Celebrity Stock Market

Victoria Schwartz is Associate Professor at Pepperdine University School of Law. This post is based on her article, recently published in the UC Davis Law Review.

We typically think of stock markets as a mechanism for connecting investors who buy and sell shares of ownership in public companies. This helps distribute the successes and share the risks of these companies across a wider range of individuals. Talented individuals with business ideas often get venture capital or other forms of investor financing for their startups, and ultimately often take their companies public. But what happens if an individual’s talent lies in a different direction such as music, or acting, or sports? Eventually these talented individuals may go on to become celebrities with extremely lucrative careers, but how do they pay the bills in the meantime? In The Celebrity Stock Market [52 UC Davis Law Review 2033 (2019)], I offer a possible solution to this problem.

The article explores the possibility of a celebrity stock market, in which investors can invest in the future of promising artists, athletes, entertainers, and other celebrities in exchange for shares in the aspiring celebrity’s future. By design, just like traditional stock markets, such celebrity stock markets would share risk between the aspiring celebrity and the investors by contractually providing the aspiring celebrity an up-front monetary payment in exchange for a share of future earnings for a contractually specified length of time. The contractually obtained interest in future earnings can then be distributed in the form of a stock-like mechanism that can be traded and whose value is linked to the earning potential and the associated personal “brand” of the aspiring celebrity.

The more general concept of investing in individual people in exchange for a percentage of their future income, sometimes called human equity investments, is not a new concept and is very much on the rise. Start-up companies in this space have offered alternative trading systems in which investors can buy and sell “stock” linked to the future success of the individual who is the subject of the investment. Scholars have begun to explore the legal and ethical implications of human equity investments, with many of these inquiries focusing on their use in financing higher education. The analysis in this space has necessarily compared the stock market model to the existing American system of financing higher education through government-backed loans. The article explains the history of human equity investments including its role as a proposed solution for the financing of higher education and identifies the existing debate over the merits of such a funding model in the education space.

This article then adds to that literature by looking specifically at the possibility of a celebrity stock market subset of human equity investments, in which investors can invest in the future of promising artists, athletes, entertainers, and other celebrities in exchange for shares in the aspiring celebrity’s future. While these celebrity stock markets share some of the legal and societal implications of human equity investments more generally, they also have some unique features. Unlike human equity investments for financing higher education in which the default status quo is government-backed loan-based financing, celebrity stock markets must be compared to the history of funding aspiring entertainers in which aspiring artists, entertainers, and athletes have not traditionally had access to government-backed loans to pursue their careers. Therefore, the article explores the historical and existing models for funding aspiring entertainers as a point of reference against which to compare the merits of a celebrity stock market financing strategy. I argue that the previously and currently used patronage model, studio model, talent agency model, record label model, and the various funding models for aspiring professional athletes all have negative aspects and inadequacies that must be taken into account in order to honestly measure against the proposed celebrity stock market model.

These celebrity stock markets are not entirely theoretical. In the article I describe some start-up attempts in the celebrity stock market space. Most prominently, before its demise, Fantex, commonly referred to as the athlete stock exchange, entered into contractual deals with NFL players paying them an upfront, one-time fee in the millions of dollars. In exchange, the company received a set percentage of the athlete’s future earnings both on and off the field forever. Fantex then held an IPO for tracking stocks in its share of the athlete’s future income, which investors could buy and sell like traditional stock. Although Fantex’s monetization strategy ultimately did not succeed, its serious attempt to expand beyond athletes to include other aspiring entertainment celebrities suggests a need for scholars to grapple with the many legal and ethical challenges raised by celebrity stock markets. The article suggest that there are numerous legal and societal developments including the lack of good alternative funding models, the expansion of the right of publicity, the growth of individual branding and social media and the democratization of celebrity that are likely to create the conditions for further celebrity stock markets to develop.

Ultimately, the article argues that celebrity stock markets should be permitted to develop as an additional market option in conjunction with existing options for funding aspiring celebrities. I recognize and grapple with many troubling legal and societal implications triggered by celebrity stock markets including the impacts of such markets on other areas of the law, diversity and human dignity concerns and previously unrecognized privacy implications. Nonetheless, I conclude it is not apparent that the downsides of celebrity stock markets clearly outweigh the potential benefits they may offer when viewed in comparison to existing funding models for aspiring celebrities. It is not at all clear that there is a way to compare the costs and harms of this system with the costs and harms of the existing systems. Therefore, I contend that more funding systems ought to be better systematically than fewer funding systems. More paths to achieve success in entertainment and sports take away the monopoly-like power of entities like talent agencies, the NCAA, and other current major players who currently serve as a gatekeeper role in ways that are also problematic. I would be more concerned if celebrity stock markets were the sole path of obtaining funding, but as long as they become a market option among other market options, the net benefit appears positive.

I also advocate implementing some contract-based limitations on celebrity stock markets in order to minimize some of the downsides. I propose a requirement that individuals remain majority shareholders in their own future income thus reducing the worst concerns of resemblance to slavery, and autonomy concerns, as well as reducing the moral hazard problem. I also advocate limiting the term of the contract underlying the income share agreement that forms the basis of the celebrity stock market proposals for minors. Both California and New York have passed laws regulating minors’ contracts in the entertainment or sports context, and contract law more generally treats contracts by minors differently. The existence of these laws suggest that it would also make sense to place reasonable limitations on the abilities of minors to enter into contracts by which they would sell away their share of their future income in exchange for money up front. Ultimately, prohibiting all individuals from selling a majority share in their future income as well as temporal limitations on the ability of minors to sell a share in the future income would help minimize some of the largest concerns triggered by celebrity stock markets.

The complete article is available for download here.

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