NEW YORK ( TheStreet) -- Fantex releases its first player IPO. Vernon Davis, the freakishly athletic tight end for the 49ers, is the first to do so. Here's how this works: Vernon Davis agrees to give Fantex investors 10% of future earnings and he receives $4 million right now. Fantex released $4.21 million worth of shares. So, not only have they already covered their cost to Davis, but they immediately pocketed $211,000 on this "IPO."
I spoke with one of their guys several months ago. I have to say, it is a great idea, but the problem is that they don't understand the industry well enough. Unless they could get each and every investor to sign an iron clad pre-nup this is fraught with terrible possibilities. If you are an active investor, you have probably seen numerous letters in the mail on behalf of other investors or a law firm that are suing a particular company. Just this year, I've received 20 plus. People sue companies all day, every day.
Essentially, Vernon Davis has just put himself up as a publicly traded company. Any misstep or misfortune has the possibility of litigation. Let's say Vernon made a bad decision to drink and drive, or let himself go a little in the offseason and gained 20 lbs. What's to stop the investors in this from pursuing litigation? I assure you, there are a million reasons for people to sue these days, valid or not.
Now remember that this is not an opinion on whether or not people should be able to sue him, just that it opens the door. Also remember that the $4 million is not free and clear. You can immediately take 10% off of that total for his agent/publicist that brought this idea to him. Then you can take 40% off the $3.6 million for taxes. He is now making this gamble for $2.16 million dollars. Remember, he has now promised 10% of all future earnings. Anything he makes above $20 million for the rest of his life is now a loss. He will have paid Fantex for the right to be taking all this risk.