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.