NFL & Fantex: Season II

August 27, 2015 09:00 AM

Nearly one year ago, The Alpha Pages featured the story of an emerging stock exchange based on sports earnings where traders could invest directly into the future income and cash flows of NFL players.

That trading exchange is Fantex. 

The initial public offering (IPO) process is simple: Athletes receive a lump sum upfront payment and in return, traders capture a 10% share of the contracted athlete’s future career earnings. These future earnings include any NFL contracts, marketing endorsements, post-career broadcasting contracts, Hollywood agreements and any other checks cashed through his NFL brand. 

It’s a good deal for athletes as both a hedge against the unpredictable nature of sports and as a way to build their marketability and public brand by maintaining a self-interested class of investors helping to boost financial returns. 

After just one season, Fantex expanded its roster of athletes to eight, and it is exploring an expansion into other sports including golf and baseball.

Like any equity, an athlete’s shares are subject to the whims of macro events. An NFL player’s performance is susceptible to coaching changes, team personnel and the team’s playbook. A wide receiver who played in a pass-friendly offense can see his statistics dwindle when a run-first coordinator takes charge. The player’s popularity, statistics, injury history, value to the team —among other factors—will affect potential contract values and thus share value on the Fantex exchange.

During the last year the exchange has added other board members that lend gravitas to the venture, including Jack Nicklaus and former NYSE Euronext CEO Duncan L. Niederauer.

With several prominent Fantex athletes heading into contract years, and as Fantex enters its second NFL season, here are the five big stories that current or potential shareholders should watch in 2015. 

1) Alshon Jeffrey

Heading into a contract year, Alshon Jeffrey takes over as the number one wide receiver for the Chicago Bears. Considering his impressive first two years and the addition of promising rookie Kevin White from West Virginia, Jeffrey has the opportunity to jump into the top five of wide receivers in terms of receiving yards and touchdowns.

However, the Bears aren’t considering an extension on Jeffrey anytime soon. With Brandon Marshall shipped to New York, management says that Jeffrey must prove his worth. He’ll need Jay Cutler to get him the ball, and he’ll hope that White doesn’t eat much into his production.

Jeffrey signed with Fantex earlier this year, opening at $11 per share, where it remains as of July 15. Should Jeffrey make the leap in his third year and decide to become a free agent, there may be a bidding war for his services in 2016. Even if he’s assigned the franchise tag, which could be north of $13 million for 2016, there is a good chance that Jeffrey’s “implied” value of roughly $70 million could rise. Wide receiver contracts are increasing. If Torrey Smith, who has never caught more than 65 passes in a season, can receive a five-year, $40 million deal, Jeffrey’s numbers warrant similar money.

2) Vernon Davis 

Fantex has already paid out $631,650 in dividends to shareholders of Vernon Davis. And while Davis and Fantex continue to invest in Jamba Juice locations, providing an additional revenue stream for shareholders, the real story concerns Davis’ pending free agency at the end of 2015. 

The NFL has an unofficial motto when it comes to players: What have you done for me lately?

In Davis’ case, he went from catching 52 balls for 850 yards in 2013 and 13 touchdowns to a paltry 26 catches for 245 yards and two touchdowns last season. 

Davis, 31, heads into this last contract year looking to justify a future deal in the three- to four-year range. He has a new head coach in Jim Tomsula and a new offensive coordinator in Geep Cryst. He has a new wide receiver in Torrey Smith, who could take the top off many defenses, leaving Davis open across the middle and likely to catch more balls and return to his elite status among the league’s tight ends. His stock remains below its IPO price, but it has recovered nicely from its 52-week low as optimism has built since February.

3) Mohammed Sanu 

Last year, Mohammed Sanu had a terrific seven-game stretch when he stepped in valiantly for the injured A.J. Green. In his third year, Sanu put up nearly 800 yards, but saw his production decline when the Bengals began relying more on the running game and Green returned to the lineup.

His stock has received a nice pop during the last year. But with Green healthy again, Sanu is the second receiver on a run-first offense. His statistics could stagnate. Still, heading into his contract year, Sanu is primed to receive a solid contract offer. 

He likely will not put up numbers that would warrant a franchise tag, but he showed his talents when his team needed him to step up. He could prove to be a “number one” wide receiver in a pass-first offense, which would bode well for his stockholders. 

4) E.J. Manuel

It was just two years ago that the Buffalo Bills drafted a strong-armed quarterback from Florida State.

Manuel was one of the first NFL players to sign up withFantex; an agreement with more than $5 million up front in exchange for 10% of all future earnings tied to his professional brand.

On its exchange, Fantex offered 523,700 shares of stock at $10 per share. At the time, Fantex projected Manuel’s professional career earnings potential in the range of $104 million. But after four games as a starter, Manuel was benched. Despite a 2-2 record and decent statistics for a young QB, Bills head coach Doug Marrone replaced Manuel with journeyman Kyle Orton. The Bills finished at 9-7 and just missed the playoffs.

Orton has since retired. Matt Cassel and ex-Baltimore Raven Tyrod Taylor are now on the team. Marrone resigned and Rex Ryan will take the reigns as head coach. Early reports indicated that Manuel had the best mini-camp of the three Buffalo QBs, providing him the inside track to the starting job. 

In addition, the team expects to have a healthy Sammy Watkins and Percy Harvin at wide receiver, while pass-catching phenom Lesean McCoy takes over as the starting running back. The new offensive weapons and head coach give Manuel a fresh start. Should he put up solid numbers, Manuel may be looking at a stronger outlook for his next contract and related Fantex shares. If he falters, Manuel may be looking for a new job offering back-up QB dollars.

5) Arian Foster 

Fantasy owners know Arian Foster as a lineup challenge on Sundays given the uncertainty of whether he will play. But Foster doesn’t care about your fantasy team.

Foster sits among the elite class of NFL running backs. When fully healthy, he vies week-to-week for the most gifted running back in the sport given his combination of size, speed and football intelligence.

He’ll be 29 years old when the 2015 season begins, which means that any extension in his contract would come after he reaches 30, an age when, historically, running backs begin to see a regression in their numbers.

Foster’s IPO would be an interesting case study for Fantex given his age. However, Foster might be the person with the best post-NFL career financial potential compared to other Fantex athletes. Foster already has starred in the movie “Draft Day” and narrated part of the documentary “Unity.” He could become a television analyst or expand his acting career. 

His post-NFL career has to be on the mind of possible shareholders, and before anyone buys shares these questions must be considered.

Fantex CEO Buck French and Arian Foster have kicked around the timing of this IPO for some time, and as Foster heads into his second-to-last in his five-year deal, how the exchange will value the running back’s future brand value will be an interesting model.

About the Author

Garrett Baldwin is the Managing Editor of the Alpha Pages and the Features Editor of Modern Trader. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University, an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University.