Wednesday, October 23, 2013

An NFL Running Back Demonstrates the True Dimension of the JOBS Act

An NFL  Running Back Demonstrates the True Dimension of the JOBS Act

The Jumpstart our Business Startups (JOBS) Act of 2012 is supposed to foster job creation and business formation.  The Act loosens the reporting and accounting standards for emerging growth companies.  I’ve written about the weakness of the act before.  See in particular, “We Need Acronym Reform: The Jobs Act (May 4, 2013)”. 
State To do List (2002)
One company has discovered that the JOBS Act is a wonderful pathway to fostering speculation.  A startup company called Fantex is taking advantage of the new standards by offering investors the right to own 20% of the earnings of Houston Texan running back Arian Foster.  Fantex isn’t yet issuing its own shares.  Rather it will offer a tracking stock call Fantex Series Arian Foster.  The tracking stock will enable investors to wager on whether Mr. Foster will earn more than $50 million during the course of his career. The offering is intended to raise $10.55 million.[1]  Ten million dollars will go to Mr. Foster, and $550,000 will go to Fantex in the form of commissions and fees.  Fantex is a specialized broker dealer that was founded to monetize the brand value of athletes.

Fantex plans to enter into agreements with other athletes and offer shares that track their earnings.  The idea is to exploit fan interest in fantasy sports and enable retail investors to gamble on the careers of professional athletes.  The prospectus lists page after page of risks associated with the Fantex start up, Mr. Foster’s career, and loose corporate governance associated with this deal.  The most egregious provision allows the board of Fantex to unilaterally convert shares of Arian Foster into shares of Fantex (stock that is yet to be issued to the public).

The prospectus makes clear that this scheme will be sold to retail investors.  While there are about 150 pages of details about this deal in the regulatory filing, not including financial statements, fans aren’t going to read this document.  They’ll plunk down their money and probably lose their investment.  It hasn’t taken long for the true character of the JOBS Act to surface.

By the way Arian Foster promptly injured his hamstring.


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