athlete suffering a career-ending injury would be the worst-case scenario for investors, but the contracts Fantex signs with athletes have built-in security measures that would at least try to limit the damage. Shares of athlete tracking stock can be converted to shares in Fantex at the company's discretion, and while a career-ending injury certainly wouldn't be good for that stock price, the hope is that Fantex will soon have a large enough portfolio that one incident wouldn't sink the ship.
Fantex believes they've tapped into something very real, and very powerful. With the skyrocketing prevalence of fantasy sports and the legion of pro athletes eager to establish themselves as brand names, it's clear that they're flowing with the tide. You'll have to decide on your own whether or not buying Fantex shares is a worthwhile investment, but one thing is obvious - it'll take more than a season-ending back surgery to keep these guys off the field.
Interested in learning more? Check out Fantex online at their official website, and read the full prospectus on the Vernon Davis tracking stock here.
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