Los Angeles Angels pitcher Andrew Heaney is a promising young southpaw with a nasty slider, a low-90s fastball and an ascendant changeup. He’s a former college standout, a Big-12 Pitcher of the Year and a 1st round draft pick. He’s also something of a pioneer.

Last month, Heaney became the first Major League Baseball player to sign with Fantex, the athlete securities exchange that has signed deals with seven NFL players up to this point. Heaney’s agreement gave him a lump sum of $3.34 million. Not bad for a 24-year-old still making the big league minimum and with two more seasons before he even reaches salary arbitration.

“For a while, I kept wondering, ‘are they going to get someone other than an NFL player?’” says Fortune writer Daniel Roberts. “I think Heaney is significant not just because he’s the first baseball player, but because he’s a pitcher,” he said, noting the inherent injury risks to hurlers. “Something like this guarantees you a tidy little sum and it’s almost like a fall-back policy,” says Roberts.

Of course, there’s a catch. Fantex now has a 10 percent claim on any of Heaney’s future earnings, baseball-related or otherwise. The deal continues in perpetuity, even after his playing days are over. If Heaney signs a lucrative deal as a broadcaster in 2035, Fantex gets a cut. The decision to forgo some future earnings for a financial windfall in the current moment strikes some analysts as prescient and others as naive.

“Everyone has to come up with their own investment portfolio,” says Fantex CEO Buck French. “From a portfolio diversification standpoint, the cash flow of professional athletes has no correlation to traditional financial risks.”

French declined to talk specifically about Heaney’s agreement, saying it’s still going through the SEC regulatory process.

Fantex offered up its first IPO of a professional athlete, 49ers tight end Vernon Davis, two years ago this month. At the time, the proposition of an athlete commodity exchange was met with waves of publicity and some pointed skepticism from some in the press. Reuters finance reporter Felix Salmon famously dubbed it his Bad Investment of the Day.

But Fantex has showed that it can attract athletes and find investors. Seven athletes, all NFL players, are currently trading on the Fantex exchange. Fantex has received $1.4 million in athlete brand income and paid out more than $660,000 in dividends, according to its web site. Its board of directors includes John Elway and Jack Nicklaus.

All of the players on the exchange start with a stock price of $10, French explains. So far the stocks are still hovering right around that level with little variance. Bills quarterback E.J. Manuel is trading at the lowest level at $7 per share, while Colts lineman Jack Mewhort and Bears receiver Alshon Jeffery are the highest, trading at $11.

“To me, they’ve proven out their model, but there really isn’t any market volatility yet,” says Roberts.

For some NFL players, particularly those who aren’t household names, the lure of Fantex is obvious. Football players’ careers are painfully short, their salaries are limited by a hard cap and large portions of most contracts are non-guaranteed.

A baseball player signing on has far different implications. As Craig Edwards points out in a piece for Fangraphs, a player who has already received a financial windfall through Fantex may not be quite as anxious to ink an extension with his current club at a young age. He may turn down a contract that is overly team-friendly and opt for free agency.

Others have posited that small-market teams that rely on locking up talented players at a young age with extensions well before free agency may be affected if Fantex becomes a trend. A player that has already banked a healthy amount of money may be less likely to sign before free agency or more likely to be tougher in contract negotiations.

As for fans who want to buy stock in a favorite athlete on Fantex, Roberts advises looking at it like purchasing a souvenir, not as a viable income stream. He cautions would-be investors to remember they’re not just buying a player, but the company they’re doing business with.

“When you’re buying a share, you’re really buying a stock in Fantex the company,” Roberts says.

Heaney will toe the rubber next year with a little more security. Those who invest in the southpaw, like the fans sitting in the bleachers, can do little more than sit back and enjoy the game.

Image courtesy of the LA Times

Tags:


  Save as PDF