Looking at Fantex: Valuation of Arian Foster


 Fantex is a new platform in which people will be able to invest in athletes. Essentially the company will pre-pay an athlete a specific amount of money in return for a percentage of his future earnings. A few weeks ago they locked up their first player, RB Arian Foster of the Houston Texans.  Today they have locked up their  second player, TE Vernon Davis of the San Francisco 49ers.

While I consider the idea itself to be somewhat neat, I do feel that there should be major questions as to the amount of money that they are seeing fit to invest in the athlete’s brand for such a small return. While I can’t speak for the off field earnings, most NFL players will earn a majority of their money via the football field. Sure there are other opportunities once their career ends, and some have become very successful out of the league, but would you fund a general college graduate money to invest as he sees fit or to help him buy a home for a percent of his future wages?  I would think in most cases the answer is no, but that’s a matter of personal taste I guess.

What I can talk about here is the football life of the players in question. For this post we’ll look at Foster and then move on to Davis in a later posting. Fantex will be paying Arian Foster $10 million dollars to get a 20% piece of action on Foster in the future. Foster is 27 years old and in the 2nd year of a five year contract that he signed in 2012. As is standard in most NFL contracts Foster earned significant money in the first year of the contract. Of the $43.5 million total contract value, 41.3% was earned in 2012, meaning Fantex is only eligible to collect on $25.5 million if I am reading their prospectus correctly.

Foster is virtually guaranteed to earn his salary in 2014, which is $5.75 million. He will also earn $31,250 for every game he is active. In 2015 the Texans will create $4 million in cap room if they were to release Foster, who will be 29 years old at that point. The NFL, in general, is not kind to older running backs. Since 2000 only 195 players have played the position at age 29 or older. At 30 the number falls to 129 and then 102 by the time the age is 31.

Are those players productive?  At 29 players are still productive. 18 players ran for over 1,000 yards at the age of 29 and 32 logged over 700 yards. So about 11% of all 29 year old runners were very productive and 20% were productive. Of those playing at 30 the numbers are around 10% and 17% and it’s similar at age 31. Only three runners have logged a 1,000 yard season at 32 or older and just 10 a 700 yard season.  The odds would be that Foster’s final season of his career would occur at the age of 31 with an outside chance of playing at 32 if the right situation occurs.

What would we expect before that time? We’ll be pretty aggressive with our thought process and assume that Foster will earn his full salaries from the Texans in 2014 and 2015, meaning he does not get cut nor miss a game. In 2016 we will assume he signs a contract similar to the one signed by Steven Jackson at the age of the 30 with the Atlanta Falcons at a 2% raise to account for salary cap inflation. We will also assume he earns his full salary in both 2016 and 2017 with his new team, no matter how unlikely that is. His best chance to earn his full salaries is to likely stay with one team which is what has helped Fred Jackson, now 32, stay in the NFL.




Fantex Take




























So from Foster’s football income, with a pretty aggressive outlook on our end, Fantex will still need to recover $5,467,000 just to break even on the initial $10 million IPO when Foster’s career is over. That would require Foster to earn over $21.5 million dollars in ventures outside the NFL, unless he commands a monster contract at the age of 29 or 30, which has almost no chance of occurring in today’s NFL. Considering the investor is more or less investing in Fantex and their ability to turn a profit to pay dividends, this specific investment, not even taking into account present value of money exchanged, has almost no chance of making money.

This deal with Foster is a pretty rock solid deal for the player. His only requirement is to not “resign” from the NFL through 2015, which would seem to mean voluntarily retire rather than be forced out of the NFL due to skill. There are provisions to allow him to no longer play if he is injured.  Most likely the $10 million initial payment to Foster will never be paid back in full.

This is very different than investing in a business where an initial investment usually brings growing returns. If we look at Foster as a product, Foster is essentially at the mature stage of his lifecycle and about to decline. The lifespan is so short in the NFL that investing at this stage, other than to gain notoriety as a company, which is likely the goal of Fantex, should almost always be a losing proposition. The only real way to profit on this sport using this technique would seem to be to invest in the unknown quantity and hope someone hits. Imagine if a company like this took a risk on paying an undrafted free agent like Foster around $700,000 in 2009 before he was a star for a 20% stake in his future income?  Of course for every Foster there are probably 30 UDFAs who never play a down in the NFL.

We’ll look at Vernon Davis’ football prospects in the near future.