This week Neil Calloway looks at the possibility of owning shares in Hollywood stars…
Have you heard of Fantex? Unless you’re a fan of American Football or the financial markets, or both, the chances are you haven’t.
That may be about to change, however. Fantex was set up about a year ago, enabling people to buy shares in professional athletes in the US. The player gets a one time lump sum from the company, and people then buy shares in that star in return for a chunk of their future earnings. The shares then increase and decrease in relation to how well the athlete is doing at the time.
Recently, there have been reports that Fantex are moving into Hollywood, and soon you may be able to buy stock in your favourite movie stars. Sounds good, right? If they do a deal with Daniel Craig I’d certainly buy a Bond bond. Crowdfunding of movies seems to be in the early stages of success, giving people the chance to feel part of a project, so why not give them the chance to feel part of their favourite star? Before you swap your original mint condition, still boxed Star Wars toys for a share of The Rock, read the small print and consider what might happen to your cash.
All share deals, as investors are always warned, can go down as well as up, and this is surely doubly true when your asset is a human being rather than a company; the football player who was due to be the first person floated by Fantex got injured before people could buy shares in him and the deal was called off; though this is unlikely to happen with an actor, they can still suffer a career calamity and come a cropper unexpectedly.
Imagine if, at some point in the mid to late nineties, you’d bought stock in Matthew McConaughey. You’d have probably given up on them and sold them at a huge loss in the wake of the financial crisis ten years later, only to see them sky rocket shortly afterwards. A similar thing would have occurred had you bought a share of Robert Downey Jr. – who has been mentioned in connection with the scheme – in the wake of his Oscar nominated turn in Chaplin; after he’d spent time in rehab and jail, your accountant would be screaming at you to cut your losses and invest in something a little more stable. One huge franchise later, you’d be kicking yourself and looking for a new accountant. Imagine buying shares in the future earnings of the woman who won Best Supporting Actress at the Academy Awards in 2004. You’d think they would be a solid investment, but what would your Renée Zellweger shares be worth now? The fact is few industries are precarious and as unpredictable as Hollywood, with success fleeting and unlikely to last for all but the biggest stars.
Perhaps the best reason not to invest in this is because the star is actually betting against themselves making more money than the lump sum they have been paid; by definition, if they believed their future earnings would be bigger than the lump sum they are given in exchange for the share issue, then they would not forfeit it in turn for a lump sum up front (unless, of course, they had gambling debts or drug dealers to pay off; which is entirely plausible in Hollywood). If the actor doesn’t believe in their ability to earn money, preferring a quick payoff to long term earnings, why would anyone want to invest in them?
This may sound familiar to some of you; in 1997 David Bowie raised $55 million by issuing bonds against the future earnings from his back catalogue. This cash enabled him to buy back the rights to songs he’d lost. The trouble is, of course, late 1990s Bowie was a long way from Bowie at his peak; again, if he believed he’d actually earn $55 million from his back catalogue, surely he’d have just waited for the money to roll in. Despite the publicity that surrounded the uniqueness of the deal, by 2004 – someway short of the ten year lifespan of the bond – they were declared to be only one level above “junk” status; if they were any lower, Leonardo DiCaprio would be selling them in The Wolf of Wall Street.
I’d like to see Fantex follow through with their talk of expanding their portfolio to include actors; I might even invest myself, but I’m not sure I’d be expecting a huge return on my money.
Neil Calloway is a pub quiz extraordinaire and Top Gun obsessive. Check back here every Sunday for future installments.
https://youtu.be/pnc360pUDRI?list=PL18yMRIfoszFLSgML6ddazw180SXMvMz5
