There has been a wave of new ventures to sell stakes in athletes’ future income, presented as an innovation that allows fans to buy stock in their favorite athlete and share in their success. The “invest in an athlete” angle appeals to the fan engagement of sports betting with the sheen of potentially winning on a big stock like getting Amazon at its IPO. But while the idea is new to sports, it’s been tried elsewhere, and experience suggests that sports may not have the easiest road ahead.
Investing in athletes takes the general form of giving an early career athlete funds, so they can buy equipment, pay trainers and generally advance their career. In return, the pro usually agrees to hand 9% or 10% of their income back to investors if they make it big.
“We’re going to find the next Patrick Mahomes or the next Tom Brady and help that person become the next Patrick Mahomes or Tom Brady by doing this,” Parker Graham, co-founder of recent start-up Vestible, said in a January Sportico interview,
Vestible is one of at least five recent funds that offer shares to retail investors in athletes’ future income. Vestible’s first SEC-approved offering is a cut of Denver Broncos LB Baron Browning’s NFL contracts. They’ve been joined by two other SEC-approved offerings from Finlete, which has a deal for Texas Rangers prospect Echedry Vargas, and Commonwealth Sports, which is currently selling income shares in two pro golfers. Also operating are Nordensa, a Romanian business that sells shares in soccer prospects, and Chisos Capital, which has used WeFunder campaigns to back at least one athlete, JP Woodward, a pitcher with the independent Staten Island FerryHawks. Big League Advance is best known for being the first fund to succeed with these deals, most notably with Fernando Tatis, Jr.
Such swaps of money now for payment later has been underway for longer in college education, where the financing is known as income sharing agreements (ISAs). The idea is much the same: Money goes to a student upfront to pay for college and in return the student pays back a percentage of their post-collegiate income. Experience from the idea in that sector suggests the regulatory and legal climate for these deals isn’t settled.
“The industry has been chilled greatly by the unwillingness of regulators to provide guidance beyond ‘so far, however it’s been done, it’s been done wrong,’” Jonathan Joshua, a New York attorney who has held multiple roles in ISA and student finance, said on a phone call. Joshua has worked as chief counsel of Vemo Education, a fintech that offered ISA services to universities, and as managing director at Sallie Mae, a publicly traded corporation which backs private student loans.
In education, ISAs have typically swapped lump sums now for anywhere from 1% to as high as 16% of future income—low rates with longer repayment terms for lower earning professions, and higher rates and much shorter terms for very high paying careers. In the college ISA realm, the deals typically have some guardrails, such as a minimum income needed to trigger a repayment, as well as a limited time frame and a lifetime repayment cap of some multiple of the initial lump sum.
One of the primary issues is that, in education, some regulators view ISAs not as shares in an enterprise, but as loans or an extension of credit. That’s an important distinction: If ISAs are loans, the Consumer Financial Protection Bureau could claim jurisdiction regardless of whether the SEC has approved the offerings—and the CFPB could be inclined to see the terms of athlete deals as usurous. After all, 10% of a pro league contract dwarfs the lump sum funds these deals have offered athletes.
However, certain legal structures, like if the athlete forms a shell business to pass through income, could sidestep the definition of a loan in regulator eyes. In short, it’s a muddled regulatory area that has seen inconsistencies in how ISAs are approved and enforced, according to Joshua, who has also consulted on ISA projects in other industries. “So far, nobody has come up with a way to do it that is definitely OK.”
There are also potential concerns over the fairness of professional and well-funded financiers striking deals with, in some cases, teenagers.
“You’ve got these sophisticated people with tons of data about prospects and then you have this 17-year-old kid who has no data about anything and just has a dream and need right now,” Joshua said. “At what point is it fair to enforce these things when there’s this potentially abusive informational mismatch? That was something that came up a lot in the education space.”
It’s not an insignificant point: ISAs have started falling out of favor since drawing the attention of regulators last decade. “The terms of an ISA contract can be predatory and dangerous,” one 2019 press release from Senator Elizabeth Warren’s office said.
Such conflict could become even more pronounced if colleges were to get into athlete ISAs, say, through crafting sophisticated NIL deals. In education, ISAs have been falling out of favor in part because of abuses by some institutions which saw ISAs as a way to make more money on their students. This practice drew ire from lawmakers, Joshua said. Plus, any clause that would require an athlete to play a sport, which could conceivably be part of an NIL deal, could get uncomfortably close to involuntary servitude.
Commonwealth, Finlete and Vestible each have some guardrails similar to education, such as no prepayment if the player doesn’t play in a major league. Each varies in the details, according to filings with the SEC—Commonwealth’s contracts include a repayment dollar cap, a repayment term of a few years and provide the athletes an option to buy themselves out of the contract. Finlete, on the other hand, will get a cut of Vargas’ top-level baseball income for 25 years after he makes a debut in MLB or the top leagues in Japan, Korea and Taiwan, with no apparent cap. Vestible’s deal for 1% of Browning’s NFL earnings means shares already will generate some income for investors since his 2024 contract is included. Terms used by Big League Advance aren’t disclosed while Chisos’ and Nordensa’s are unavailable.
Despite all the negatives, Joshua believes there are a lot of positives for ISAs as well. “It’s kind of like a loan with credit insurance. If I don’t know if I’m going to succeed, do I want to bear all the risk?” he said. Students, like athletes, tend to underestimate the risk their careers won’t go as envisioned. That makes an ISA with provisions for nonpayment a better option than traditional loans.
“Ultimately it makes sense to put appropriate guardrails and frameworks in place so that as a society we can keep the good and banish the bad to the fringes,” Joshua said.