John Elway, executive vice president of football operations for the Denver Broncos, sits on the board of Fantex Holdings, parent company of the new stock exchange offering shares of Houston Texans running back Arian Foster to the public. These shares are priced at $10 each, and the company is hoping to raise some $10 million in an IPO. Foster would receive that $10 million payment, in exchange for 20% of his future earnings flowing to Fantex. Investors can try to resell the stock for a profit on an exchange run by Fantex, and hope for a dividend. “Fantex represents a powerful new opportunity for professional athletes, and I wish it were available during my playing days,” Elway said in a statement after Fantex’s deal with Foster was announced last week.
But as a result of this arrangement, Elway, who has an equity stake in Fantex Holdings, stands to financially benefit if Foster, who plays for another NFL team, succeeds both on and off the field. Doesn’t this arrangement create a natural conflict of interest? The Broncos declined to comment about Elway’s stake in Fantex and directed TIME to contact his agent, Jeff Sperbeck. Sperbeck declined to comment, and said Elway would not be available for an interview. The NFL also declined to comment on Elway’s potential conflict of interest.
Fantex has not revealed the size of Elway’s equity stake in Fantex Holdings. It’s highly doubtful that Elway, in his position as a Broncos executive, would direct the Denver defense to let Foster rack up impressive statistics. Or even tell the defense to not hit him that hard. “His ownership position in Fantex Holdings is not enough relative to his total net worth, is my guess, that that would ever be contemplated,” says Buck French, co-founder and chief executive of Fantex. “We’ve never even — I couldn’t even conceive of that concept happening. Plus, there’s lots of other people in between him and making the decisions on the field.”
Still, Elway’s position on the Fantex board could incentivize him to sign Foster, or any other Fantex client, to a lucrative contract down the road. “If Fantex takes off and has 40 or 50 players on its roster, instead of just one, this theoretical conflict becomes more real,” says attorney Charles Baker, corporate- and finance-practice partner with DLA Piper’s global sports, media and entertainment group.
Sports leagues have traditionally tried to avoid even the appearance of such conflicts. In 2004, sports agent Jeffrey Moorad became minority owner and CEO of the Arizona Diamondbacks; he no longer represented players. Recently, rapper Jay Z sold his small stake in the Brooklyn Nets so he could become a player agent. “The Elway situation is unusual,” says Baker. “Practically speaking, it’s highly unlikely that Elway’s association with Fantex would impact his decisionmaking. But the potential conflicts are there. You can’t say that they aren’t.”
Fantex had a rough opening weekend. Its first client, Foster, left a game against the Kansas City Chiefs with a hamstring injury. “It doesn’t seem too severe right now, so we will just play it out,” Foster said afterward. “I have a bye week coming. It’s tough.” Fantex has said investors can start ordering Foster shares in a couple of weeks: if Foster’s health is in question, Fantex might not be able to raise the $10 million needed for the Foster deal to go through. If Foster cannot attract the $10 million, Fantex has said the deal will be canceled. Anyone who ordered shares would get their money back.
And Elway would avoid a possible headache.