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.




Fantex: The Vernon Davis Valuation


Yesterday we looked at the Fantex valuation of the Texans’ Arian Foster and today we turn our attention to their valuation of Vernon Davis of the 49ers. Fantex has agreed to pay Davis $4,000,000 in exchange for 10% of his future brand income. Is this a reasonable investment for a 29 year old Tight End?

While we do not have the specifics of the Davis brand contract I’ll assume that it includes salary earned in 2013, similar to how Foster’s income included his 2013 wages from the Houston Texans.  Davis currently is under contract to the 49ers through 2015. In that time he has base salaries that total $15,122,000, workout bonus that total $600,000, and $1,200,000 in bonuses that are paid in $25,000 installments for each game in which Davis is active. If Davis was to play his entire contract out Fantex would be eligible to receive $1,692,200.

Davis has found himself in a good situation in 2013 due to injuries to the 49ers wide receiving corps and is making the most of his situation. He is currently on pace for 1,184 receiving yards which would shatter his prior career high of 965 yards. The 49ers are in a bit of a tight salary cap situation in 2014 and Davis has the 4th largest cap charge on the team per OTC estimates. Releasing Davis would have saved the 49ers over $3.2 million in cap space but his play this season has made that option unrealistic for San Francisco. He could be eligible instead for an extension that reduces his salary cap charges and adds another three years onto his existing contract.

Getting an extension at the age of 30 is not the hardship that it would be for Foster as this position has much more life. Jason Witten of the Cowboys received a long term extension when he was 29 while Antonio Gates received an extension with the San Diego Chargers at the age of 30. Tony Gonzalez has received multiple contracts since turning 30. However drawing a comparison to any of these players would be difficult as they are multi-time Pro Bowlers and All Pro players. Davis has just one Pro Bowl in his prior seven seasons. He will also be negotiating with a very tough set of contract negotiators in San Francisco who rarely overpay for their players.

Most likely Davis’ numbers would come in somewhere between Owen Daniels $5.5 million a season. and Witten’s $7.3 million a year. So for the sake of argument we can call it a $6.4 million a year extension with $10 million or so guaranteed. As a five year value that would make the contract worth $29.45 million when we include his 2014 and 2015 current seasons into the contract. That would bring him to 34 years of age and likely signal the end of his career.


In this case I think a fair assumption would be that he would earn 75% of the contract’s total value and then maybe get one last season at around $1 million in salary. That would bring his total NFL takehome, while under a brand share contract to Fantex, to be about $29.76 million. Fantex would receive $2,975,590 meaning they would need him to earn $10.24 million in his non-playing career to recoup their initial investment. This is assuming that his 2013 wages are included in the calculation.

Much like the Foster deal this has almost no chance to be a profitable investment if profits are determined by players paying back these “advances” with interest. These deals are absolute bonanzas for the players who are nearing the end of their careers. The actual determinations of future earnings by Fantex, in regards to  these two players, shows almost no fundamental understanding of the NFL lifecycle and NFL contract structure. If the goal is to gain notoriety by signing “name players” to enhance trading on their platform and gain company interest then we can look at these as endorsement deals of sorts, except Fantex is not funding them with their own endorsement dollars, but relying on investors to get caught up in the name value and fantasy betting crazes that are extremely popular right now. Fantex may prove to be profitable but the initial investors that are funding the company on the brands of players have little chance to do anything but throw money away.



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.