You Can Now Invest In Professional Athletes

“I’m tired of hearing about money, money, money, money, money. I just want to play the game, drink Pepsi, wear Reebok.” -- Shaquille O'Neal

A new way to play the game

When hundreds of NFL players took the field yesterday, most people were only thinking about how their performances would contribute to the team. But what if a football player’s on-field performance could actually make you money and diversify your portfolio?

That’s the purpose of Fantex Inc., or as it’s become known, the athlete stock exchange. That’s right, you can invest in the lives of professional athletes.

Fantex first made headlines two years ago with the announcement that they were working on a deal with star running back Arian Foster to be their first client. Many were skeptical to begin with, but so far they’ve attracted nine more clients, all of them football players.

But could this really work, and is it even a good investment?

How it works

Here’s the scoop. Fantex pays a one-time fee to its new clients. That fee, usually several million dollars, is in exchange for the athlete signing over a set percentage of all their future income. That includes any off-the-field money such as endorsements and autograph signings.

The deal runs in perpetuity too, so by signing the deal the athletes are essentially forfeiting a portion of their earnings for the rest of their lives. Fantex then sets the IPO, around $10, and in order for the deal to go through they must sell enough shares to pay that initial fee to the player. If it can’t, the deal is off.

As an investor, you receive a tracking stock in the percentage of future earnings that Fantex already purchased from the athlete. So technically, you’re not investing with the athlete, but with Fantex. The price of the stock is reflective of on-field performance. So the better a player performs, the more his stock rises, and vice versa.

Is this a good idea?

A lot of people don’t seem to think so, and you don’t have to look very hard to find out why.

Take the case of Foster, Fantex’s first potential client, for example. When Fantex announced in 2013 that they were working on a deal with the Houston running back, many were quick to point out the obvious risk of injury that could throw a wrench in the whole plan.

And that’s exactly what happened. Before Foster could even sign with Fantex he was injured. That was two years ago, and he still hasn’t signed with Fantex.

If Foster’s deal was any indication, this can be an incredibly risky investment for any number of reasons.

First off, the average NFL career lasts just over three years, according to the NFL Players Association. That’s simply not enough time to generate any earnings. Plus, a player's’ career could end at any moment with injury. What happens then? Nobody knows what would happen to a player’s stock once they stop playing, but considering they’re no longer providing the service you invested in, you’d likely be out of luck there as well.

There’s also business reasons to be skeptical of the whole thing. As we noted, you’re actually investing in Fantex. So should anything happen to them, your money would be in trouble. And we still don’t know who or what is regulating this. Right now, Fantex answers to no one. Will that change? Will the NFL have a say in all this?

The concept also poses some ethical questions. What responsibility should athletes feel to their shareholders, and vice versa? Companies often make business decisions with the shareholders in mind, but playing a sport is an entirely different animal. Would a player come back from injury too soon to boost his stock?

And what if the athlete were to fall on hard times? Would you really feel comfortable making money off him then?

So why do it?

Fantex hasn’t signed any big names, and there's a chance they won't ever. Many people think it simply doesn’t make sense for a superstar like Tom Brady to sign away a percentage of his earnings. But for players with a more limited earning potential, an upfront payment of several million dollars could seem like a very sweet deal.

The argument for taking part as an investor is simple: It’s very cheap. The 49ers tight end Vernon Davis is the most expensive athlete right now at $2.44 per share, and so far the stocks have shown very little volatility.

Nobody really knows if this experiment will work. There are plenty of reasons to be wary. But it’s been several years now, and Fantex is quietly humming along. They just signed another client last week.

For these players, it may still be about the game, but there's more on the line than that.