Sunday, 20 October 2013

IPO yourself !

Initial Placement Offer (IPO), is the first sale of shares in a company to the public - remember Facebook's IPO and now coming on, Twitter's IPO. It is when successful entrepreneurs who have built a good business cash their millions, along with those who invested early in their company. We've heard of company IPOs. But have you heard of an individual IPOing himself ! That's is what is about to happen - where else ? in the US of A.

An American Football player (remember this is American football; not soccer), is trying to do just that.  Arian Foster is a running back with the Houston Texans, a NFL team. NFL players are paid a fair few millions - being considered more valuable than surgeons or distinguished professors (Profs J and Khe please note !). Now football players are better known for exercising their brawn and are not necessarily top notch in the brains department. Enter financial advisers, brokers, agents, managers and all sorts  who want to touch and feel all that money. Being very bright, they cook up all sorts of ingenious ideas and schemes. The latest is to IPO yourself !

This is how it works, A company has been formed whose only business is the income streams associated with Arian Foster.  They are issuing 20% of the shares of this company for $10 m. He already has a $23.5 million contract with the Houston Texans. In addition he may get endorsement deals and after he retires, hopefully some broadcasting deals. Investors can get a 20% share of all this. If you believe Foster is a huge star, this will be a nice worthwhile investment. If you believe he is a dud, then well .........

This deal sounds strange, but actually is a fairly straightforward affair. The future income flows of a NFL Player can probably be predicted with greater certainty than those of a company. For starters he has a guaranteed $ 23.5 m contract - so a $4m share at 20% is assured. Knowledgeable sports buffs (like yours truly !) can make informed predictions of the future for players. So, this can be an easier evaluation than many others.

I should admit is that this is not the first instance of somebody doing this. The British rock star David Bowie famously did this a while ago. Some other, less famous people have also attempted it. What is strange is all the "innovation" happening here. Surely the best brains in the land can do more productive things than dreaming of an IPO for a player. But then most of the world's innovation is going into areas such as this and not into what society might consider as more useful areas. 

The person most vulnerable in all this is Arian Foster himself. Once he signs this deal, he has virtually pledged his soul to the financial whiz kids. He cannot make any decision anymore regarding anything. If he wants to switch teams, he has to take the approval of the shareholders. If he wants to retire - then too. If he gets injured, he will be cursed and told to get on to the field even if he hobbles on one leg. They will make him do all sorts of endorsements or whatever to earn more money. They might force him to play off season in Matabeleland. And well, after retirement, he has to keep slogging, finding ways to earn more money. Is all this worth a "mere" $10 m.

 Prof Khe might want to to consider IPOing himself too. He can become an instant millionaire. This blogger is prepared to "invest" 24 million manat for a 10% stake in him  !!


The Million Miler said...

Wow, that's thinking out of the box. Honestly I'll punt on Adrian rather than on twitter or facebook. At least there is a known revenue stream for a while with Adrian Foster!

Ramesh said...

@Kiwi - That is certainly true - more predictability there, but if you know Arian Foster, not much upside either. Now, if Israel Dagg or Aaron Cruden were to come available ........

Anonymous said...

Companies go in for IPOs to raise funds and to invest. Here what is the requirement for the funds? If i understand this, the only business of the company is the sportsman.
Or does the company do more than just manage a sportsman.
Also suppose the sportsman earns an income.. how is it taxed? In the hands of the company or the individual?

Sriram Khé said...

Forget all the IPO accounting magic tricks. To me, this is nothing but yet another manifestation of individuals creating a brand out of themselves. Let me see if I can think out clearly here.

We are rapidly transitioning into a world in which the individual is not really a team player anymore--I mean team and player more than in sports alone. Paul Krugman is a brand by himself. Andrew Sullivan is the same way. Glenn Greenwald (of the Snowden leaks fame) is going that route. Commentators and journalists used to be part of a a team, but that model is being rapidly replaced. To some extent, Oprah and Martha Stewart were the early pioneers of this approach. Now, it has reached sports.

Perhaps this is better in a way. Think about the old movie studio system--in that one, actors couldn't truly sell their brand because the studio appropriated almost all the money they made of the star. The studio held all the star's shares, so to speak.Before the concept of free agency, sports stars too could not sell themselves as a brand.

All these are such a departure from the old ways of living when society was the ultimate shareholder.

I don't ever want to be in the guy's (football) shoes--it is one hell of a Faustian bargain. Even now, at NFL camps, they check a draftee from head to toe, more than how they examine horses at the village market. I can imagine this guy to be severely restricted in terms of the foods he can eat, the risks he can take, ... way more a prisoner than Djokovic (

I didn't intend to ramble on for this long ... the words simply flowed out and wrote themselves ;) If you like all these and want to invest in me, email me and I will let you know how to deposit the money in my account ;)

Ramesh said...

@Sriram - That's a brilliant insight. Yes, it is very much a manifestation of the rampant individualism. In a team game like the NFL, a running back is nothing but for the support from the team.

And yes, it is one hell of a Faustian bargain. Its even worse than the Djokovic example - he goes through that regime out of choice and on the odd day, he can slack if he wishes. No chance a guy who is in the grip of shareholders

Ramesh said...

@Exkalibur - The IPO is not for raising funds to invest - As in the case of Facebook and Twitter, who don't need the money either, it is to encash some wealth. Foster gets $10m in the bank right now in exchange for a promise to pay 20% of his future earnings. He'll get the money and pay the taxes too.

Sandhya Sriram said...

every one lives in a world of insecurity. One has to be really insecure about his future, to enter into such a golden handcuff.

I think, we must Wait for Phase II. The final smart cookie who would buys the shares before he goes bust will obviously lose the money and sue him for much more than the 10 Mln he is gonna make. just a matter of time.

Ramesh said...

@Sandhya - Yes, its crazy, isn't it ?

Sriram Khé said...

hey, passing this along to the blogger and to the commenters ;)

"The Age of Bullshit Investments Is Back!"

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