Wednesday, November 27, 2013
Shu-Yi Oei (Tulane) & Diane M. Ring (Boston College), Fantex, Upstart, and the New Human Equity Transactions:
In the past year, a number of new financial transactions have emerged that allow individual investors to raise funds by offering a percentage interest in their future earnings. Unlike traditional lending arrangements, these structures essentially enable the funding provider to take a percentage of the recipient’s future return on their human capital for a specified time period, effectively getting the upside if earnings are higher and the downside risk if earnings are lower than anticipated. Such transactions represent a significant departure from traditional forms of lending and pose serious questions for the legal system. In this essay, we survey some of the issues raised by these new transactions, and suggest some possible ways in which the law can approach their regulation and taxation. In particular, we think that debt-equity analysis, a concept currently employed in the corporate tax and business context to distinguish lenders from true owners, is an exceptionally powerful frame through which these arrangements may be analyzed. The debt-equity frame compels us to acknowledge the uncomfortable possibility that these arrangements are, in substance, ownership interests in human persons.