Investing in Professional Athletes: You’ve Got to Be Kidding Me

by Kevin on October 24, 2013

Let’s list some of the worst investing ideas of recent memory:

  • Housing prices always go up. You can buy today, renovate with $5,000, and sell for double the price tomorrow.
  • The stock market always goes up.
  • The stock market is going to continue going down.
  • The stock market is never going to recover.
  • Gold coins! I like shiny things. Other people like shiny things. Shiny things are a good investment. Prices on shiny things will always go up.
  • I really like all of my investing ideas. I like them so much I’m going to borrow money from my broker on margin so I can maximize my returns.
  • Diversification? What’s that? I’m going to put 100% of my retirement savings into my employer’s stock. I love my employer. They’d never lie to me.

And that’s just in the last 15 years.

Let’s see how that worked out…

  • Housing busted.
  • The stock market busted. Twice.
  • The stock market bottomed out in 2009 and has gained 137% since the bottom.
  • Gold is up about 13% per year since 2004, but this year has dropped 20% compared to the US dollar. (And it could be argued the average person didn’t really start investing in gold until about 2011 and has still lost money.)
  • Investing with margin has always been a horrible idea.
  • Who could forget Enron? Entire retirement savings in one company that disappears overnight. Unbelievable.

It’s a nice, hefty list full of pain and poor financial choices.

We’re about to add one more to the list: investing in the future earnings of professional athletes.

The Perfect Idea

This really is the perfect idea for American culture.

America loves sports.

America loves profit and gambling.

And everyone that knows a sport thinks “I knew that guy was going to be the next superstar. I called it!”

Well now ladies and gentlemen, you can invest in the future earnings of athletes.

“There’s a fine line between genius and insanity. I have erased this line.” ― Oscar Levant

At least that’s the idea of a company called Fantex. The idea is to run an exchange… like a stock exchange… based on the future earnings of professional athletes.

The first athlete? The University of Tennessee’s own Arian Foster. He’s now the star running back of the Houston Texans.

Here’s how it works:

  • The company will issue 1,055,000 shares of “Arian Foster” at $10 each.
  • This will net $10 million for Arian and $550,000 for the company.
  • In return, the company (and its investors) get 20% of every dollar Arian Foster earns … forever.
  • The company holds 99% of the voting rights of the “shares” so fans can’t tell Arian how to run his career. (Get it… running his career… he’s a running back. Ahem.)

This…

This is so perfectly good for Arian (and Fantex) and such a complete and utter disaster for ignorant fans that it is almost unbelievable.

Arian gets $10 million now to (please tell me he is doing this) put in the bank to live off of forever.

The company makes a quick $500,000. Nice.

Fans, I mean investors, get … what? A shot of a percentage of what Arian earns in the future?

This is speculative gambling at its best. Who is going to track all the dollars Arian earns? If he plays a Friday night poker night six years from now and earns $1,000, do the investors get a cut of that?

Athletes get hurt all of the time. In fact Arian pulled a hamstring in the first half of the game this past Sunday and didn’t play the rest of the game. Will he get a new contract in the future for big dollars? Or will he fade away like all other running backs?

Yet I have no doubts the company will be able to sell every single “share”. Evil genius in the minds behind this one.

Please, I beg of you. Do not invest in Arian Foster. Put your money in your retirement accounts. Invest in index tracking mutual funds and ETFs. Leave the gambling on future stars to NFL owners and their really well paid General Managers.

 

{ 2 comments }

Elissa @ 20s Finances October 25, 2013 at 1:18 pm

Oh boy – with my lack of sports knowledge, I’d never be able to do this anyway. But what an idea. I second the “you’ve got to be kidding me.”

S. B. November 9, 2013 at 10:06 pm

I’m not opposed to alternative investments, but everything must have an appropriate value. I’ve seen professional valuations of the Foster “investment” and by all accounts, the securities appear to be grossly overvalued. The people who are most interested in this deal probably understand that fact the least.

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