Bears Fri Sep 19 2014

You Can Buy Alshon Jeffery Stock, but Should You?

By Chad Ruter

Portfolio diversification is important when it comes to managing risk with your investments. Launched in 2013, Fantex, Inc. is a company that allows you an opportunity buy and sell stock of an individual player -- legally. And Alshon Jeffery is their newest client. Fantex has reportedly agreed to buy 13 percent of Jeffery's "brand value" for a price of $8 million, appraising the talented third-year wide receiver around $61 million total.

The deal works like this: Jeffery gets the $8 million up front, which is nearly double the amount he's making from his four-year, $4.55 rookie contract with the Bears that isn't even fully guaranteed. In return, 13 percent of all future earnings, including contracts, sponsorships, paid appearances, or any other football-related money he receives during and after his NFL career has ended, goes to Fantex (including things like post-NFL television work related to football, etc).

It's a great deal for Jeffery. He can't begin negotiating a new deal with Bears until after this season, and the money not only makes him rich now, but acts as another insurance policy in case he gets hurt and can't play football anymore (a legitimate concern for all players). Sure, if he ends up making over $61 million in football-related money the rest of his life, the deal could end up being a bad investment for him, but that number doesn't account for inflation and the fact that money now is more valuable than the same amount two years in the future. He'd likely have to earn somewhere around $70 million for the deal to end up being a loser for him. For Jeffery, the reward is worth the minimal financial risk, especially if he's smart with his money.

Endorsements and post-football earnings are nearly impossible to predict because the financial terms aren't often made readily available. But the details of his future NFL contracts will become public knowledge no less than 48 hours after the ink is dry, so we can take a stab at what he might actually earn from playing in the league.

Let's say Jeffery is fully recovered from his hamstring injury, and goes on to have another Pro Bowl season. The Bears would obviously look to extend his contract past 2015, and for comparison purposes, we can look at recent deals signed by Percy Harvin, Victor Cruz, Brandon Marshall, Jordy Nelson and Larry Fitzgerald to gauge his next deal.

Harvin: 6/$64.25, $14.5 guaranteed, $10.7 AAV
Cruz: 5/$43.00, $15.6 guaranteed, $8.6 AAV
Marshall: 3/$30.00, $22.3 guaranteed, $10.0 AAV
Nelson: 4/$39.05, $11.5 guaranteed, $9.7 AAV
Fitzgerald: 7/$113.00, $27.0 guaranteed, $16.1 AAV

All salary data (in millions) per Spotrac.com.

Each guy is comparable for different reasons. Harvin and Cruz are both older than Jeffery will be when they signed their deals, but they're the closest when trying to pair age and production. Marshall's deal is listed because they play for the same team and will always be compared to one another, and it's hard to conceive the Bears giving a higher average annual value (AAV) to Jeffery. Nelson, though older, is nearly a statistical mirror when looking at their 2013 seasons (both dealing with backup QBs too). And despite the fact Fitzgerald is much older, and is widely considered the second best receiver in the league (but lacks a comparably talented QB), he and Jeffery share the same agent.

Since Jeffery will be 25 when this future deal is signed, it's safe to assume the Bears will want to go five or six years, similar to Harvin and Cruz. They'll want to keep his AAV near Nelson's because they're a match from a talent perspective (with different specialty skills, of course), and his guaranteed money will float below Marshall's because frankly, Marshall is the better player. Taking all that into account, let's predict a six-year, $58.8 million deal ($9.8 AAV) with $19 million guaranteed.

A deal like that would be a great start for Fantex, but their money, like Jeffery's, only comes in the form of signed paychecks. The Bears will structure the deal in a way where they can get out of it with minimal or no cap hits in the final year or two of the deal, and if Jeffery gets hurt or goes sour, the team would simply cut him without any financial obligation. Take the final two years away from that deal, and the overall value falls somewhere in the $40 million range. If the Bears weren't comfortable paying him those final two years, it's doubtful another team would be either. If he went on to make $10 million total over a few more seasons and then cut ties from football completely, that leaves Fantex at a loss (though admittedly not estimating endorsements and other football earnings during those six seasons).

So what's in it for them? Why would Fantex risk the $8 million up front without more of a guarantee of breaking even off Jeffrey's future earnings? That's where selling shares of the athlete comes in. Fantex will have an IPO for Jeffrey's shares (they'll offer them for $10) just like they have for Vernon Davis, E.J. Manuel, and soon, Mohamed Sanu. Investors will be able to buy and sell shares of the players with the hope that big future earnings will pay them off. The company will charge both the buyers and sellers for those transactions.

Fantex can also pay dividends (but isn't obligated) to people who own shares for those players, like they did last month for owners of Davis' stock. This is something that they'll have to do pretty consistently over the next few years to drive up interest, as the current share prices for both Davis' and Manuel's stocks sit at $9.90 -- slightly below their IPO prices.

You can get in early on the buying and selling of individual player shares, but the market volatility that allows investors to make (and lose) significant amounts of cash just isn't there yet. If you buy stock for a guy before Fantex pays out a dividend, you can almost guarantee yourself to come out in the black if you sell immediately after. But that assumes Fantex pays a dividend (remember, they don't have to) and a buyer is willing to buy your shares thereafter. The demand for shares isn't there right now.

Football players have the most insecure contracts in professional sports, and it'll be interesting to see how these deals work out for both Fantex and the players. In the meantime, it's probably best to sit back and watch others buy and sell shares of individual guys, and just continue to play your weekly fantasy football games in hopes of striking it rich.