This Monday, April 28, is a potentially revolutionary day in the history of sports and sports business. We always hear when teams sign players. They’re making an investment in the player, but soon the world may be able to make an investment in a player. Vernon Davis, tight end for the San Francisco 49ers, is set to be the first player to have an Initial Public Offering (IPO). This means that shares of stock in this athlete will be traded on the secondary financial markets.
Davis’s stock is being traded through the Fantex Brokerage Services. He’s the second big-time athlete to sign with this firm after Houston Texans running back Arian Foster signed with the firm for $10 million in exchange for 20 percent of his future earnings in the fall. Foster, however, never had an IPO, and his securities are being sold in a different manner. The firm signed a contract with Davis for $4 million in exchange for 10 percent of his future on-and off-the-field earnings. There are 421,000 shares of Davis’s stock currently being sold at $10 apiece through Fantex. However, like all publicly traded stocks, this has to officially be approved by the Securities and Exchange Commission (SEC), and then individual states have to approve people buying these shares through this service.
If this Vernon Davis IPO becomes relatively successful and athlete stock trading becomes a trend, this can completely change the way people look at sports and financial investing. The possibilities in this market are endless. Will there be financial firms specifically dedicated to evaluating the value of players like any other firm? Since Davis was given $4 million for 10 percent of his future earnings. That’s a $40 million dollar valuation. Is he being over-valued or undervalued? How would you value a player like Lebron James, who made about $18 million last year on the court and about $42 million in endorsements? How many more years is he going to play at a high level? Will he still get endorsements and royalties after he retires like Michael Jordan? The known commodities aren’t going to keep this market exciting.
Investing is such an interesting practice because of the uncertainties. Two potential new “stocks” that haven’t earned a cent as a professional athlete are the last two Heisman trophy winners. Johnny Manziel is entering this year’s NFL draft, and Jameis Winston is expected to be drafted in one of the upcoming drafts. They both have the potential to be NFL stars, get huge endorsements, and make major money. But what if they don’t? What if Jameis Winston has to get Tommy John surgery because he pitches for the Florida State baseball team as well? What if Johnny Manziel can’t stay healthy in the league due to his small stature and often reckless running? How should that level of uncertainty be valued? What about Derrick Rose, a superstar who’s been injured for the better part of the last two seasons? He might come back and be great and make a lot more money, but you have to consider his glass knees as a pretty high risk at this point. As a finance major and lover of everything sports, the potential of this trend has me incredibly excited.