If Fantex's prospectus on its new Arian Foster stock is any indication, investing in a human being is risky business.
Yesterday, the San Francisco-based company announced that it would issue Fantex Series Arian Foster — a stock backed by Houston Texan running back Arian Foster's brand and career. The stock would exclusively trade on an Exchange Fantex created and be brokered in-house.
Now, anytime you file a new stock with the Securities and Exchange Commission, you have to write a prospectus outlining what the stock is and the risks associated with buying it.
As Fantex writes: " Investing in our Fantex Series Arian Foster involves a high degree of risk. You should carefully consider the risks described below...If any of the events discussed in the risk factors below occur it could have a material and adverse impact on our business, results of operations, financial condition and cash flows. If that were to happen, the trading price of our Fantex Series Arian Foster could decline, and you could lose all or part of your investment."
Below is a laundry list of risks Fantex outlines in its filing range from issues with Foster's physical person to the simple fact that no company has ever done anything like this before — so no one knows if it'll be a success.
The first risk factors all have to do with whether or not anyone will actually buy this idea, and this stock:
- we and future potential contract parties may not agree on the assumptions and estimates used to determine the estimated future earnings of potential contract parties;
- potential contract parties may not want to incur legal, tax and other burdens associated with entering into a brand contract, including, for example, ongoing information and disclosure requirements, as well as the potential risk, due to the lack of any currently binding or authoritative guidance from the IRS, that the ABI we are purchasing from the contract party could be reportable income for the contract party, and, as a result, that it may not be fully deductible for U.S. federal income tax purposes;
- the potential impact of possible disclosure of the terms of material included contracts, and the impact that these disclosure obligations may have on the ability of a contract party to enter into additional endorsement deals or to participate in other brand-income generating activities;
- any negative perception by the media, fans, leagues, clubs or others of our business model;
- any negative perception by the media, fans, leagues, clubs or others of any of our contract parties, including Arian Foster or other contract parties as a result of their decision to enter into a brand contract with us, or otherwise; and
- the performance of the Arian Foster brand contract, or other brand contracts that we enter into, and/or the performance of the related tracking series, which may be worse than anticipated.
Then there are the risks associated with the business model itself. Will their marketing consulting manage to boost Foster's profile? Is the strategy cost effective? Will other athletes get on board?
- the rate at which we begin to realize revenue under our brand contract with Arian Foster, as well as under any additional brand contracts that we may enter into in the future;
- the cost of our efforts to evaluate, target and access the brands that meet our criteria, as well as the cost and expense of negotiating any new brand contracts;
- our ability to enter into additional brand contracts, and if so the amount of the upfront purchase price that we would have to pay to acquire rights under any such brand contracts;
- the number and characteristics of any new brand contracts that we may enter into;
- the cost and expenses of any equity or debt financings that would be necessary to pay the purchase price under any additional brand contracts, and any regulatory or other delays in any of these offering processes;
- the effect of competing technological and market developments;
- the cost of establishing and building our sales, marketing and compliance capabilities; and
- the rate at which we invest in marketing and other costs to assist our acquired brands in building and enhancing the value of their brands.
Then there are just plain old risks to the stock:
- performance of Arian Foster in the NFL;
- our perceived financial standing and the stability of the Fantex platform;
- market interest in trading our Fantex Series Arian Foster;
- liquidity needs of investors due to the overall performance of the equity markets or otherwise;
- industry related regulatory developments;
- investor perceptions of Arian Foster, us and professional football;
- changes in accounting standards, policies, guidance, interpretations or principles;
- changes in tax code that may affect the economics of your investment;
- insolvency of Fantex or Arian Foster;
- regulatory findings, determinations or changes affecting our ability to operate;
- sales of our Fantex Series Arian Foster by a large stockholder;
- general economic conditions;
- changes in interest rates; and
- availability of capital.
Then there are all the risks relating to Foster himself, like an NFL lockout, for instance:
- Arian Foster's NFL player contract is a significant portion of the current cash we would receive under his brand contract.
The value of our Arian Foster Brand is dependent upon the performance of, and to a lesser extent, the popularity of Arian Foster in the NFL.
- The profitability of Arian Foster's brand contract is substantially dependent upon Arian Foster's ability to enter into at least one additional multi-year NFL player contract on economic terms that are comparable to his existing NFL player contract, and, to a lesser extent, on his ability to successfully attract and retain endorsements during his playing career and thereafter in excess of amounts he has attracted historically and/or generate other brand income after his playing career.
- Our ability to increase the value of any of the Arian Foster Brand may be limited and our investments in the promotion of any of the Arian Foster Brand may cause the market value of our stock to decline.
- Arian Foster may suffer from an injury, illness or a medical condition; any injuries, illnesses or medical conditions of Arian Foster may affect the cash received by us under the brand contract.
- Future negative publicity could damage Arian Foster's reputation and impair the value of his brand.
- There could be a decline in the popularity of the NFL and/or the team on which Arian Foster plays in the NFL, or a decline in Arian Foster's popularity
- Arian Foster could be negatively affected by current and future rules of the NFL.
- Arian Foster could be negatively affected by an NFL work stoppage.
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