How Invested Are You in the Entertainment Industry?
The average American currently spends 34 hours per week watching television. That is almost 5 hours per day, and our investment in media and entertainment sees only to be increasing. Not only are Americans consuming vast amounts of media through their TVs, computers, smartphones and tablets, they are now purchasing stock in their favorite entertainers. Fantex, a San Francisco startup, has engineered a new stock in athletes’ future earnings. Vernon Davis, the starting tight end for the San Francisco 49ers, was one of Fantex’ first clients, and 421,000 shares of his stock have been sold to date. CEO Buck French sees endless possibilities for his company and thinks that the acting and music industries are next. Watch Fantex CEO Buck French Speak at Sports Summit here.
Fantex has constructed a business model that has attracted many young athletes. In addition to Vernon Davis, it issues stock for EJ Manuel, the quarterback for the Buffalo Bills. According to Bloomberg, Fantex also will be issuing IPOs for Mohamed Sanu, a wide receiver for the Cincinnati Bengals, Alshon Jeffery, a wide receiver for the Chicago Bears, and Arian Foster, the starting running back for the Houston Texans.
Fantex and its supporters view these stocks as the new age of individual branding. When players agree to a deal with Fantex, they are paid upfront for their projected future income. Fantex then collects their portion of the income as it comes in. By bringing these projections to the public’s attention, Fantex sees itself as a tool to build brand recognition and accelerate individual brand growth.
The athlete’s earnings include both on and off the field earnings. For example, Alshon Jeffery’s stock consists of 13 percent of future income from his player contracts, endorsements, and other activities related to football. Therefore, if Alshon gets injured, his stock price may drop; however, that injury will not necessarily deplete the value completely.
As one can also see, these stocks do not always include all income that a player can make. For example, Vernon Davis has an interior decorating company, and that business is not included in his stock. People speculate that if this model would be extended to actors and actresses, Fantex would collect a portion of income from the acting itself, endorsements, and special appearances.
It is important to note that shareholders do not gain control over the athlete’s career decisions. Vernon Davis and the other players involved have complete control over themselves; however, they owe fiduciary duties to their stockholders pursuant to Delaware state law. As a young company there have not been any issues as a result of this relationship, but some critics are skeptical of this model’s longevity.
Some critics also point out that this model can only attract athletes and sports enthusiasts because it is conceptually a more sophisticated form of fantasy sports. These critics are not convinced that an actress or musician would garner the same level of interest.What do you think? Would you be interested in investing in a young actor or actress on a hunch that he or she was going to be the next big thing? Or do you think this is simply too risky to get involved in?