A new investing trend revolutionizes and monetizes personal branding.
The initial public offering (IPO) schedule of 2014 features big digital names and bigger dollar signs. Traders are jockeying for position at possible IPOs of ride-sharing startup Uber and Chinese e-commerce giant Alibaba. But another pending IPO has slipped off the radar.
It’s one of the more revolutionary alternative investments to hit the United States in years, but you won’t hear CNBC or even ESPN discussing its potential to change the American sports industry. The underwriter has already announced its first successful dividend from its previous IPO, and the cash flows from this new branding concept stand to be large if the company executes its long-term marketing plan.
But there’s a catch. Actually, it’s a pass.
This IPO aims to profit from the future economic success of NFL quarterback E.J. Manuel.
As alternative investors take notice of the Fantex exchange, this emerging model could change fantasy sports, the National Football League and the sports entertainment market forever.
E.J. Manuel is the latest NFL star to cash in on an emerging sports investing trend.
Fantex, a sports marketing stock exchange, allows traders to capture a share of contracted athletes’ career earnings potential. With E.J. Manuel, it works like this:
On its exchange, Fantex will offer 523,700 shares of stock at $10 per share on the second-year quarterback. In return, Fantex will pay Manuel almost $5 million up front to receive 10% of his future earnings tied to his brand.
These future earnings include any NFL contracts, marketing endorsements, post-career broadcasting contracts, and any other checks he’ll cash through his NFL brand.
Meanwhile, Fantex and shareholders will help promote Manuel’s brand through intensive marketing efforts to help build his value and, ultimately, correlating stock price. Fantex’s official stock prospectus (formally filed with the Securities Exchange Commission) states the firm expects Manuel to earn $104 million over his career.
The break-even price for the stock falls at a little more than $48 million in earnings (before taxes), which requires Manuel to play well enough through his initial contract to secure a big second payday and guaranteed money. If Manuel flames out in the NFL by 2017, he takes his $9.4 guaranteed rookie contract and Fantex’s $5 million, and retires at 28.
If he makes $104 million dollars over his career, Fantex shareholders earn a 10% cut, or $10.4 million, which are paid out in distributions over time.
hall of fame or (buffalo) bust…
Trading under Fantex stock symbol EJMLL, Manuel’s shares create new speculation on the future of modern sports and expectations of athletes and their brands.
It’s not a bad hedge for E.J. Manuel, especially if he turns out to be more Trent Edwards (another former Bills first-round quarterback pick) and less Hall of Famer Jim Kelly.
But with so much on the line, how do investors know that Manuel is the best character guy?
Fantex CEO Buck French said that Fantex employs a lengthy due diligence process.
“Our [due]diligence process around the character of individuals is obviously top on our list, but it doesn’t mean we’ll be 100% accurate. In general, these individuals are good guys. They’re still human beings, and they’re males in their 20s to early 30s, which by definition means they’re going to make mistakes. But, at the end of the day, our expectation is to work with guys who aren’t going to do a bunch of stupid things. That’s part of our diligence in who we pick to work with.”
Personal branding as a financial investment is an emerging vehicle to capture cash flow. And any blow to the brand, whether it be a person like Tiger Woods or a large multinational oil company like British Petroleum in the wake of an oil spill, will deliver a blow to the stock and value of the brand.
However, in the case of both Woods and BP, time and personal effort have slowly restored brand image. Simply put, a mistake by E.J. Manuel isn’t going to doom the long-term investment in his stock.
Fantex’s other athlete currently trading is San Francisco tight end Vernon Davis, whose shares jumped quickly after his IPO. Still, Davis has an injury history, and his team has a habit of changing its playbook constantly, fostering a questionable commitment to his statistical success.
Davis needs to generate another contract of at least $33 million and several high-income endorsement deals for investors to receive a return on capital. Without Davis putting up big numbers—due to injury, underperformance or a less tight-end friendly playbook—would he secure that next big contract?
This is an important question, particularly as reports emerge that Davis may holdout during training camp over his desire for a new deal with the 49ers. The Fantex prospectus includes a clause that if Davis retires within two years of his NFL contract, the exchange has the discretion to force the tight end to repay $4.2 million, which is actually higher than the $4.0 million Davis received for 10% of his brand. (Fantex can also audit athletes according to their agreements.)
Trading has been halted before. The hotly anticipated shares in Arian Foster, a star running back for the Houston Texans, froze after a back injury preceded his IPO date.