Jocks and Bonds – similarites between entrepreneurs and pro athletes

November 1, 2013

Arian Foster for NVSEWriting at Grantland Katie Baker discusses the proposed Arian Foster (Houston Texans, University of Tennessee) IPO and compares entrepreneurs to professional athletes:

When you think about it, many entrepreneurs share a number of similarities with professional athletes (and not just a predilection for hoodies or the phrase “at the end of the day”).  A breakout success early in life — say, spending $6.7 million on a stake in eBay that would be valued at $5 billion two years later, or having a 1,600-plus-yard rushing season at age 24 — can be the platform that launches a career.  But it can also become, for better or worse, the only thing that defines you.  For every hit, there are multiple soul-crushing misses. Hard work and luck have a chicken-and-egg relationship, and the distinction between being the best and just being the best-positioned is often hard to spot.

Her focus on the similarities in career arcs is a bit ‘meta’ but that is an excellent point about luck and elsewhere in the piece she makes more practical comparisons:  both have to be nimble and adaptable to their environments, and, like a pro athlete, an entrepreneur is (quoting Randall Stross) “the person who is afflicted by a monomaniacal fever, who cannot not be an entrepreneur.”

San Francisco start-up Fantex is seeking to issue 1,055,000 shares of Arian Foster tracking stock at $10 apiece – with $10 million of the $10.55 raised going to Foster, who, in turn, will owe Fantex 20 percent of his future income (with a few exceptions).  They’re trying to apply the concept of Celebrity Bonds to a professional athlete – in this case, a “trailblazer” (their idea of his brand) like Arian Foster.

Celebrity bonds were pioneered in 1997 by David Bowie, who, faced with financial pressures that could have ultimately cost him the rights to his songs, chose to securitize the future cash flows from his catalogue.  These “Bowie Bonds” received investment-grade ratings from the bond agencies because they were backed by assets:  an “established portfolio of songs that generated mostly reliable, known cash flows.”  Other asset-backed securitization had been done, but “not with what was essentially intellectual property.”

A better analogy for Fantex’s deal would be if a musician were to attempt to securitize the songs he planned to compose in the future.  Baker again:

That’s because, when you look closer at the company’s SEC filing, you start to realize that at its root this isn’t really about Arian Foster, nor is it a more high-stakes version of fantasy football exactly. Buying a slice of the running back at the $10 IPO price does not give you any more ownership than buying his jersey would. (There are currently no plans, for example, for Foster to meet with investors or appear on quarterly earnings calls, and shareholders won’t have any voting rights.)

What it does get you is one share of a “Fantex Series Arian Foster Convertible Tracking Stock” that theoretically will benefit from his future earnings stream. Except that any actual distributions are at the discretion of Fantex, which will also take a 5 percent cut. If you want to buy or sell shares, you need to do so on Fantex’s proprietary exchange, for a brokerage commission. The stock that you own can be abruptly converted, at any time, into basic company stock. (And, again, at the discretion of Fantex.) I’d love to listen in on the customer service calls on the day that a bunch of fans with cash to burn wake up to find out that they’re now proud minority shareholders of an unlisted Silicon Valley venture capital–backed marketing firm.

Baker also mentions the challenge of conducting due dilly in these circumstances:

We all love Arian Foster, but just like the running back himself, things can turn on a dime. In his 2007 piece about Protrade, Lewis wrote: “Tiger Woods is a prime candidate to launch the new market. But Tiger Woods’ financial future is secure; he’s the sports equivalent of a blue-chip stock.” (He would soon turn into more of a … speculative investment.) The “Risks” section of the SEC filing on Foster makes mention of his recent admission that he received money while at the University of Tennessee as an example of where Fantex’s diligence failed to turn things up.

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