SAN FRANCISCO – At least a few investors are rooting for San Francisco 49er tight end Vernon Davis to have a lucrative career.
An unusual stock tied to Davis’ earning potential gained $2 to close at $12 Monday in its trading debut. Only 496 of the 421,100 shares sold in the initial public offering by San Francisco startup Fantex Inc. traded Monday.
The stock’s 20 per cent gain represents a vote of confidence in Davis, an eight-year veteran who has emerged as one of the best tight ends in the National Football League.
This marks the first time a stock has been linked to the performance of a professional athlete, a risky concept that highlights the confluence of sports and business.
“We think it’s historic, not just from a sports perspective, but from a finance perspective, too,” Fantex CEO Buck French said in an interview.
Skeptics ridicule the Davis tracking stock as a ploy that preys upon the passions of sports fans.
“If you are a serious investor, you can’t be putting a lot of money in this,” said Ron Heller, a former NFL tight end who now runs his own investment firm, Peritus Asset Management. “You are probably not going to get much money out of it, unless you can sell it to someone dumber than you.”
Davis is prohibited from publicly discussing his tracking stock until late May.
Fantex is paying $4 million to Davis in exchange for 10 per cent of his income from football and endorsements. The payment came from the IPO proceeds.
Davis, 30, will need to sign a big contract after his current deal with the 49ers expires in 2015 for his Fantex deal to pay off for investors.
Fantex estimates Davis will need to land a contract worth about $33 million to justify the investment in his career. The company is in line to receive $1.2 million to $1.4 million from its share of Davis’ earnings under his current 49er contract, according to regulatory filings.
Heller, who played for the 49ers and two other teams before his NFL career ended in 1992, doubts the 49ers or other teams will be willing to pay Davis that much in 2016, when he will be 32 — an age at which most football players are retired.
“Unless the 49ers win a Super Bowl and Vernon has some incredible statistics, he might be done after his current contract,” Heller predicted.
The average NFL career lasts just three years, although stars usually play a lot longer. After analyzing the longevity of 212 other tight ends from 1990 through 2010, Fantex concluded Davis should be able to play for a total of nearly 14 years.
Completing the IPO wasn’t easy. French started drumming up interest in February, when he travelled to 12 cities across the U.S. in an old bus that former NFL broadcaster John Madden used to ride to his assignments.
Fantex’s parent company also promised to buy up to 200,000 shares of the IPO, although that wasn’t necessary, French said. Without providing specifics, French said the “vast majority” of the IPO shares were bought by individual investors.
The investors must live in one of 16 states, including California, New York, Illinois and Pennsylvania, where trading in the Davis tracking stock has been approved. The stock trades exclusively on an Internet exchange set up by Fantex that is open from noon to 8 p.m. EDT.
Similar tracking stocks are now planned for Buffalo Bills quarterback EJ Manuel and Houston Texans running back Arian Foster. Fantex also is trying to negotiate deals with several other athletes in a variety of sports.
“This gives us more credibility,” French said of the Davis IPO. “It is no longer us speculating and pontificating about it. It’s us now us saying, ‘It’s done.'”