Vernon Davis’ Potential Holdout Indicates a Possible Fantex Problem

According to Mat Maiocco, 49ers Tight End Vernon Davis is seeking a new contract. He is not attending the offseason workout program and will forfeit $200,000 of income by doing so.  Players seeking a new contract is nothing new, but I thought this was a case worth talking about because of Davis’ involvement with Fantex and how this could provide a problem for the NFL in the future.

Fantex is a company that allows people to “invest” in the brand of a NFL football player. Essentially they pay the player a large sum of money up front to receive a percentage of all future earned income. For the most part this income will be derived from playing football. The three brand contracts currently available are for Davis, Arian Foster, and EJ Manuel.

For Davis he was paid $4 million by Fantex for the rights to 10% of his future income. In 2014, Davis was scheduled to earn $5.3 million to play football for the 49ers, so the upfront payment by Fantex covers about 75% of his expected income for the year. Now Fantex is protected from players “resigning” within two years, but there does not seem to be anything related to “holding out” or voluntarily forgoing payments within a contract, such as the $200,000 workout bonus or which Fantex would have received $20,000.

Workout bonuses were designed by teams as a method to encourage near year round supervision by a team and as a means of holdout protection. The basic premise is that if you make the payment large enough the player will attend.  Secondly the CBA contains very harsh language that enables players who hold out of training camp to receive moderate fines and to potentially forfeit signing bonus money previously paid. Usually this money is recovered from the player when the contract situation is resolved and the money taken out of a players’ weekly paycheck. Because these penalties can add up, most players do not want to chance anything more than the minimum allowable holdout that does not incur forfeiture of money.

However, the Fantex business presents a very different opportunity for the player. With $4 million in his pocket, the $200,000 bonus essentially becomes worthless as an enticement to workout with the team.  It makes the risk of fine and forfeiture as he could potentially give up significant portions of money to fight for a new contract since he will have already pocketed 75% of his original expected income for 2014. In addition if weekly paychecks are reduced by fines and forfeited money, the severity of the loss is less due to the Fantex association. For instance a $100,000 fine on a $1 million paycheck should result in a net loss of $90,000 for Davis with Fantex taking on the other $10,000.

I’m not sure how much of a future there is in these brand contracts for the NFL players. The Davis and Foster IPOs were incredibly overpriced, with virtually no chance of the company ever earning back the initial investment in real terms let alone factoring in interest. But if fans are willing to spend money to “own” a part of a player in the ultimate fantasy football scenario they may be able to keep entering into these contracts for years.

If that is the case the NFL is going to have to consider tying more base salary to workout participation through de-escalator clauses or using offseason reporting bonuses as a means of better holdout protection. The Fantex model essentially evades the spirit of the CBA and certain contract language designed to avoid holdouts. It is something they must adjust for.

Davis holding out I guess is somewhat understandable. He is 30 years old and coming off his best season since 2010. The odds of repeating that season are slim. Last year Davis was the teams’ second target due to injuries and lack of depth, and their only real deep threat.  It’s a different landscape in 2014 with Michael Crabtree expected to be healthy for 16 games and a trade for Steve Johnson to play the third receiver role. It will be a struggle to find as many targets in this crowded field.

The 49ers are up against the salary cap wall due to a strong record of successful drafts and veteran acquisitions. My estimates have the 49ers with around $128 million committed to the 2015 salary cap with no Quarterback under contract.  Crabtree is also a free agent and it’s doubtful the team can afford Boldin, Davis and Johnson in 2015.  Releasing Davis saves the team nearly $5 million in cap room   putting him in free agency at 31 years old and likely off a mediocre statistical season to work off of. The 49ers could also decide that Davis is the player they want to keep for one more year and to simply let him play out his contract before he rides off into the sunset at 32, which is certainly not the ideal age to hit free agency when it’s universally accepted that the best years are finished.

Regardless of the reasoning, Fantex is going to empower players to think about holdouts in the future. The NFL usually reacts quickly and I’d expect them to begin thinking of ways to combat this very quickly.