December 18, 2013

"Buying" Your Favorite Athlete: The Securities Law Framework

I chuckled when I read this DealBook article about how Fantex Holdings intends to open an online marketplace for investors to buy and sell interests in professional athletes. I laughed because I had been involved with a few of these types of schemes when I worked at the SEC in the Chief Counsel's office. Way back then, the issuers argued that interests in athletes were not "securities" and thus didn't need to be registered. As I recall, those no-action requests went nowhere as the "not a security" arguments were not persuasive.

But Fantex is taking a different approach. On October 17th, it filed a Form S-1 (which has since been amended), for an IPO in the NFL player Arian Foster - with the intention of selling about $10.5 million worth of "tracking stock," representing a 20% interest in his future brand income. In exchange, Arian would receive $10 million; the balance will cover the costs of the deal. In addition, five pieces of free writing prospectuses were filed - the components of Fantex's site and other selling documents. The Fantex platform itself has filed as a broker-dealer. As noted in this DealBook article, a second Form S-1 has been filed by Fantex for another football player, Vernon Davis.

This NY Magazine piece is critical of these offerings. And this NY Magazine piece entitled "The IPO of You and Me: How Normal People Are Becoming Corporations" notes that the Foster IPO is dead for now since he got injured. I'm not sure how far along the Vernon Davis deal is - it appears it still is in the comment process...

What is a "Tracking Stock"? Is Securitization of Future Earnings Novel?

Okay, I need help since I'm not a securitization lawyer. Who out there knows how different this is than the securitizations of 15 years ago relating to David Bowie and others celebrities who monetized their future earnings? Is this Fantex stuff really a securitization? Or is this type of "tracking stock" something different? And how is this tracking stock different than the ones that a half dozen companies did in the late '90s?

Poll: Who Would You Buy a Piece Of?

Please participate in this anonymous poll:

- Broc Romanek