Buying And Selling Stakes In Companies: A Guide For Athlete Investors And Enterprises

Introduction

Professional athletes increasingly view private investment as a means of building long-term wealth, diversifying their portfolios and leveraging their platforms beyond competition. At the same time, early-stage and growth-oriented companies are turning to athlete investors not only for capital but also for brand visibility, consumer trust and strategic influence.

These partnerships, while promising, are complex. They require careful consideration of legal structures, risk allocation, governance and alignment of expectations. A misstep can lead to financial loss, reputational damage, impaired relationships or even litigation.

This article provides a point-form summary framework for both athletes contemplating equity investments in companies and businesses seeking athlete investors. It outlines some essential legal and commercial considerations at key stages of the investment process, emphasizing the importance of preparation, diligence and professional advisory support.

Clarify Investment Objectives and Expectations

The foundation of any successful investment partnership is a shared understanding of each party's objectives, roles and expectations. Misalignment in this area often leads to frustration and unmet expectations. Clarity at the outset is paramount.

For athlete investors

Athletes must define the "why" behind their investment by way the following steps:

• Determine whether the investment is purely financial or whether strategic involvement, brand alignment or personal interest plays a role.
• Establish the desired level of engagement (e.g., board seat, advisor, ambassador or silent investor).
• Assess personal risk tolerance and liquidity preferences – particularly given the extended time horizons typical of private investments.

For investee companies

Companies must define their ideal investor profile and clarify what they hope to gain. They need to:

• Carry out an initial risk assessment based on both the sport and the athlete to determine the potential long-term value of the relationship.
• Identify whether the athlete's primary value lies in capital, strategic input, marketing influence or network access.
• Clearly communicate how the investment fits into the company's growth strategy and capital plan.
• Ensure brand compatibility and alignment of values between the company and the athlete.

Actionable steps

To appropriately structure their relationship and expectations, both parties should:

• Align on the investor's anticipated role and value-add activity to mitigate misunderstandings.
• Use non-disclosure agreements to establish secure lines of communication.
• Use term sheets to summarize preliminary understandings before entering into formal agreements.

Conduct Robust Due Diligence

Due diligence is a critical safeguard for both parties. It allows each side to assess the risks, strategic alignment and long-term viability of the partnership.

For athlete investors

Athletes, with the help of their advisors, should conduct comprehensive diligence to:

• Review a company's financial statements and historical performance.
• Assess product-market fit, scalability and competitive positioning.
• Evaluate the track record of the management team by checking references, researching backgrounds and validating past outcomes.
• Identify any litigation history, compliance concerns, regulatory exposure and status of intellectual property, review key contracts and ensure alignment with relevant industry and corporate regulations.
• Review the historic and anticipated marketing approach, in both style and substance, to determine alignment.

For investee companies

Companies preparing for athlete investment should:

• Prepare for investor questions on financial records, strategy, risks, competition and governance.
• Evaluate the athlete's public reputation, values and past investments.
• Assess alignment between the athlete's audience and the company's target market.
• Confirm that the athlete is prepared to fulfil any anticipated marketing, governance or strategic support role.
• Carry out criminal background checks.

Actionable steps

To support an informed decision, both parties should:

• Schedule management meetings, ask for supporting data and documents, and consult independent experts where appropriate.

Assess the Capitalization Table and Terms of Investment

A clear understanding of the capital structure of a company is essential for informed decision-making. Both athletes and companies should take the time to review how the investment fits into the broader ownership and governance landscape.

For athlete investors

Before committing capital, athletes should carefully examine the company's equity and associated rights by way of the following:

• Review the full capitalization table, including option pools, convertible instruments and debt.
• Understand the rights attached to the equity – voting power, information rights and protective provisions.
• Consider how future funding rounds could dilute ownership and influence.
• Ensure enquiries extend through corporate structures up to ultimate beneficial owners.

For investee companies

Companies should be transparent about ownership and potential changes by conducting the following steps:

• Disclose any outstanding convertible instruments that could affect equity distribution (e.g., warrants, simple agreements for future equity (SAFEs) and convertible notes).
• Be transparent about founder ownership, especially if future rounds will significantly alter control dynamics.
• Provide visibility into anticipated financing rounds and how they might impact existing shareholders.

Actionable steps

To translate understanding into practical action and alignment, both parties should:

• Run pro forma ownership scenarios based on different fundraising outcomes.
• Use a term sheet to define key investment terms – valuation, transfer and sale rights, liquidation preference, anti-dilution protections, etc.
• Flag any investor-specific rights (valuation, liquidation preference, control rights, etc.) in the term sheet.

Determine the Appropriate Investment Structure and Governance

Investment vehicle and governance rights play a critical role in defining the investor's role, control and downside protections.

For athlete investors

To make informed decisions about their role and influence, athletes should:

• Understand the advantages and limitations of common investment structures:
  • Equity:Offers immediate ownership and potential voting rights.
  • Convertible Notes/SAFEs: Often used in early-stage deals; convert into equity during future rounds but offer fewer rights upfront.
• Consider asking for board or observer rights, especially in high-involvement situations.
• Evaluate the need for protective provisions such as anti-dilution, veto rights or information access.

For investee companies

To secure capital while maintaining flexibility, companies should:

• Select investment instruments based on company stage and strategic goals.
• Limit overly burdensome investor rights that could impair decision-making flexibility.
• Be upfront about internal governance structures and who controls what.

Actionable steps

To ensure the deal is structured fairly and effectively, both investors and companies should:

• Engage experienced counsel to review and negotiate the deal documents.
• Obtain tax advice to fully appreciate net financial outcomes.
• Set clear expectations around major decision-making authority, reporting obligations and conflict resolution mechanisms.
• Tailor governance structures to balance influence with efficiency.

Plan for Realistic Exit Scenarios and Liquidity

Private company investments are typically illiquid, and parties should enter with a shared understanding of likely exit paths and timelines.

For athlete investors

To protect their position and maximize potential returns, athletes should:

• Clarify potential exit scenarios (e.g., initial public offering (IPO), acquisition, secondary sales, founder buybacks). This should include a focus on exit conditions and timing.
• Negotiate legal protections such as:
  • Call and put rights (to obligate a sale to or purchase from other shareholders).
  • Tag-along rights (to sell shares alongside majority holders).
  • Drag-along rights (to participate in company-wide exits).
  • Redemption rights or structured liquidity events after a fixed term.
• Understand any share transfer restrictions, rights of first refusal and shotgun provisions in a shareholders' agreement.

For investee companies

To build trust and manage expectations, companies should:

• Be transparent about exit strategy and historical liquidity efforts.
• Set expectations on the timing and likelihood of shareholder liquidity.
• Disclose any legal or contractual barriers to secondary sales.

Actionable steps

To ensure clarity and alignment around liquidity and exit, both parties should:

• Clearly articulate exit mechanics in the definitive agreements.
• Plan communications to ensure investors are updated on potential exit opportunities.

Beware of Pressure, Rushed Timelines and Conflicts of Interest

Emotional excitement, compressed timelines or pre-existing relationships can cloud judgment. Investments should always be evaluated thoroughly and on their merits.

For athlete investors

To protect their interests and make sound decisions, athletes should consider the following:

• Do not rely solely on personal trust or succumb to the fear of missing out.
• Be cautious of informal deals lacking documentation or pressure to bypass legal review.
• Walk away from opportunities that discourage diligence or resist transparency.
• Ensure participation is not limited by league or club policies or existing agreements of other relationships.
• Ensure they can commit sufficient time to manage the investment.

For investee companies

To foster trust and support informed investment decisions, companies should:

• Respect the investor's need for adequate time to review materials and consult advisors.
• Formalize all terms – even with friends, family or close business associates.
• Recognize that failure to allow proper diligence may damage the company's credibility or raise regulatory concerns.

Actionable steps

To maintain integrity and alignment throughout the process, both parties should:

• Set a reasonable timeline that allows for appropriate review and negotiations.
• Address conflicts of interest upfront and document how they will be managed.
• Encourage mutual respect, discipline and accountability throughout the process.

Conclusion

Athlete investments in businesses offer unique upside but require careful preparation and mutual understanding. By setting clear objectives, conducting thorough diligence, structuring equitable and protective deals, planning realistic exits and using skilled advisors, both athletes and companies can build lasting high-value investment relationships. A disciplined process – rather than personal affinity or "brand buzz" – is the key to success for all parties involved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.