Fantasy Stocks for a Fantasy Market
By Doug French, Contributing Editor, Casey Research
In the ever-shifting landscape of today’s financial world, unusual trends are making waves—and drawing attention. One such trend is the venture by Fantex Holdings to market shares in professional athletes. As striking as this may seem, it reflects a broader shift in consumer and investor behavior, posing intriguing questions about the future of investments.
The stock market today is a far cry from what it used to be. Consider the fact that Buffalo Wild Wings, a company specializing in chicken wings, is valued at over 40 times its earnings. Amazon, a dominant force in retail, trades at about $350 per share despite posting no profit. Even Netflix, with its mix of old and new content, boasts a staggering price-to-earnings ratio of 280.
American industry has transformed dramatically, with interests now reflected in the growing phenomenon of fantasy football. This billion-dollar enterprise allows fans to pit players against one another, creating a massive market for companies involved in the activity.
According to a report from Bloomberg, approximately 25.1 million Americans are engaged in fantasy football—and the annual expenditure on fantasy sports in the country is a remarkable $3.38 billion, with football accounting for about $2.54 billion of that total.
In light of this financial enthusiasm, Wall Street is looking to seize its share of the pie. Fantex Holdings had plans to sell shares in Houston Texans running back Arian Foster until an injury derailed those ambitions. The original strategy involved proposing 1.06 million shares at $10 apiece on a specialized exchange, with the intent of tracking Foster’s future income from his contracts, endorsements, and public appearances.
Injuries and Concussions
In such a high-stakes market, investors are just a tackle away from losing it all. Fortunately for potential investors, Foster’s season-ending injury occurred before his stock was offered. However, as noted by Peter Lattman and Steve Eder in the New York Times:
“Despite the risks, the offering is designed to leverage the massive appeal of the NFL and fantasy football, where fans can draft players and accumulate points based on touchdowns, yardage, and other remarkable performances during the season.
“If thousands are willing to part with $250 for an Arian Foster jersey, the logic follows that many would also be inclined to invest in a few shares of Arian Foster stock.”
As for Foster, he stood to gain $10 million for relinquishing 20 percent of his future earnings. While investors wouldn’t have direct access to Foster’s finances or control over his brand—Fantex would—the notion was that the performance of Foster would positively influence his stock’s value, with anticipated dividends to shareholders.
Aswath Damodaran, a finance professor at NYU, articulated on his blog at Musings on Markets that part of Fantex’s claim on Foster’s income would be earmarked for managing the platform. Furthermore, he noted that Fantex aims to serve as not just a mediator but also as a brand-building entity, promising to utilize some of Foster’s income to enhance his public profile and income from endorsements.
Assuming optimistic projections for Foster’s career—speculating that he could play until age 36—Damodaran placed the present value of 20 percent of Foster’s future earnings at $10 million, before accounting for expenses and injury risks. Once those factors were included, however, he revised the valuation to about $5.07 million, conceding that Foster potentially received the more favorable end of the deal.
Another player, San Francisco 49ers tight end Vernon Davis, was also signed by Fantex; however, he exited the previous week’s match with a concussion. Fantex plans to acquire 10 percent of Davis’ future earnings for $4 million, marketing shares linked to the athlete’s economic performance—from playing contracts to endorsements and appearance fees.
More Optimistic Trends
This innovative approach may seem novel, but similar endeavors have occurred previously. In the April 2000 edition of the Elliott Wave Financial Forecast, it was noted:
“The emergence of individuals becoming brands signals a historic extreme. Public figures like Dick Clark, Donna Karan, Tommy Hilfiger, Ralph Lauren, Martha Stewart, and C. Everett Koop have all transitioned into publicly traded enterprises. All of them saw significant declines from their initial trading day prices, yet the trend of purchasing celebrity status continues to grow.”
Interestingly, a bear market had commenced shortly after this observation.
John Hussman characterizes the current market as “a textbook pre-crash bubble,” pointing to a Schiller P/E ratio exceeding 25, a median stock price-to-revenue ratio at its historical peak, and a market capitalization to GDP ratio nearing an all-time record. Margin debt has escalated to 2.2 percent of GDP, alongside the recurring sentiment that “this time is different.”
While the market appears speculative, companies like Cantor Gaming are exploring even more adventurous investment opportunities. The Wall Street Journal recently noted the company’s efforts to persuade Nevada lawmakers to allow investment funds to place bets on sports, diversifying the options available to hedge funds and others.
This proposal, however, did not receive approval in the recent session. Moving forward, if the bullish market continues, investors might very well find themselves able to own shares in their favorite fantasy players while mutual funds engage in betting on game results.
This scenario would certainly make traditional betting at local sportsbooks seem rather mundane.
Sincerely,
Doug French
for Economic Prism
[Editor’s Note: Could the craziness of the market spell another crash in the near future? Discover insights on today’s significant investment trends, alongside topics like precious metals, income development, oil and gas, and technology—in our free e-letter, Casey Daily Dispatch. Subscribe here for daily updates.
Douglas E. French writes for Casey Research and is the author of three books: Early Speculative Bubbles and Increases in the Supply of Money, The Failure of Common Knowledge, and Walk Away: The Rise and Fall of the Home-Ownership Myth. He has previously served as president of the Ludwig von Mises Institute in Auburn, Alabama.]
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