Tuesday, October 22, 2013

A New Way to Invest in Athletes

Sports franchises are understandably peculiar businesses because they rely on a fan base that is often based on a city or place of residence.  The most important assets for most teams are the players who are the performers and therefore crate a fan base for merchandise sales, tickets and additional publicity. For that reason, it is understandable that with the exception of a few such as the Green Bay Packers, the trend is that most franchises are held as corporations with shareholders.

As the most visible and important assets held by teams, the franchises are used to negotiating with athletes as such with the help of their managers. It is sensible to ask the question whether this is still the most efficient way for athletes to bear the risks of their careers in professional sports. Arian Foster, a football athlete with the NFL's Houston Texans is a pioneer in the diversification of risks by floating shares in his person as an athlete. As covered here, the athlete has sold shares in his personal brand by promising to distribute a portion of future incomes to individuals who invest in him today.

What the athlete has done is to assure himself of a level of income and asks those who have confidence that he will be successful in the future to but futures in his career. In addition, this share purchase comes with a facility that enables holders to trade that stock over time. While the story overwhelmingly concentrates on the risks that come from the possibility that an athlete may be injured and thereby lead to losses for the owners, I am inclined to think that all those risks would be built into the cost of the shares to ensure that the pricing is appropriate.

Unlike the author who thinks that this activity will be a niche investment for die-hard fans, I think that this is a legitimate form of market creation that provides opportunities for real gains and losses too. injury aside, there will be fine investments of this kind just as there will be poorer one too. its just about who can make the well-informed bet. 

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