Contemplating the possibility of an initial public offering for a professional athlete may seem more than a bit strange. A site named Fantex is potentially changing the way that athletes can monetize current and future royalties on income from their league salaries, product endorsements, and the like. It has been known for some time that NFL player Arian Foster of the Houston Texans has been involved in an initial public offering. Now there is word that the 49ers tight end Vernon Davis has decided to do the same.

An SEC filing this week shows that Vernon Davis become the second NFL player to sell a portion of the his future earnings and royalties to Fantex in exchange for cash now. Fantex is actually Fantex Brokerage Services. They show that the IPOs are real money and real dollars are there in convertible tracking stocks of these players. Davis will be paid $4 million up front for 10% of Davis’ salary, endorsements and post-career deals as long as the company can secure financing.

If you want to know how these IPOs will work, here are some stats on the page for Arian Foster. Some 1,550,000 shares are available at $10.00 per share. The royalties tracked include Foster’s player contract with the Texans. Product and apparel endorsements included are from Under Armour, Kroger, ProCamps, Gamebreaker Sports in sports memorabilia, Health Warrior in superfoods, Saatchi and Saatchi for auto commercials, Pro Player Merch in licensed apparel deals, and First Pick Productions for acting and performance fees. There are many excluded contracts as well.

While an initial public offering may be considered unique, it is not entirely the first time that celebrities have securitized future royalties for cash up front. Rock legend David Bowie sold music rights raising some $55 million back in the 1990s. Royalty Exchange has sold music royalty streams for various musicians, and royalties of past works have been big business for libraries of The Beatles, Elvis, Michael Jackson, Kurt Cobain, and many others. Future winnings for horses have even been securitized before.

What we have wondered about in looking at these tracking stocks is that having them as tracking stocks is a harder sell than buying royalties directly. In the Arian Foster deal it is roughly $10 million for 20% of a set of royalties that does not necessarily include every aspect of his future earnings. Simple math dictates that this comes to just over $50 million in player pay and specified royalties just as a breakeven, and that is before taking into consideration any discounting of the cash flows and considering that it is a tracking stock rather than the formal royalty stream.

The Arian Foster Fantex SEC Filing is here, and the risk factors are certainly unique. Here is what we would point out in the convertible tracking stock risks:

“Fantex Arian Foster is intended to track and reflect the separate economic performance of the brand contract that Fantex, Inc. has entered into with Arian Foster. However, holders of shares of Fantex Arian Foster will have no direct investment in that brand contract, associated brand, Arian Foster or Vernon Davis. Rather, an investment in Fantex Arian Foster would represent an ownership interest in Fantex, Inc. as a whole, which will expose holders to additional risks associated with any other tracking stock that Fantex, Inc. may establish and issue in the future.”

As with any investment, caveat emptor! We would double up on that warning in the mysterious case of human IPOs that are tracking stocks of professional athletes.

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