SAN FRANCISCO — Professional athletes frequently get traded to other teams, but San Francisco 49ers tight end Vernon Davis is about to be the first ever to be traded like a stock.
Davis, an eight-year veteran of the National Football League, is serving as the litmus test for a risky concept: Whether sports stars should be treated like public companies, whose moneymaking potential can be bought and sold on an exchange by ordinary investors. San Francisco-based Fantex Inc. plans to operate the exchange and will orchestrate Davis’ initial public offering of stock after getting regulatory approval from the Securities and Exchange Commission.
The deal requires Fantex to pay Davis $4 million in exchange for 10 percent of his future earnings, including some of his off-field income. To cover Davis’ fee, Fantex seeks to sell 421,100 shares of stock at $10 apiece. The company hopes to complete the initial public offering in the next few weeks.
Davis, 30, will need to make more than $40 million just to deliver a small return on Fantex’s investment in him.
Fantex is counting on him to earn most of that money after his current contract with the 49ers expires in 2015. By then, Davis will be at an age when it might be difficult for him to land another big payday, although there are precedents for it. That means the deal could prove to be more profitable for Davis than the investors who buy the Fantex stock tracking his performance.
IPO expert Francis Gaskins is advising investors to stay on the sidelines. Fantex’s concept “just sounds like something that P.T. Barnum would try to sell,” said Gaskins, president of IPOdesktop.com. “I don’t think it’s going to work out.”
Fantex CEO Buck French has been trying to overcome skepticism while traveling across the country for pre-IPO meetings that began in early February. The journey included traveling to 12 cities in two weeks last month on an old bus that retired NFL announcer John Madden used to ride to get to his broadcasting assignments.
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