Houston Running Back Arian Foster Is Going Public at the Perfect Time

Arian Foster, a running back for the Houston Texans, is a rarity in the NFL. He hustled his way to stardom through the practice squad after being spurned by every team in the draft, becoming one of the highest-paid athletes in the country while doing so. Foster seems rare in another way, as well. Now that he’s reached the top, he’s placing a multimillion dollar bet that he’s overvalued by the public. He’s probably right.

On Thursday the New York Times reported that Foster would be the first athlete to go public through a new company called Fantex Holdings. Fantex has established a market in which people can purchase and trade shares of athletes’ future earnings, in a sort of stock market for jocks. The company has persuaded regulators that this counts as investing, not gambling.

As of today, anyone over the age of 18 can buy stock in Foster, claiming a stake of his future earnings in increments as low as $50. Fantex is selling $10.5 million worth of stock, which represents 20 percent of Foster’s future earnings. The company takes $500,000 in fees and gives $10 million to Foster. To oversimplify a bit, Foster ends up ahead on the deal if he makes less than $50 million from this point on.

Foster has been having a pedestrian season so far, which could hurt interest a bit, but if he raises what he’s hoping to, he’s selling at a good time. The lion’s share of his income will come from his actual salary. Last year Foster signed a $43.5 million contract, $12.5 million of which came as a signing bonus (thus keeping it away from investors). According to Over the Cap, a website that analyzes NFL salaries, Foster has about $21 million left on his current salary, assuming he has already received three-quarters of his pay for 2013.

When that contract ends, Foster will be 30, which is past the expiration date for most NFL running backs. Steven Jackson, a dominating back who turned 30 this year, signed a 3-year, $12 million contract this year. But not all that money is guaranteed, and he’s already injured.

Foster, who’s charming and looks good in a cardigan, is also quite the sought-after pitchman. which is part of the reason he was the 39th highest-paid American athlete in 2012, according to Sports Illustrated. Foster earned $1.75 million in endorsements last year, which was more than any football player on the Sports Illustrated list whose last name wasn’t Brady or Manning. Again, this could likely be the high-water mark for him.

If Foster blows out a knee or suffers an abnormally serious pizza-related injury, he’s just bought himself a great insurance policy. But he’ll probably win even if his career goes miraculously well from here on, too. Let’s say Foster makes every last cent of his current salary and then signs a contract similar to Jackson’s and gets all of that money too. That would mean $33 million in salary. If Foster continues to make endorsements at the same rate he does now for the rest of his career—again, unlikely—he’ll get another $12.25 million. His total earnings would be $45.25 million. Foster could retire into civilian life well ahead, even if he just stacked that $10 million up in a warehouse and let his shady associates lie on it, Walter White-style. Any interest or investment income he makes is gravy.

If anything, the deal could be a disincentive for Foster to keep earning money as a talking head after his playing days. Also, Foster may have to stop grousing about fantasy football fans constantly asking him about his hamstring. Investors have a right to know.

Fantex was probably launched with Foster because he’s recognizable and people will be excited to say they’ve invested in him. (I may not have written this article if we were talking about  Spencer Lanning; you definitely wouldn’t read it.) Fantex is essentially hoping to ride the wave of fantasy football, which has always drawn its share of irrational investors.

The sharps would do better to place a bunch of longshot bets on undrafted running backs before they gain 5,000 yards and score 45 touchdowns. Those players are also much more likely to need the cash up front. Then Fantex can join long-lost cousins, people looking to start theme restaurants, and Bentley dealers on the long list of those bidding to separate athletes from their money before they realize what’s going on.

Before it's here, it's on the Bloomberg Terminal.