Fascinating article in the New York Times today about Brazilian entrepreneurs who invest in young soccer talent, then earn returns based on future earnings (mainly transfer fees).
It makes me wish that I had advanced that theory on behalf of Brandon Jennings.
Jennings should have found a couple of high-net worth investors to fund his year between high school and the NBA, in exchange for an equity stake in his all-but-certain future earnings.
The finance jocks can help me with my math here, but let's just throw some numbers on this concept: Jennings signed a deal with that Italian team for a reported $600,000.
Here's another option: I would have offered him $250,000 for a 10 percent stake of all future earnings in his first 4 years of the NBA, not including shoe deals or other endorsements (which could be big, per Rovell). That gives Jennings a sort of "post-money valuation" of $2.5 million. Not bad for a player who has yet to play a single minute of college or pro basketball.
Assuming that in his year off -- funded by my $250,000 (plus any other equity stakes he might sell off) -- he trains exclusively for the NBA and rightfully ascends to a Top 5 pick (let's say No. 5).
Now, Jennings would earn $10.5M over his first 4 years (first 3 guaranteed, 4th as an option). My $250,000 investment for my 10 percent stake would yield me roughly $1M, a tidy 4X return on my original investment.
Meanwhile, Jennings gets to keep $9M of his salary, plus all of his endorsement money PLUS any contract he signs after his first 4-year deal, which -- if he turns out to be the star I think he will be -- would be huge.
Why would Jennings sell me a stake of his equity? Because for him during this year off, perhaps that $250,000 up front as financial security -- among other things, to finance his NBA training in the U.S. -- might be more appealing to him than spending it in European exile.
If he is as good as he presumably thinks he'll be -- and that I, as the investor, think he'll be -- then it's a great deal for both of us.
(By the way, I originally thought about offering the $250K using more onerous VC-style terms, particularly given that I was willing to give up endorsement income and any income beyond the first 4 years of his NBA career: I would invest $250K not for a 10 percent stake, but a 25 percent stake, which would have yielded a 10x return on my original investment. As an intellectual exercise, I'm modest in my ROI expectations.)
If Jennings really wanted to break the mold, he wouldn't have simply just made it about skipping college to train for the NBA Draft abroad, but he would have made it a very legitimate opportunity to sell equity in his NBA future. Hmm: Maybe one of the players next year...