Classic Risk Management: IPO on Football Player

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While it is not often publicly vocalized, one motivation to take a company public through an IPO is to cash in during strong IPO “market environments” while transferring risk on an unknown future.  Such might be the case with the recent announcement that an IPO is being planned on San Francisco 49ers’ star tight end Vernon Davis, bestowing on the athlete turned risk manager $4 million from the sale of securities while providing investors 10% of his future earnings.

“Upside call on post career earnings”

Running the math through his head, Buck French, CEO and founder brokerage firm Fantex Inc (OTCMKTS:ANFRL) that is bringing the offering public, said dividends will be paid based on current earnings.  This includes his football team salary as well as his “brand” income from things such as endorsements. “The call option is in his post-career,” French noted in a CNBC interview, noting that downside risk exists in that he could sustain injury, shortening his career.

Other professional on docket, one not so lucky

Also on the docket is Houston Texans running back Arian Foster, who signed with Fantex and had an IPO scheduled for last year. Unfortunately for Foster’s risk management plan, the IPO was a curse as he experienced season-ending back surgery that postponed the offering. French also noted that Buffalo Bills quarterback EJ Manuel also agreed to sell shares of his future earnings on Fantex’s exchange.

The vast majority of investors were individuals, according to a New York Times report.

Fantex Inc (OTCMKTS:ANFRL) was founded by technologists in the sports marketing business and like most exchanges takes a skim of the buying and selling transactions, in this case a healthy 5% of the transaction which sounds more like a brokerage commission than an exchange fee.

In keeping with the California lifestyle, the exchange will keep unconventional hours, opening at noon Eastern Standard Time (9 AM on the left coast) and close trading at 8 PM Eastern.

A “Hollywood Stock Exchange” based on derivatives contracts for movies was previously scuttled by the Commodity Futures Trading Commission.  It is unclear if the Securities and Exchange Commission will have issues in the future.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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