How Wall Street Views the Game of Football in 2020
The movement of Wall Street's athlete analysis can be traced back to 2013, when Fantex Brokerage Services announced plans to issue stock in Arian Foster, a running back with the NFL's Houston Texans. Dozens more players followed his lead, creating today's need for sell-side research on the subject. (All analyst names and opinions are hypothetical.)
Well folks, it's the halfway point of the 2020-21 NFL season, and with nearly half of the league's 1,700 players represented by publicly traded securities in some form, it's time to see what Wall Street is saying right now.
In particular, let's see three analysts' strategies to profit in this new age of football.
Mr. Lloyd has worked for three of the Big Four banks, and is a veteran in the cross-section between fantasy football and finance. Ever since Arian Foster's IPO, Lloyd has been finding new ways to analyze this space.
He's focused on the longer term. Here's what he had to say about his primary investment selection method:
"With regard to the number of players that have sold stakes of their brand values to create publicly tradable securities, even I'm surprised by the rate of adoption. We all laughed after Foster and Vernon Davis signed deals with Fantex back in 2013, but in what may be the most violent sport on the planet, it makes sense players want some sort of insurance.
Now, when selecting investments in this space, I tend to search for players that have sold a moderately small amount of their brand value to brokerages. They still have a lot of skin in the game, so to speak, and haven't 'sold out' the majority of their potential value in the form of stock. If a player has given more than 50% of his future football-related income to a firm, it stands to reason that issues of moral hazard are present. My sweet spot is 20%.
Think about it: If you're an NFL rookie and your brand value is estimated at $50 million, would you have any incentive to put your body on the line if a brokerage already guaranteed you $40 million of this value?
Of course not, because that's a brokerage-to-brand value ratio of 80%! We're bullish on players that still control most of the income they can potentially make over the rest of their NFL career."
Credit: Mike Morbeck, Flickr
Mr. Barker is a newer analyst in this space, and sees himself as more of a trader. His advice should be assessed with that in mind:
"Ol' Lloyd likes to look at ratios, and I give him credit -- his reasoning makes sense for long-term investors. For the shorter term, though, I'll be brief: I look at game-by-game stats.
While we used to pay attention to stuff like yards per carry and completion percentage, now we track high-value TV appearances per week. This is a proprietary statistic, but I'll generally say that we define a high-value appearance as one that is the result of either (a) a slow-motion replay, (b) a sideline shot, or (c) a touchdown celebration.
Obviously, the better players receive more TV closeups, but this data varies week to week. If someone like Aaron Rodgers, let's say, is playing a team with a terrible passing defense, we expect him to have more high-value appearances than a QB who is projected to struggle. Generally speaking, high-value appearances boost investors' perception of how much a player is worth. But traders beware, these perceptions vary wildly, and are prone to speculation.
Just last week, for example, superstar QB Johnny Manziel was set to face a Rams defense that's the worst in the league against the pass. Shares of his tracking stock boomed by 20% in the five days leading up to the weekend, but Manziel had a mediocre showing after injuring a finger in the first quarter. At the start of next Monday's trading, shares of Manziel's tracking stock subsequently lost most of the previous week's gains."
Mr. White, meanwhile, takes more of a qualitative viewpoint when recommending publicly traded NFL players to his clients. He's an independent analyst, and one of the best:
"All of the big shots on Wall Street are trying to parse the data a million different ways to discover the new, hot way to analyze NFL players. For me, I just stick to the basics. While you probably know I use traditional fantasy football metrics like analyst rankings and historical stats, I also like to look at post-game interview skills.
There are two reasons. First, an articulate football player is an endorsable football player, and we've seen rookies who demonstrate aptitude in post-game Q&A sessions develop into very marketable products down the road. Second, we believe that after a player has retired, he can extend his brand value by working as a TV broadcast analyst.
Personable guys like Deion Sanders, Warren Sapp, and Michael Irvin made the transition in the past, and we're very bullish on current veterans who are near retirement like Brandon Marshall, Clay Matthews, and Philip Rivers."
So there you have it. Three analysts, and three very different ways to analyze publicly traded NFL players. If you're a long-term investor, Ron White and Elliot Lloyd's strategies make sense, while shorter-term traders might want to try out Billy Barker's tactics. And, as required by player trading regulation, we remind you of the Barry Sanders Clause: Any athlete's past performance is no guarantee of future results on the football field or in the field of endorsements, so invest at your own risk.
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