Academic

Today in Securities Regulation we briefly talked about valuation of going concerns.  We even compared the problems with valuating a continuing firm with the problems of calculating the economic value of a human in a wrongful death case.  Well, now I have the perfect hybrid -- Real Sports Investments, LLC is selling "contracts" for shares in minor league sports athletes.  (Well, only one right now.)  "Members" in RSI can buy shares in an athlete, and these shares will entitle the bearer to a percentage of the athlete's future annual "major league salary."  An athlete may only sell 20%  (so as to leave the athlete some incentive) and will then pay to RSI 20% of salary/bonuses once the athlete is in the major leagues.  RSI then divides that 20% among the holders of the shares.  Members may also sell the shares, but only to other members.  The website calls these payments "dividends," but the payments are not only fixed but carry with them a breach of contract claim if not made.  Therefore, these shares seem more like preferred shares (if anything), with really, really strong dividend rights.

Should the player quit or retire for reasons other than career-ending injury in the first two years of the contract, then the player must repay the amount received by RSI, plus interest.  In addition, should the player be banned for using prohibited substances at any time, then the player must repay also.  If the player is injured, however, then there is no repayment.  Also, if the player never goes to the major leagues, then no amounts are ever paid.  The risk of both injury and failure seem to be spread here, however imperfectly.

We have not gotten to the point in the course yet where we discuss what is a security, but I think I will save this hypo for that time.  Of course, the website states that this is not a security.  The owners of the site seem to think they've hit on the perfect "investment" -- it's not a security, and it's not gambling either.  I'm not sure.  If the owners want to maintain that the site does not host online gambling, then it should take this FAQ off of its site:

Why would I ever play fantasy Sports again when I can invest in the real thing?

I do not know.