Fantex

Stealth Startup Fantex Wants To Make It Possible For Celebrities To IPO

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If corporations can be people, why can’t people be corporations? A stealth startup called Fantex aims to allow celebrities and professional athletes to file for initial public offerings (IPOs).

The quoted text and screenshots in this article are from the Fantex app the company had launched in the iTunes app store on August 27, in what was an apparent beta test. Fantex removed the app yesterday after the company declined to comment for this story.

Fantex describes itself as “the world’s first marketplace that lets consumers invest real money in stocks linked to the value and performance of the brands of the world’s top athletes.”

And here’s the kicker: Fantex says “all tracking stocks are offered pursuant to a registration statement that has been filed with the Securities Exchange Commission (SEC).” A SEC filing from July shows the company was delivered a notice of effectiveness,  which is typically done when the company has filed to register for sales to the public (as Fantex is doing), but the documents that the SEC deemed effective for sale are not publicly available.

Fantex offers a disclaimer on the app that hints a bit at how the business on their end works:

“Each Fantex Inc. tracking stock is intended to track and reflect the separate economic performance of a specific brand contract that Fantex has signed with an athlete. However, holders of shares of a Fantex Inc. tracking stock will have no direct investment in that brand contract, associated brand or athlete. Rather, an investment in a tracking stock will represent an ownership interest in Fantex, Inc., as a whole. These tracking stocks are offered only through Fantex Brokerage Services (FBS). FBS cannot assure you as to the development or liquidity of any trading market for these stocks.”

This means there are two separate markets within Fantex. Fantex strikes deals with professional athletes who give up a certain percentage of their income (presumably over an allotted period of time, like the length of their active career) in exchange for the proceeds of the IPO.

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Some screenshots of the app. Take numbers in these images, and the ones below, with a grain of salt, as some of them appeared to be placeholders (e.g. another player’s gross IPO Proceeds were penciled in for over $18 billion).

People can then buy shares of that player’s brand, like a stock, in the Fantex-consumer market. Presumably, if San Francisco 49ers tight end Vernon Davis has a monster year and looks like he’s going to get a bigger endorsement deal or a larger contract in a few years, his stock would rise and a fan could sell their Davis stock and cash out with a real, monetary profit. People would own tracking or targeted stocks in Fantex that would depend on the specific brand that they choose; these stocks would then rise and fall based on their own performance, not on the overall performance of Fantex.

At the time of publication there were nine athletes, all NFL players, available for Fantex IPOs in the now-removed app, including high profile stars Arian Foster and Vernon Davis.

Dave Butz, the agent for New Orleans Saints wide receiver Lance Moore, said he wasn’t sure if his client was working with Fantex. Representatives for the other eight players did not respond to multiple requests for comment before publication, so we’re not positive if these athletes have signed on with Fantex or if they are merely placeholders in the app. However, they would be incredibly random choices for placeholder players, as some are superstars, some are solid but unnoticeable players, and others are fighting for NFL roster spots (one is a free agent longsnapper). If they were merely placeholders, I’d assume the company would fill the app with more high profile, noticeable players.

While the app only features professional athletes right now,  we’re told the company has aspirations to expand from athletes to celebrities.

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Player profiles show the performance of the brand’s stock on Fantex, as well as real world information about the player’s performance on the field, financial details, and news about them.

David Bierne, Buck French, and David Mullin founded the company. Bierne was a general partner at Benchmark Capital. French founded and served as CEO of OnLink, which sold to Siebel systems in 2000 for $609M. Mullin has been the CFO for a number of startups

The rest of the team has similarly impressive resumes, including a former CTO/COO of E*Trade, a former head of product management at Yahoo Finance, and a number of ex-Wall Street guys.

Put simply, this isn’t the pipe dream of a couple of 20-somethings who were watching the VMAs and thought, “man, wouldn’t it be cool if Miley Cyrus was a stock?”

Fantex’s board and advisors includes Hall of Fame quarterback John Elway, former NBA sharpshooter (and Villanova MBA) Kerry Kittles, and Benchmark general partner Bruce Dunlevie, among others.

The startup has raised $13 million in equity funding, according to an SEC filing from February of this year. Unsurprisingly, sources say Benchmark was in on the round.

It looks like the app was put in the iTunes store as part of a semi-public beta the company is (was?) doing. While the company’s main website domain (Fantex.com) still points to a vague site that hints at a big project on the horizon and shows off the Fantex team, links in the app directed to beta.Fantex.com.

Besides being a fun place to short Amanda Bynes’ stock, Fantex will undoubtedly arouse a wide range of reactions to and questions about its implications for society.

For most athletes, joining Fantex probably isn’t a great idea. These are individuals who are already notoriously bad with their money, and they have very unique wealth management situations in which they earn massive sums of money over a very short career. Part of the reason many athletes have money problems is that they become accustomed to a lifestyle while they are earning millions per year that is unsustainable over their lifetimes. Giving up a percentage of their future earnings to get more cash even earlier is the opposite of what they should be doing.

For the buyers and sellers of the market, it may feel uncomfortable directly evaluating other humans as financial stocks. To be fair, this betting on people isn’t particularly new. Everything from the stock market to venture capital investing to sports betting relies heavily on individuals (whether they’re CEOs, founders, or quarterbacks) who have a disproportionate impact on organizations. We’ve even covered a startup, Upstart, that lets people raise capital in exchange for a share of their future income–very similar to Fantex. But the celebrities in Fantex’ app are fairly high profile – they’re stars who we already over-fetishize.

Soon, we won’t just be stalking athletes and celebrities out of our personal interests. We’ll be keeping a close eye on our business investments.

Update: A representative for former NFL wide receiver Donald Driver tells me Driver has no business relationship with Fantex. As you can see in the first line of images above, Driver was listed under “IPOs coming soon” in the beta app. Driver retired from the NFL in January 2013.