The first initial public offering for an athlete is under way! Even as I write this, investors are -- notionally, anyway -- placing orders for shares in running back Arian Foster of the Houston Texans.
How, exactly, does this work?
A company called Fantex has purchased 20 percent of all of Foster’s lifetime football-related income for $10 million. It is now offering the same opportunity to the public at $10 a share. Shareholders will own a “tracking stock” that is linked to Foster’s performance -- or at least that of his brand.
Let’s begin with the ethical implications (while leaving aside the irony of discussing the “morality” of investing in athletes whom we already pay to play a violent and potentially life-threatening sport for our entertainment). I don’t see a problem. I suppose if it becomes possible to also buy a short position in a player, you could create an incentive for someone to hurt him. Of course, investors can also short a stock, and then bomb the company’s factories.
In a sense, investors already buy stock in athletes: Teams take out insurance policies to cover their players, and plenty of those insurance companies are publicly traded. So if athletes want to sell stock in their future earnings and investors want to buy it, let the trading begin.
But as an investment idea -- and I mean no disrespect to Arian Foster -- this is about as stupid as they come. Savvy investors kick the tires of a company or fund. Hedge-fund managers don’t just scrutinize financials and interview company officials; they talk to suppliers and customers to get a feel for a firm's stability and growth prospects. What is one supposed to do with an athlete? Demand copies of his latest physical? (As it happens, Foster pulled a hamstring days after Fantex announced his IPO.) What about a psychiatric evaluation?
In essence, shareholders are investing not only in a player’s earnings potential but also in his work ethic (and luck). And the moment Fantex -- or whomever -- guarantees him income that's unrelated to how many yards he gains on the field, you reduce the financial incentives that contribute to that work ethic. Put another way, simply by buying the stock, you are reducing its value. And who could blame a football player for wanting to shave a few years off his brutal career, as long as it won’t hurt him financially?
Some years back, David Bowie issued bonds linked to the revenue stream from his music catalog. But that catalog would exist even if David Bowie were to get hit by a bus. Football players are depreciating assets. Maybe in the future you’ll be able to diversify your portfolio and buy some placekickers in addition to injury-prone running backs. But the average NFL career still lasts only three years.
Arian Foster might very well go on to have a lucrative post-NFL career as a broadcaster or spokesman. But if he expected it to be that lucrative, he wouldn’t be selling off 20 percent of his total earnings for $10 million. For that matter, if investing in Foster were really such a good idea, Fantex’s prospectus wouldn’t contain 37 pages of risk factors, including his extensive injury history. "To the extent that the value of your investment is dependent on the competitive success of Arian Foster, the likelihood of achieving such success is substantially reduced by serious or untimely injuries to Arian Foster," the prospectus warns. Serious or untimely injuries in the NFL? Since when?
This is just another way of saying don't buy stock in a professional football player.
(Jonathan Mahler is a Bloomberg View columnist. Follow him on Twitter.)