SBD/October 22, 2013/Finance

Arian Foster Injury Comes At Bad Time For Fantex; Pundits Poke Holes In Investment

Foster says his injury isn't severe, but the impact on Fantex could be
Texans RB Arian Foster aggravated a hamstring injury in Sunday's game against the Chiefs, and his "latest health concern was exactly the type of bad news" S.F.-based sports technology startup Fantex "had hoped to avoid" when it announced its IPO plans for Foster last Thursday, according to Peter Lattman of the N.Y. TIMES. The chance of injury "was one of the many risks" disclosed in the plans. Sources said that the company planned to roll out the IPO at the beginning of the NFL season to "eliminate the possibility of an injury or slump, but it was slowed down by the regulatory approval process." It is "unclear how the Fantex offering is proceeding since it began accepting orders last week." But Fantex co-Founder & CEO Buck French on Sunday night "showed little concern about the setback." French said, "We are investing and working to build Arian’s brand for the long term. His injury today has no bearing on that fact." Foster on Sunday said that the injury "did not seem severe." Lattman noted the Texans "have a bye week on Sunday, which should give it time to heal" (NYTIMES.com, 10/21).

RISK & REWARD: SPORTS ON EARTH's Peter Richmond wrote if the Foster deal "isn't working out," Fantex "can take the Foster shares and convert them into another 'brand' if they so choose." Richmond: "My $50 is gone, while they use the money to bolster another listing corner of their brokerage service" (SPORTSONEARTH.com, 10/19). The GLOBE & MAIL's Tim Kiladze writes, "Over the long-term Fantex will invest in many more players, and if they end up being busts while Mr. Foster does well, all of those losses are netted out against the gains from Mr. Foster's revenue" (GLOBE & MAIL, 10/22). ESPN’s Bomani Jones said of the IPO, "You know who doesn't invest in the future of running backs? NFL teams, but you’re going to do it?" ESPN’s Tony Kornheiser said, "This sounds like a Ponzi scheme to me” (“PTI,” ESPN, 10/18). CBS' John Blackstone said, "The financial rewards are uncertain, but there may be more thrills in buying a share of a player than simply buying a trading card" ("Evening News," CBS, 10/18). 

SMOKE & MIRRORS? THE VERGE's Adrianne Jeffries wrote Fantex's celebrity trading platform is an "innovative idea, but it's somewhat tangential to the company’s real business." Fantex is "primarily a marketing and 'brand enhancement' company, and the trading exchange is basically a clever way to hook big name clients." Fantex is "positioning the deal as stock in Foster, but buyers are actually getting common stock in Fantex Inc. -- and a very small amount of stock at that." All the Foster shares together "add up to 1 percent of Fantex, which means Foster shareholders have no influence on company decisions" (THEVERGE.com, 10/19). In DC, Neil Irwin wrote, "There's a lesson for investing buried in all this ...  The more fun an investment is, the less likely it is a good investment" (WASHINGTONPOST.com, 10/18). Time magazine's Sean Gregory said, "Even if Arian Foster does well and makes lot of money, the 20 percent of his future earnings goes to Fantex, not necessarily to the individual investor. So it’s up to Fantex to pay a dividend to the individual investor and that's not guaranteed." Gregory: "The other way you can make money is by trading it on this new exchange, but this is a new exchange. There's no market established so you can have this stock and not enough people play this game and you're stuck with it" ("CBS This Morning," CBS, 10/19).
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