Buying Randy Newsom

RSI wants to sell shares in professional athletes. So far it has only one: Randy Newsom. (HT Marginal Revolution)

Here’s the summary:

Real Sports Investments (RSI) is the only place where you can invest in professional athletes. Owning shares will entitle owners to a percentage of a professional athlete's major league salary. Investing in a player is similar to investing in a company. If the company makes money, the investors get paid in the form of a dividend. If an athlete you own shares in makes it to the big leagues, then you will be paid a percentage of his contract. Investors can also trade their shares to other willing buyers and sellers via this website. Shares will increase or decrease in value based on the athlete's future earning potential and supply and demand. Browse our site to learn more about the RSI program.

Here’s more details:

• RSI is negotiating with other athletes. “A diversified portfolio of players could lead to higher returns and lower risk.” (Get rich: buy a whole infield.)
• The players [i.e., Newsom] have entered into contracts, which RSI will enforce.
• Players will give shareholders a portion of their salaries and bonuses when they get to the majors.
• Share prices reflect players’ earnings potential.
• Players only sell 20% of their future income. So they have some skin in the game, so to speak.
• No investor can buy more than 5% of any player. No slavery here.

My colleague Christine Hurt, whose post on this popped up while I was writing this, says the website claims the contract is not a “security.” But here’s what the website actually says:

Does this fall under the regulation of the SEC? Not all offerings of securities must be registered with the Commission.

The website also says:

• “Why would I ever play fantasy sports again when I can invest in the real thing? I do not know.”
• “Investing in a player is similar to investing in a company.”
• There is considerable risk to investing in a professional athlete. If the athlete does not play a day in the top league of his sport, there will be no return. But with great risk comes great reward. If you can pick which player does make it big, then you will be rewarded with a handsome return in the form of a steady stream of cash.

So readers (including my securities regulation students): is this a "security"?

Comments

[Ted]

I was talking about this at AEI this morning. Seems pretty clearly a "security" to me. An
investment of money in a common enterprise with the expectation
of profits to come solely from the efforts of others. Whether it falls within an exemption is a technical matter beyond my off-the-cuff expertise, but even Rule 251 has some registration requirements.

[Fat Man]

"Investing in a player is similar to investing in a company. If the company makes money, the investors get paid in the form of a dividend."

They said it.

Second: Orange Tree. Athlete. What is the difference?

[Bullhead]

I saw Mr. Newsom (he is part owner of RSI) present this earlier this week. He said that they've had the scheme carefully worked over by A-list lawyers and I believe him. The basic contractual arraingement is not original, it's been standard practice in some other professional sports, he gave golf as an example, for some time. RSI's innovation is applying it to team sports where the althete gets a salary rather than prize money. Ultimately, a security is what the SEC says it is, and there is precedent for them passing on this.

[rbtroj]

I'll confess to not reading further into this, but my gut reaction is: why would a professional athlete need my investment? He/she has is a professional and so has clearly succeeded in their "business". A company sells shares ostensibly to raise capital in order to grow/build. It seems to me that, as a "business", the professional athlete has already passed this point. I must have missed the point in skipping the details. An intriguing idea anyway.

[in the minors]

rbtroj - you are correct in that the player is a "professional", but has not necessarily "succeeded." The comparison to a company raising captial doesn't really equate to a minor league ball player though. From the way I see it, career minor leaguers make far less money than those who make it to the majors. Once a player makes the jump, so to speak, they have "succeeded." In their first contract year, minor leaguers can expect to earn $1,100/month maximum. This pales in comparison to the MLB league minimum salary of $390,000. A player who gets your investment now is basically taking a loan from you to be paid out on the promise of future gains. For many players, the extra money now is well worth X% of what they will make if/when they get called up to the majors.

[Dom from NYCity]

i'm an instituional buy side trader for an asset mgr in NYC- great concept- one problem i see is the PRIMIER minor leaguers being reluctant to give up a % of their future (these players usually recieve a sizeable bonus when drafted and are represented by top agents)- meanwhile the public will be reluctant to invest in marginal players whose chance of making the show are very small- the public investor demand will be to buy shares in the top minor leaguers they read about in Baseball America's Prospect
Report, etc., so the key is to get these guys on board- say a top prospect creates a security backed by 20% of future earnings and sells that to RealSports, who then sells half that(10%)to public investors- if the prospect makes it big, his 10% of his own stock will appreciate and make up for the "loss" of earnings due to selling the 10% to the public- a liquid secondary market is crucial with market makers willing to trade their own capital, etc. - i would love to talk more to anyone interested in or connected with this venture