Imagine if he had offered you a cut of his future earnings for an upfront cash payment?
That would've been huge.
Well, a new crowdfunding platform is offering you just that:
They’re giving you access to the future income of pro athletes!
Not so fast...
All That Glitters...
The name of this platform is Fantex.com.
Launched in 2012, Fantex offers a way to:
- Give athletes access to short-term cash
- Give investors access to the income and financial upside of their favorite players
Sounds exciting, but as the old saying goes, all that glitters isn’t gold.
Let me explain...
The Fine Print
When it comes to investing, it pays to read the fine print.
Fantex is no exception.
Although some big names are attached to this project, a careful examination of the details raises some red flags:
Red Flag #1: Dividends Are Optional
Let’s start with the most obvious issue:
How do you get paid if you invest in a pro athlete on Fantex?
Technically speaking, you’re supposed to receive dividend payments based on their earnings each year.
However, as Fantex states on its “How this Works” page, those dividends aren’t guaranteed.
As the site states: “The Fantex, Inc. board of directors is permitted, but not required, to declare and pay dividends on a Fantex tracking stock in accordance with Delaware General Corporation Law.”
Meaning, Fantex might receive dividends from the players you’ve backed, but they can decide to keep those dividends for themselves instead of paying you.
How can they do that? Let’s take a look at Red Flag #2...
Red Flag #2: You Do NOT Own The Income
When you invest in a Fantex athlete, you put your money not into the athlete, but into Fantex itself.
There’s no dedicated investment vehicle for each athlete.
So your investment returns might not be directly correlated to the athlete you invested in?
How could you even consider investing in something where the performance is not directly related to the underlying asset?
Red Flag #3: Average Career Length
And finally, pro athletes tend to have short careers.
The average football player, for example, only “works” for 3.5 years.
And that’s assuming they don’t get injured, play poorly or lose lucrative endorsement deals.
So while short-term income might be high, the certainty of that cash is low.
We’re Here to Protect You
We believe crowdfunding is extremely exciting.
That’s why we’re such avid supporters of the industry.
But that doesn’t mean we’re cheerleaders for every new initiative that comes along.
We think the concept behind Fantex is interesting and worth keeping an eye on, but given the concerns we raise above, we don’t believe it’s something you want to put your money into just yet.
Sometimes the best investment decision is to not make any decision at all.
Happy (not) investing!