Thanks to fantasy sports, particularly the recent and controversial rise of daily fantasy, athletes are increasingly seen as commodities more than human beings. Fans have a personal and, often a monetary, investment in the players’ individual success.
Now Fantex, essentially an athlete stock exchange, has taken this concept to the next level — albeit a much more regulated level than anything fantasy related.
Here’s how it works: When Fantex signs an athlete, it uses a model to predict his or her future earnings, taking into account present worth, potential, and possible risks. The company then assigns a cash flow value to the athlete, and pays the athlete a percentage of that value (usually between 10 to 20 percent) up front. In exchange, the athlete has to give Fantex a set percentage of all of the future earnings related to his or her athletic career — including playing contracts, prize money, endorsements, and broadcasting — for the rest of the athlete’s life.
There are currently 10 athletes on the Fantex roster — nine NFL players and one MLB player — and as of today, the two-year-old company has collected $1,456,547 in total athlete brand income, and paid out $664,510 in dividends.
As daily fantasy sites are facing legal battles at every turn, Fantex is quietly adding athletes to its roster and setting the stage for its next big move: NASDAQ.
It’s a boost at a certain point in your career, but it has all kinds of consequences.
Buck French, the CEO of Fantex, told ThinkProgress that the company aims to invest in players not just as athletes, but as individuals, and provide them the support they need to take their career to the next level. Still, some experts expressed concern about the model.
“Hopefully a lot of athletes with very little genuine prospect of making lots of money will be able to cash out and get some money out of foolish sports fans before injuries end their careers,” Dean Baker, co-director of the Center on Economic and Policy Research, said in an email. “If that happens (my guess) then the thing will probably collapse after a few years, but you may see some redistribution in the right direction.”
Joe Valenti, the Director of Consumer Finance at the Center for American Progress, compared Fantex to the Orwellian “human capital contracts” that GOP presidential candidates like Marco Rubio have touted as the future of college investments. Rubio’s plan calls for private investors to provide money for students to attend college, and then get a set percentage of their future earnings in return.
“It’s a boost at a certain point in your career, but it has all kinds of consequences,” Valenti told ThinkProgess. “And how does it change your behavior? Are you really more motivated to make more because you’ve got the support and you have things you didn’t have before?”
French said that the idea for the company originated with the co-founder David Bierne when he was working with John Elway, Michael Jordan and Wayne Gretzky on a site called MVP.com. Bierne realized how much these athletes had to invest in themselves in order to reach Hall of Fame status, and recognized that many professional athletes probably didn’t have the capital early in their careers to invest in themselves as much as necessary.
“I think anyone who has had any degree of success has had some mentor, so I think that offering that earlier for these young guys and gals gives them the opportunity to think broader,” French said. “Your life is a function of what’s around you. I think that’s a big value add.”
The athletes that Fantex has partnered with so far aren’t superstars, and it’s likely a deal like this will never attract the Cam Newtons or Tom Bradys of the sports world — players who don’t need this type of partnership to advance their careers.
Tight end Vernon Davis and wide receiver Alshon Jeffries have been the company’s most high-profile signings so far, but Fantex isn’t worried about whether it’s able to recruit household names. Rather than making deals with college stars who are unproven in the NFL or risk pairing with a guy who has character concerns, Fantex is seeking out athletes in more stable positions, personally and professionally.
“We know that the skill positions are the attractive, sexy parts of the business,” Fantex CFO Dave Mullin told ESPN. “But it’s understood that investors want cash on cash yields, and we’ve found that linemen, for example, are reliable, play for a long time once they are established and are paid very well.”
Still, Valenti doesn’t see this as a solid long-term investment for fans either.
“If you’re following the trends and investing in individual stocks, you’re not likely to get ahead. This isn’t going to be the smartest investment strategy. It’s a novelty thing. If you want to put a little money into it for players you like and you want to follow, just as you would fantasy, that’s great,” he said. “But most advisers would say not to put all of your money in one stock, and similarly, you wouldn’t put all your money in one player, or even 10 players. These guys get hurt. They don’t play. Too many things can happen.”
This isn’t going to be the smartest investment strategy. It’s a novelty thing.
The danger of Fantex’s model can be seen in its very first deal, a partnership with Houston Texans running back Arian Foster. Back in 2013, Fantex made a splash when it offered the public a chance to buy 20 percent of Foster’s future earnings, which the company valued at $50 million. But in order to complete the offering, Fantex had to sell enough $10 shares of Foster’s IPO. The running back was injured soon after the announcement, and this fall, after Foster was once again placed on injured reserve, the company finally pulled his IPO and terminated the relationship.
That hasn’t discouraged Fantex, though. Last month, the company filed its NASDAQ paperwork, and French said they have plans to extend to “hundreds” of athletes across different sports, including those in individual sports such as golf and tennis where there are no guaranteed contracts.
Fans are constantly looking for ways to get more involved with their favorite athletes and feel personally connected to the action on the field, so it’s easy to see Fantex as a more real-world extension of the fickle fantasy world — a fact that’s concerning to those following the potential downsides of such games, not just in terms of financial losses, but in terms of changing the way that fans view the game and the players.
“There is a massive, ever-expanding class of Americans who cannot remember a connection to pro football that did not involve the drafting and owning of skill players who work on their personal behalf,” Chuck Klosterman wrote on Grantland back in 2012. “And the result, I fear, has been the mild dehumanization of humans we were already prone to perceive as machines.”
“I think they don’t look at us as human anymore. I think they look at us as an opportunity,” Carolina Panthers running back Jonathan Stewart told the New York Times last month when asked about the consequences of the growing fantasy sports industry.
But, while the comparisons are hard to avoid, and while Fantex does quite literally turn athletes into objects, French insists that Fantex and fantasy sports are fundamentally different.
“At the end of the day, any one game performance or weekend isn’t going to impact the cash flow,” he said. “We don’t really compare ourselves to the fantasy world because that’s just what am I doing this week. Plus, I mean, we’re heavily regulated. We have multiple entities and rightfully so, these are public security.”
French knows that the company has a long way to go — both in educating the public and athletes about the Fantex brand and in expanding its offerings. But he considers this a no-brainer for athletes who need a leg up. After all, in the long-run, it’s in Fantex’s best interest for the athletes on its roster to succeed, so the company provides a full support system for an athlete that might not otherwise be in place.
“You start with little acorns, and hopefully they turn into giant oaks,” he said. “We think that for an individual who is looking to establish themselves and reach their full potential that this would be on the list consider.”