Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

49ers Vernon Davis Tests His Stock Fantex Has Sold 421,000 Shares of San Francisco Tight End

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

49ers Vernon Davis Tests His Stock Fantex Has Sold 421,000 Shares of San Francisco Tight End

Article excerpt

One professional football player is about to bring a new meaning to "testing the market."

After a successful reservation period for an initial public offering in shares of San Francisco 49ers tight end Vernon Davis, the tracking stock is scheduled to hit the secondary marketplace Monday, where investors can buy and sell shares of the professional football player.

Fantex, a San Francisco brand-building company founded late last year, has sold 421,000 shares of Mr. Davis to investors seeking a piece of the Pro Bowler's future earnings. Under the deal, Fantex Holdings will pay Mr. Davis $4 million for a claim to 10 percent of anything he earns related to his football career, starting Monday.

Each share cost $10, and Buck French, Fantex co-founder and CEO, said the company finished a nationwide publicity tour, which included a February stop in Pittsburgh, with more reservations than it had shares available.

The high demand has Mr. French confident that the opening of the Fantex exchange at Fantex.com will be successful.

"I think that as we are able to talk more and more to the public and get the word out, people have been extremely interested in what we're doing," Mr. French said.

General Motors was the first company to issue tracking stocks as a way to generate capital by giving investors access to dividends or an income stream without giving them ownership of the company.

The practice has been particularly useful among corporations with diversified business practices. U.S. Steel Corp. was one of the first adopters when, in 1991, it started issuing tracking stocks to allow investors easier access to its lucrative oil portfolio.

Fantex and Mr. Davis have a lot of work to do before they can prove that tracking stocks can work for athletes.

By offering Mr. Davis $4 million in exchange for 10 percent of future earnings, Fantex has valued his future earnings at $40 million. But earning an additional $40 million is not necessarily an easy task, even for a star tight end or a Super Bowl contender.

And Mr. Davis, 30, is closer to the end of his career than the beginning. He is due to receive $9.05 million over the final two years of his current contract, but none of that money is guaranteed in the National Football League.

An injury could end his career in an instant, which is one reason Fantex warned potential investors that this tracking stock is "highly speculative and the securities involve a high degree of risk."

Kenneth Lehn, a finance professor at the University of Pittsburgh's Katz School of Business, said he is skeptical about the marketplace for athletes' future earnings.

By giving Mr. Davis $4 million up front, he said Fantex shareholders are essentially de-incentivizing his production. He bases that analysis on a study he conducted on Major League Baseball contracts in the 1980s. …

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