Smart Athletes Invest In Their Social Capital. Just Ask Ryan Howard and DeMarco Murray
Forbes by Andy Frye
Ryan Howard insists that he's not entirely done with the game of baseball. But ever since his last major league at-bat in 2016, he has been plenty busy, and has had money and the future on his mind. What you may not know is that Howard is a partner at a Philadelphia-based venture capital and investment firm SeventySix Capital. What gets him most pumped, he says, is talking about the potential that athletes have, and their social capital.
"When I first came into the league, it was (that) you sign a deal and get paid. Facebook was just getting a grasp, and everything was done on TV. Now the marketing landscape is different, with millions of people on their phones, on social media all the time."
Howard first made his first mark as National League Rookie of the Year in 2005. Then, LinkedIn was a few months old. Platforms such as Instagram, Snapchat, and Pinterest were just a dream. With technological change, Howard says that "the new generation of athletes understands new opportunities." Wayne Kimmel, his partner at SeventySix, agrees.
"Athletes today have more than just their financial capital, they also have social capital," says Kimmel. Prior to starting SeventySix Capital, Kimmel worked as a venture capitalist, investing in game-changing companies alongside the likes of Richard Branson and Mark Cuban, and later, Derek Jeter, Peyton Manning, and Mia Hamm. "We believe athletes have a really incredible halo effect and help companies get above their competition."
Kimmel states that even athletes at the end of their on-field careers such as Howard and former NBA star Shaquille O'Neal, who retired in 2011, have tremendous social capital and marketability. He states that startup companies and venture capital firms recognize this marketability more than the traditional companies.
Future of athlete endorsements?
More often, today athletes are being courted by startup companies, both men explain. While traditional endorsement deals were once sealed with a payment, more innovative firms are willing to offer athletes shares and a percentage of ownership, in lieu of just being paid once. Kimmel also explains that social capital that grows not just from scoring touchdowns and home runs. Having a half-million Twitter and Instagram followers also doesn't hurt.
"Today's athletes really understand their value, and that they can have a conversation with regular people," says Kimmel. "They see LeBron James or Steph Curry and the relationships they have with their fans."
But can a longer-term arrangement with a greater future value really appeal to fast-moving star? Does today's 22-year-old athlete 'get it'? DeMarco Murray, a three-time Pro Bowl NFL running back, also an avid investor, says that athletes "definitely" get it.
"You see more athletes than ever before investing in tech and startups, on the hunt for the next big thing," Murray said tells Forbes. "An NFL career can be short. It’s important to be set up for success off-the-field while still maintaining your competitive edge on it." Howard also weighs in.
"Before I got to life after baseball, I asked myself, 'When my cleats are hung up, what am I gonna do?' I think more and more athletes do get that," Howard said.
Kimmel hints that firms like SeventySix aren't just looking to fuse every up-and-coming company with a famous face. He knows that for an endorsement deal or brand ambassadorship to work that all parties have to keep it real.
"A lot of the athletes that we work with can look at the kind of companies we invest in and find something that is authentic to their interest. When an athlete gets involved and it's a perfect match, it's magical."
The lion's share of the companies SeventySix invests in or partners with are companies in the digital space. Among them are online gaming and esports firm N3rd Street Gamers, music platform ReverbNation, and digital content firm Whistle Sports. Another one called Thrive Commerce offers turnkey software solutions that allow retail chains to offer digital promotions and coupons to capture more sales. SeventySix also works tech crowdfunding firm Indiegogo.
"But the most important philosophy of our business is working with smart, nice people, who want to change the world," Kimmel adds. "Being able to leverage that social capital of athletes can really help us accelerate our companies. And it helps us help entrepreneurs to be incredibly successful."
Murray said also that he thinks the interactive nature of social media and today's digital landscape not only changes consumers' behavior. He says that today's athlete is "looking to be a partner, not just a spokesperson."
"If I’m passionate about a business or industry," Murray said, " I want to learn as much as I can about it, get my hands dirty and really make an impact on the bottom line."
Justin McCarthy of New York's Mariner Wealth Advisors agrees that the athlete as a brand ambassador is the next new thing. McCarthy thinks that this is not just a short-term trend. Smart athletes and business investors, he says, "want an interest in exciting new companies. And, this is not just something you see on television shows like Shark Tank."
"For a lot of young, up and coming athletes, this is something that they can get their head around," McCarthy said. "With the right deal and structure, an equity stake in a company, even if it's not the next Facebook, is a sensible investment move for anyone." McCarthy, whose firm serves over a hundred current and retired pro athletes, also concedes that being invested in a deal, rather than just being paid all at once, is a good way to minimize tax.
"If a deal with a Pepsi or Coke materializes for an athlete, earning fees and income is great, especially early," he said. "But if an equity stake in a growth company is there, it can turn into an opportunity for longer-term wealth, income, and long-term capital gains."