Be ready if more athletes jump on the IPO train
OK, I promise — this is the last time I'll write about the Arian Foster IPO for at least a month.
In case you missed it, or #ICYMI if you prefer, the Houston Texans running back took $10 million to sell off 20 percent of his future earnings to new investment company Fantex. The company then allows people to invest in those future earnings with a current price of $10 per share.
I scoured the professional sports leagues and came up with some other players who would make wildly interesting test cases, under the following guidelines:
* They have to be relatively young. No one is investing in 36-year-old Tom Brady’s future earnings, because he could retire without signing another contract.
* Their future earnings have to be somewhat in doubt, whether it’s because of injury history, performance anomalies, bad team situations, whatever.
* The word “retire” has never truly been associated with that player.
* They have to be at least a year away from another contract. “Hi, New York Yankees second baseman Robinson Cano? It’s Fantex. Yeah, that Fantex. Anyway, we know you’re about to sign a mega-deal this offseason, and we’d like to offer you $10 million to give us 20 percent of that con— ... Hello? Hellooooo? Mr. Cano, are you there?”
So here are three great hypothetical cases. Feel free to add some more in the comments:
MLB: Jim Johnson, P, Baltimore Orioles
Closers are the running backs of baseball. Disposable and, ideally, cheap. So when Johnson hits the open market after the 2014 season, how will teams view him? As the man who led the majors in saves each of the last two years? Or the one that blew eight saves in 2013 and looked rather pedestrian? He’d be 31 when he signs his next contract at a time when baseball executives and stat-heads debate the value of a closer.
VERDICT: Buy. Someone is going to be desperate enough — and, incidentally, dumb enough — to give him a three-year, $35 million contract. Gambling on the stupidity of baseball franchises is usually a pretty safe bet.
NBA: LaMarcus Aldridge, PF, Portland Trailblazers
In the summer of 2015, Aldridge will turn 30 and be looking for his next (last?) contract. For the two seasons before that, he’ll have averaged $14.65 million per year. He’s been moderately durable, playing 74 (of 82) games or more in five of the last six years, He averaged a career-high 9.1 rebounds to go with 21.1 points per game in 2012-13. But is an NBA team crazy enough to give a guy too small to play center and too slow to play power forward a five-year, $85 million contract taking him to 35 years old? League history says yes. Logic says no.
VERDICT: League history wins. Buy.
PGA Tour: Lee Westwood
The wild card of all sports leagues, because earnings often are based on how many tournaments you play, not how good you necessarily are. You also can play professionally for much longer, well into your 40s (Phil Mickelson turns 44 in June). So what do you do with a guy like Westwood, who turned 40 in April, played in only 16 PGA events this year, suffered through two different injuries in 2013 but is still in the top 25 of the World Golf Rankings and made $2.1 million?
VERDICT: Pass. Golfers make money in endorsements. You wouldn’t get any of that if you invested in his tour earnings.