This new series is guest blogged by Doug Logan.
Doug Logan is an Adjunct Professor of Sports Management, at New York University.
He was the CEO for USATF from 2008 until September 2010.
He was also the CEO, President and Commissioner for Major League Soccer from 1995 to 1999. To read more about his background and involvement in Track, Soccer, Rugby and the Music industry, read my Freelap Friday Five Interview
This is his 23rd article. Click here for his entire series.
SHIN SPLINTS REDUX
Vito, from Vegas
One afternoon, in the early eighties, I was watching the sound check prior to concert at the arena that I managed in Illinois. I had contracted to promote a legendary chanteuse with her back-up singers, and I was anxious to watch her rehearse her art.
I received a message from my devoted secretary, Elsie Alderman, telling me that someone was waiting to see me in my office. As soon as I arrived I was greeted by a portly gentleman in a shiny suit. He extended a pudgy hand and introduced himself as “Vito, from Vegas”. I couldn’t help but notice the pinky ring and the bulge under his left armpit.
After we were done with the niceties, he then made the following demand. He said he had an arrangement with the artist [who I will not name because she is still alive and performing] and that he was there to collect his portion of the proceeds from the concert. He indicated that I was to pay him 50% of what she was due that evening. I believe the purchase price for the act was $40,000.00; I had paid $20,000.00 in advance; and, I was prepared to pay the $20,000.00 balance that evening when the performance began. So, “Vito, from Vegas” was expecting $10,000.00.
I asked him if he had anything in writing that memorialized this arrangement and he just smiled. He suggested I call the artist’s agent in New York, which I proceeded to do. After hemming and hawing a bit the agent then confessed that the artist had been beset by some “… financial setbacks…” and that she now had some “…equity partners…” to assist her and that she was obligated to repay this assistance with 25% of her earnings. He suggested I pay Vito what he was asking for.
Against my better judgment, I drafted a quick release, went to the dressing rooms and convinced the artist to execute it, paid dear Vito, and sent him on his way. I never heard back from any party involved in the transaction. Incidentally, the show was great!
I was reminded of this story when I read a piece in The New York Times last week about Houston Texans’ running back, Arian Foster. Foster, a premier performer in the NFL, has decided to sell the rights to his future earnings to the public in the form of a security similar to a Collateralized Mortgage Obligation [CMO]. He is selling $10.5M of these securities in denominations as small as $50 in return for 20% of his future earnings. He has about $21M left on his existing contract which takes him to age 30, and earns about $1.75M annually in endorsements. You would think this is a pretty safe investment.
Not really. It is fraught with risk. First, contracts in the NFL are not fully guaranteed. And, the exposure to career-ending injury exists at every practice, training session and game. [Just last Sunday, Foster aggravated a prior hamstring injury and had to leave a game his team ultimately lost 17-16 to the Kansas City Chiefs]. He plays in a market [Houston] where endorsement opportunities are limited. And, the likelihood of his signing a sizable contract at age 30 as a running back is dubious. Despite all of this, the firm that is handling this sale, Fantex Holdings, will probably sell the offering out. With the popularity of fantasy football and the allure of “owning” a piece of a player, there will be pent up demand for these types of investments.
There is other precedent for private investment in the earnings of celebrities. In 1997, the singer David Bowie sold $55M worth of bonds that were secured by the earnings of some of his intellectual property, namely 25 albums that included 287 songs. This deal, put together by Bowie’s business manager Bill Zysblat and investment banker David Pullman, has turned out to be less than stellar due to the depressed record-selling market. Bowie’s bonds are now rated as near junk. James Brown and the Isely Brothers also ventured into selling similar investments.
In sports, soccer players are notorious for selling a piece of their earnings early in their careers. It is not unusual for someone, under what is known as “Third Party Ownership”, to have the rights to a percentage of a futbolista’s income. The absurd exaggeration of this practice is the case of a West Ham United player, Carlos Tevez, who sold 100% of his earnings to an Iranian businessman, Kia Joorabchian. The Barclay’s Premier League has recently outlawed “Third Party Ownership” but the practice is rife in Spain, Portugal and South America.
My own Cuban grandfather, Mario Gonzalez de Mendoza, owned a piece of a Cuban boxer, Eligio Sardinas, who was known as Kid Chocolate. Sardinas won the World Junior Lightweight title on July 15th, 1931, when he KO’d the incumbent champ, Benny Boss, in seven rounds. Third party ownership of boxer’s rights has been ubiquitous through the years.
What is humorous is that we now have these over-educated MBAs from Wharton and Kellogg and Harvard running around selling these investments using their investment banking lingo. I am sure my old friend, “Vito from Vegas”, had no degree from any of these institutions. All he needed was his pinky ring and the bulge under his armpit.