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Fantex deals could create SEC problems for players

Davis AP

For the players that decide to take a lump-sum of money from Fantex, the cost includes a piece of future earnings indefinitely — and a potential lifetime of headaches.

We’ve previously mentioned the concerns that can arise if “investors” in a given player’s stock aren’t happy with the outcome of the investment, along with the ever-present temptation to generate off-the-books money that isn’t shared with investors.  Which could lead to tax problems if revenue from, for example, an autograph signing ends up being squirreled away and later discovered by the IRS.

The federal Securities and Exchange Commission also creates potential risk for the player, as demonstrated by interviews Davis gave Wednesday in connection with the Fantex product.  Case in point — Wednesday was the first day Davis could talk publicly about the stock offering, based on SEC rules regarding so-called “quiet periods.”  If he’d inadvertently talked about the Fantex deal prior to Wednesday, he would have been subject to SEC scrutiny.

An interview with CNBC, embedded in an item on the subject from the New York Times, demonstrates another potential problem for players doing deals with Fantex:  Insider trading.

What if Davis is negotiating a new contract with the 49ers and tells a friend about it, and the friend buys some Vernon Davis stock before it inevitably spikes?  (What if that friend is a teammate?  Or Phil Mickelson?  Allegedly?)

Also, Fantex CEO Buck French explained on CNBC that Davis has a duty to disclose any “material injury” to Fantex, who in turn will disclose it to investors.  But what is a material injury?  And how will the 49ers feel about Davis providing his own injury reports?

If Davis guesses wrong about what he discloses, he could have a problem.

The bizarre realities of the Fantex business model already showed up Wednesday, via comments made by Davis regarding his boycott of OTA practices, reportedly in an effort to get a new contract.

“It’s not really about looking for the deal,” Davis explained on CNBC.  “Everything I do is in the best interest of building my brand.  I’m not really looking at it from a deal standpoint.  It’s just how can I use leverage and continue to build my brand.”

So he’s holding out to get a new contract not because he wants more money but because a new contract will build his brand?  That’s the kind of goofy quote that will emerge when a player acquires a duty to build his brand in the hopes of generating money that will partially go to investors.

And if his only concern is building his brand, why didn’t Davis accept the invitation to appear on Dancing With The Stars?

None of it makes any sense, and the decision by any player to take a chunk of money up front in exchange for unlimited earnings for the easy of his life makes even less sense to us than it did before.  Already, Davis reportedly has surrendered $400,000 back to Fantex via “brand” earnings in exchange for the $4 million he got up front.  His stock remains at the same price it had when the shares opened — $10.00.

I probably shouldn’t complain.  Eventually, the arrest, prosecution, and potential conviction of a Fantex player, his agent, and/or various family members and friends for SEC violations would give us plenty of stuff to write about.

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18 Responses to “Fantex deals could create SEC problems for players”
  1. asw1028 says: Jun 4, 2014 11:05 PM

    I wonder what he did with the $4 million he got up front.

  2. teal379 says: Jun 4, 2014 11:09 PM

    Given the general level of stupid things we see athletes do and say in their short NFL careers, is it really surprising that they’d might not understand all the implications of becoming a “stock” to be traded about and all that entails ?

    Players honestly expect us to believe they’re taking female infertility drugs and that’s why they popped positive, they’ll also expect us to believe when the insider trading charges come (and they will eventually) that is was all a misunderstanding.

    Players are going to go from quoting Tony Montana to Gordon Gekko and not understand either one.

    The entire thing will not end well for just about everyone.

  3. nickster31 says: Jun 4, 2014 11:23 PM

    With the Kaepernick contract, if stock goes on sale for Luck, Wilson or RG3, watch how quick it sells.

  4. ketch20too says: Jun 4, 2014 11:32 PM

    Only barely less stupid than Pet Rocks…and look how well those sold.

  5. kd75 says: Jun 5, 2014 12:04 AM

    SEC Rule 144A would avoid any of these complications…

  6. adeedothatswho says: Jun 5, 2014 12:21 AM

    So he’s paying taxed, AND Faxtex? He’s added an extra lifelong tax layer. What an awful idea. He’d have been better off taking out a $4m loan.

  7. thestrategyexpert says: Jun 5, 2014 12:27 AM

    There’s some ways, then there’s the legal and clean way. Yeah, we’re talkin’ about cash money.

  8. deezrutz says: Jun 5, 2014 12:45 AM

    Personally, I think it’s a train wreck waiting to happen. But if the NFL and the teams can do all kinds of wacky crap the fans or players hate to milk out another dollar then it’s reasonable that the players would do the same.

  9. longsufferingkcfan says: Jun 5, 2014 1:34 AM

    Fantex is an interesting idea that will probably never work in reality. One snag is the players that have signed up. While Vernon Davis and Arian Foster are great players and still have some good football left in them, they are closer to the end than the beginning. I would be much more interested in what would happen if you could buy stock in riskier players at the beginning of their careers, such as Johnny Manziel or Blake Bortles. Or a late round pick with a much cheaper price. Imagine if you bought stock in Tom Brady right after he was drafted.

  10. campcouch says: Jun 5, 2014 2:43 AM

    Sorry blind enthusiasts,but this won’t end well. You want to make money and live even more comfortably? Don’t buy a gull-wing Bentley or a 3 story 80,000 foot home for single living. Take some business advice from John Elway and Troy Vincent instead.

  11. purplengold says: Jun 5, 2014 6:42 AM

    Our financial system is a mess – from the private corporation that controls our money (The Fed) to the limit-testing children that think of creative ways to take money from a zero-sum game like the stock market. Sooner or later it comes out of all of our pockets.

  12. whatjusthapped says: Jun 5, 2014 8:34 AM

    Is like any other stock where you can sell short banking on a player’s decline? If so, sign me up for Teddy “Small Hands” Bridgewater.

  13. whatjusthapped says: Jun 5, 2014 8:34 AM

    Is like any other stock where you can sell short banking on a player’s decline? If so, sign me up for Teddy “Small Hands” Bridgewater.

  14. mljohns says: Jun 5, 2014 8:38 AM

    He just needs to give the $4 million back and walk away from this stupidity, if at all possible. If he’s one of the lucky few players that strike gold after a successful playing career, would he REALLY want to give up 10% of his earnings? His agent or whoever advised him to do this is a moron.

  15. 4thqtrsaint says: Jun 5, 2014 8:49 AM

    I’m just sick of “building my brand”. You’re a player, not a shoe company. Your “brand” is over the day you retire from football.

  16. mackcarrington says: Jun 5, 2014 4:01 PM

    I saw Davis on SportsCenter on Wednesday. He is so full of crap that it’s spilling out of his mouth.

  17. jayblack073 says: Jun 6, 2014 1:37 PM

    I love Vernon Davis

    -A Seahawks fan

  18. rskinzluva says: Jun 8, 2014 1:05 AM

    Note to all, when someone acts like they know it all, they know nothing. V. Davis, exhibit A. If he was all about building “Brand”, he would jump at every good chance to show himself off. Instead, he’s a no show and doesn’t do “Dancing w/the Stars”. How long before arrest? Try next time he opens mouth, w/o a lawyer present. He really needs Singletary bad, not Harbaugh.

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