Fantex is the first registered trading platform that lets one buy and sell stock linked to the value and performance of a pro athlete brand. And for the low, low price of just $10 bucks, you can help Fantex raise expected net proceeds from the sale of shares of common stock in their new offering of approximately $10,022,500. Just enough to pay Arian Foster. Felix Salmon explains:
The vast majority of the shares in Fantex — 100 million, to be precise — are closely held by its founders and backers. But another 1 million are being sold to chumps at $10 apiece, to raise the $10 million that Fantex is going to pay Arian Foster, who currently plays football for the Houston Texans. The chumps are buying something called a “tracking stock”, the performance of which is supposed to mirror the economic fortunes of the 27-year-old athlete. And maybe it will. Or, maybe it won’t. The directors of Fantex are under no obligation to pass Foster’s earnings on to shareholders in the form of dividends — even assuming that the contract with Foster does indeed do what it’s meant to do, and result in Fantex receiving 20% of Foster’s earnings, more or less in perpetuity.
Fantex explains: "Fantex is an all-new marketplace where you can buy and sell shares linked to the value and performance of the brand of an athlete — It's real money, real investments, and a real athlete’s brand. However, because you can only trade Fantex, Inc. tracking stocks on this platform, there is no assurance as to the development or liquidity of any trading market.
"The stock available is common stock issued by Fantex, Inc. This tracking stock is linked to the economic performance and value of a brand of a professional athlete – such as income earned from contracts, endorsements and appearance fees."
The prospectus warns: "While we intend for our Fantex Series Arian Foster to track the performance of the brand, we cannot provide any guarantee that the series will in fact track the performance of such brand. The board of directors has discretion to reattribute assets, liabilities, revenues, expenses and cash flows without the approval of shareholders of a particular tracking series, which discretion will be exercised in accordance with its fiduciary duties under Delaware law and only where its decisions are in the best interests of the company and the stockholders as a whole."
Which Salmon sums up for you nicely: The directors of Fantex can, at their sole discretion and at any time, convert all your Foster shares into common Fantex shares, at any ratio which they determine to be fair. Or, more realistically, they can just go bust: after all, as the prospectus notes, they have no experience in this business. And if they go bust, then the holders of the tracking stock will end up owning about 1% of a bankrupt company, no matter how successful Foster is.
In other words, when the directors decide “to reattribute assets, liabilities, revenues, expenses and cash flows”, their duty is to Fantex, the holding company, and not to the chumps with the Foster shares, who between them account for less than 1% of Fantex’s equity. And in general, as the prospectus also says, “any of our tracking series will be subject to the risk associated with an investment in Fantex as a whole”.
Online poker is illegal but somehow the NFL is fine with John Elway sitting as a director for Fantex?
Perhaps the best nugget comes straight from the prospectus. "Our principal source of cash flows for the foreseeable future will be derived from our brand contracts," is followed closely by, "We do not have any experience managing brand contracts and we do not have any historical performance data about our brand contracts."
Stellar. Boomer Esiason wasn't thrilled with Elway's participation either.
**Follow us on Twitter, View via Our Mobile Site, or Return HomeFollow us on Twitter. Subscribe or Return to Bob's Blitz.