New Sports Betting: Why I'd Buy Stock in Richard Sherman

If I could, I'd buy stock in Richard Sherman. The NFL's quintessential bad boy isn't a publicly traded security just yet, but if the Vernon Davis IPO is any indication, the day may come when investors can buy shares of the Seattle Seahawks cornerback's brand. Sherman's ability to combine a boisterous personality with dominant play has made him one of the most talked-about players in football. But that's not the only reason I think he'd be an attractive investment.

The blueprint
As I pointed out in my interview with Fantex earlier this week, there's a blueprint for evaluating athletes. It's sort of the same way an equity analyst evaluates a stock. While you won't see any P/E ratios here, most of the metrics are rooted in investment theory. The most important include: age, on-field and off-field earnings, social footprint, and intangibles.

So why would I invest in Richard Sherman? For three reasons.

Richard Sherman, #25 Seattle Seahawks. Image credit: Mark Samia, Flickr.

1. He's young and dominant
Sherman has the most interceptions (20) of any active corner before his 26th birthday. His two first-team All-Pro selections already rank above many established peers, and most stats point to Sherman being a top five shutdown corner, with some naming him the best.

Sherman's role as one of the NFL's premier young players also bodes well for his investment prospects. See, companies like Fantex pay athletes for a minority stake in their brand value -- essentially the sum of expected on-field plus off-field earnings -- which is then financed through the issuance of stock that you or I can hold. If you're confident a player will improve his brand value over time, you should buy. If not, stay away. 

Like a new tech stock with an astronomical P/E ratio, investors should theoretically trade younger athletes at a higher multiple of their brand value. Let's use a hypothetical example.

Metrics 

Player   A

Player B
Age 27 35
Annual Contract $5 million $5 million
Annual Endorsements $2 million $2 million
Twitter Followers 1 million 1 million
Quality of Intangibles* High High
Future Brand Value $40 million $40 million 
Market Cap $80 million $60 million
Price-to-Brand Value Ratio 2 1.5

*Intangibles can be interview ability, personality, and any other measures of general likability.

Here, Player A has the same on-field and off-field earnings as Player B, and their social footprints, intangibles, and future brand values are identical. Assuming both will retire at the same age, the younger Player A has more career time than Player B to improve his underlying brand value, thus giving more upside to his stock.

Until there's a proven market for athletes, there's no way to know just how much more investors will prefer younger players, but their Price-to-Brand Value ratios -- let's call it P/BV -- should be higher than their older peers.

This is one reason I'd like to hold Richard Sherman as a stock within the next few years. No matter what underlying brand value Fantex or a company like it assigns him, he has a lot of time to improve it, whether that's through a richer contract or more endorsements. 

2. He's endorsable
After his latest rant following the Seahawks' win over San Francisco on Jan. 19, CNNMoney reported that his agent, Jamie Fritz, thinks Sherman's annual endorsements could increase tenfold to $5 million because of the exposure. As Fritz put it, there are "new players who have come to the table who are starting the conversation," explaining that the outburst made Sherman "more likable." 

If that figure comes to fruition, it would make Sherman the fifth highest paid football player from endorsements, below only Peyton Manning ($12 million), Drew Brees ($11 million), Tom Brady ($7 million), and Aaron Rodgers ($6 million) according to Forbes. In fact, with $5 million a year, Sherman would join a level of marketability not attained by a defender since Ray Lewis, who before he retired last year had major deals with Electronic Arts (NASDAQ: EA  ) , Under Armour (NYSE: UA  ) , and Visa (NYSE: V  ) . One company that could make Sherman rich is Nike (NYSE: NKE  ) , which already featured him in a commercial with Kobe Bryant a couple weeks ago.

As Eric Bleeker discussed earlier this week, Sherman is already the only defender in the NFL's top 10 in jersey sales, and post-rant, his number of followers on Twitter (NYSE: TWTR  ) "more than doubled," and are now "82% more...than Darelle Revis, the highest-paid cornerback in football." 

Fantex CEO Buck French told me that social media followers is one proxy his company uses to measure an athlete's marketability, so by that metric, Sherman is now the most marketable cornerback in the NFL.

Active NFL Corners
Player Twitter Followers
Richard Sherman 736,000
Chris Culliver 437,000
Darrelle Revis 384,000

Source: Twitter.

3. He's set for a mammoth contract
But that's not all. The other thing that's very attractive about Sherman's brand is he's due for a giant payday when he becomes a free agent in 2015, if the Seahawks don't sign him to an extension before then. The NFL's franchise tag requirement for corners hovers around $11 million, and Spotrac estimates that a long-term contract could net him as much as $15 million per season. A deal in this range would make him the NFL's second highest paid corner, slightly behind Darrelle Revis.

The future
A new contract, more endorsements, and youth are the main reasons I'd invest in a publicly traded Richard Sherman, but don't forget about his intangibles. Unlike most other top tier corners in football today, Sherman is flamboyant, personable, and unafraid to speak his mind, much in the same way Deion Sanders was in his heyday.

If Sherman shares do hit the market in a few years, I'd expect his brand value to be estimated over $100 million based on his on-field contract alone. Sponsorships could boost this figure, and the earlier his IPO, the better from a Price-to-Brand Value standpoint.

Athletes being traded as stocks is a new phenomenon, and there's no way to know if these theories will hold true, but if they do, it might not be a bad idea to use them to craft a portfolio of top players' brands.

Still, don't forget that football is arguably the most violent sport on the planet, so there's obvious risk of injury. I wouldn't use this strategy to save for my retirement just yet. After all, remember the Barry Sanders Clause (hey, it could exist in the future): Any athlete's past performance is no guarantee of future results, so invest at your own risk.

The next step
Want to figure out how to set up your financial future while you wait for shares of Sherman to hit the market? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you what you need to get started, and even gives you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.


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