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1 Sports Investment Better Than Arian Foster

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If betting on a sports game doesn't satisfy your appetite for risk and fandom, your chance to greatly increase your financial exposure to an inordinate amount of sports-related risk might be around the corner. In one of the stranger investment opportunities, Fantex Brokerage Services has purchased a stake in a professional football player's future income, and will sell shares of that stake to the public.

If such an investment piques your interest, read on. And then, as you would with any other professional sport, just watch from the sidelines -- and take a look at real investing opportunities elsewhere in the sector.

The play
Fantex made a deal with Houston Texans running back Arian Foster -- $10 million for 20% of all his future income, which includes contracts and endorsements. Foster currently has a five-year, $43.5 million contract with the Texans that was signed in 2012. And it's estimated that only $21 million of that contract remains to be paid. So for investors, this contract money -- likely the safest source of his income -- amounts to less than half of what a share will likely be purchased for.

The risks
The risks associated with such an investment don't seem to be worth the cost. From the registration statement with the SEC, the risks relating to Arian Foster, not even taking into account the risks of Fantex, include:

  • The popularity of Foster within the NFL;
  • Foster's ability to enter into another multi-year contract after his current one runs out;
  • The possibility that Foster will suffer an injury or illness;
  • Any future negative publicity;
  • An NFL work stoppage; and
  • Changes in NFL rules or popularity.

With each play putting Foster at risk of a torn ligament, Foster's lack of diversification in terms of future earning power makes any solid investment case in him extremely tenuous.

A different sports bet
Instead of taking on the risk of one player, you can mitigate many of the player-specific risks through the diversification of buying a whole team. Or, in the case of The Madison Square Garden (NYSE: MSG  ) , at least three teams: the New York Rangers, New York Knicks, and New York Liberty. Madison Square Garden was recently called out at the Value Investing Congress, with the case made that it could be worth 50% more than its price of around $57. 

This case depends on the assumption that New York City's calls to move the arena won't come to fruition. The city voted this summer to extend its operating permit for 10 years instead of in perpetuity. However, forcing the arena to move would be expensive for the city, and a lot can change in 10 years. Stockholders could realize gains long before the market anticipates moving costs. With the company's $300 million in free cash flow, double-digit margins, and family ownership incentivized to make the most of its personal investment and legacy, a dollar in this stock will likely go much further than a dollar in Arian Foster's future income.

Avoiding trick plays
While it might work out splendidly for Foster buyers, the risks of investing in one person's career, along with those of investing in the success of the tenuous start-up itself, outweigh any possible return. After all, the NFL is notoriously hard-hitting. Take the time you spend researching possible Foster endorsements and look into legitimate companies instead. Or at least attempt to invest in sports stars that play in much less injury-inducing conditions.

Size-advantage outside of sports
It's often assumed that small investors are at a great disadvantage relative to hedge fund managers and other institutional investors. But that's not always true. Bound by multibillion-dollar portfolios and strict bylaws that govern what they can and can't invest in, these giants are often prohibited from tapping the market's greatest stocks until it's too late -- that is, after the stocks have already shot into large-cap status. In this free report, our analysts identify one such stock that Warren Buffett himself wishes he could buy but is effectively restricted from doing so because of its size. To discover the identity of this stock instantly (and for free!), simply click here now.

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