Sports can be a lucrative industry. But the sad thing for many investors is that the opportunities to invest in the space are often limited. What opportunities do exist are few and far between, such as buying into sports apparel firms. Others, meanwhile, are simply out of reach of the average investor, like buying entire sports teams and/or stadiums.

One company with a mind to solving this issue is PJ Washington Inc. Founded by Paul Washington, PJ Washington seeks to benefit from revenue opportunities associated with PJ Washington Jr. The younger Washington is currently contracted with the Charlotte Hornets, an NBA team. At present, Washington Jr.’s savings and investments are being managed by PJW LTD. PJ Washington will offer non-exclusive services for PJW LTD. These services include brand management, wealth management, strategic investments, data analytics, consulting, and more.

In essence, like how Washington Jr. is an athlete who has an agent, PJW LTD is the business-equivalent of him, and PJ Washington is the business-equivalent of the agent. In theory, this could become quite profitable. This is because Washington Jr. has already landed a two-year contract with the Charlotte Hornets worth a collective $7.86 million. $3.83 million will be realized in the 2019-2020 season, while the other $4.02 million will be recognized in the 2020-2021 season. The team does have two one-year options on Washington Jr., the first set at $4.22 million and the second at $5.81 million. This is still lower than the average $7.7 million annual pay for members of the NBA. But it’s quite a bit north of the $898,310 league minimum that’s currently set.

What precisely PJ Washington will be doing is anybody’s guess. Examples could include negotiating brand sponsorship deals, speaking events, and more. Though this sounds appealing at first glance, it may be worth discussing what all the investment entails. Investors who think they have significant upside are bound to be disappointed. Common stock in a company provides robust prospects if the business does well. But the stock investors are buying into is not common. It’s preferred. These types of units are not convertible into common. They can be redeemed by management at any time up to June 6th of 2030, at which point they will mature.

Instead of sharing in the profits generated by the company, the preferred units will accrue an annual distribution of 5%. Once they mature, the distributions will be payable (though they may be paid sooner), and the price the preferred units are redeemed at is set at par. This means the most that investors can profit from the investment is 5% each year. There is one exception to this though. If distributions are declared on the common stock, then the preferred holders can share on a pro rata basis with that excess amount declared. No dividends can be declared on the common until the accrued preferred dividends have been paid in full.

One thing that is peculiar about this deal is how management has discussed moving money around. It resembles some rather shady activities. PJW LTD has elected to issue promissory notes to PJ Washington. In exchange, PJ Washington would be entitled to receive periodic fixed payments from PJW LTD. PJ Washington has not made the investment in these notes yet, but the fact that management said they may do so means it will likely happen. Some of the net capital raised may also be allocated toward The Sports & Entertainment Fund LP, which is managed by Adara Asset Management. Adara Asset Management, meanwhile, will engage in swap transactions. This means that ultimately the capital will still flow to PJW LTD. It is worth noting that PJ Washington seeks to avoid becoming an ‘investment company’. This requires that PJ Washington invest no more than 40% of its assets into securities. For investors thinking the deal’s name indicates a stake in SportBLX, there’s even more disappointment. The opportunity is merely being promoted through SportBLX’s platform, and it has many of the same oversight members.

PJ Washington has a short operating history. In the six months ending in June of 2020, the company generated nothing in the way of revenue. Its net income, however, has been -$10,044, while operating cash flow was $0. Of course, this doesn’t have much of an impact on investors or their prospects. That’s because of the fact that the preferred units don’t see their value rise on profits. One source of revenue discussed by management was a 1% management fee on the assets it does come to oversee.  However, there is no guarantee what these assets will total. 

Determining the market opportunity facing PJ Washington is difficult. Technically, the prospect should fall under the sports sponsorship market. According to our research, this opportunity was worth around $58 billion in 2018. With an annualized growth rate expected of 6.72%, the market should be worth $66.1 billion this year. By 2025, it should expand to $86.6 billion in all.  A separate source pegged the market at $54.20 billion in 2018.  With expected annual growth of 6.30%, it should reach $88.66 billion by 2026.  

Though this sounds like an attractive market to play in, the opportunity truly is capped by the demand for Washington Jr. specifically and the other athletes PJ Washington ends up bringing on as clients. Any numbers we could give you here would be speculative. We can, however, point to an upper limit. Last year, Lebron James, the top basketball player in the NBA, generated $94.2 million in income. Over half of that — $55 million — came from endorsements. It’s quite unlikely that Washington Jr. will match or exceed that level of renown. As for other athletes, it’s probable that the bigger players in the market already have deals locked in.  This could leave some opportunity for incoming professionals and/or established ones without agents, but putting a number to any of this would be highly speculative. 

PJ Washington is not your typical company. This is the case in how it’s structured, how it will operate, how investors will be compensated, and so much more. It also holds true in terms of the management team. The firm does have several ‘team members’ and members on its board. Five of the individuals involved with the firm have an active role in SportBLX. But it has only one person in a management position: Paul Washington, Washington Jr.’s father. He presently serves as PJ Washington’s CEO. At present, Washington Sr. still serves as the Senior VP of Basketball Operations at SportBLX. He is also the CEO of PJW Group. Prior to that, he worked as an Assistant Manager at Lowe’s Companies.

After careful consideration of all of the data presented to us, our team has rated PJ Washington as an Underweight prospect. The company does bring the novel concept of fan-to-professional athlete engagement to life. But besides that, there really is no other redeeming quality to the investment. The preferred units capture no upside. They also pay out only 5% per annum unless common shareholders get a payout. That will likely translate to a return well below what the stock market can generate over time. And it will do so at a higher risk than a well-diversified portfolio of stocks. The financial transactions proposed appear unnecessarily roundabout. The firm’s CEO really has no significant experience in this field. Add in the fact that investors may have to wait until 2030 to see any return of cash and the picture is discouraging. In all, this looks like a very risky prospect.