LeBron James is now officially a free agent. He is seeking the Maximum allowable salary in the NBA which would be roughly $20 Million for the coming year. Under the NBA’s complicated Cap salary system, there are only 7 teams that could pay LeBron the $20 Million max salary next year. The Heat, Dallas Mavericks, Los Angeles Lakers, Phoenix Suns, Utah Jazz, Philadelphia 76ers and Orlando Magic.
But shouldn’t LeBron be thinking about taking some of his future compensation in Equity rather than just pure salary?
The Value of the Miami Heat NBA franchise as of January 2014 was $770 Million. LeBron James is set to make $20 Million or so next year for the Heat. But what if LeBron owned 10% of the Franchise – that would be worth nearly $80 Million.
Think about the great Steve Jobs of Apple. Steve Jobs had a major impact on Apple. But no more so than LeBron James has had on the Miami Heat. And yet, James will benefit far less from his relationship with the Miami Heat than Steve Jobs did with Apple. Steve Jobs earned only $1 per year in SALARY FOR APPLE. But his equity became worth over $2 Billion dollars. Jobs also had shares in Disney Corporation that actually were worth twice as much as his Apple stock – over $4 Billion dollars – and he received no salary from Disney.
Here is an astonishing stat: LeBron James will make far more for his equity ownership in Beats by Dre than he has made in salary the last three years from the Heat. James made $30 million when Dr. Dre sold Beats to Apple.
In the technology industry, the people I know that have made it big DID NOT MAKE IT BASED ON SALARY. Rather, they took early stock in a company (and admittedly took a bit of risk at the same time) but when the company engaged in an Initial Public Offering or had a liquidity event based on a sale, the value of their equity exceeded the value of their salaries by over 100 times.
Think about the on-going sale right now of the LA Clippers. Former Microsoft CEO Steve Ballmer, is buying the NBA Clipper Franchise for over $2 Billion dollars. A company’s value can increase quickly. In January of 2014, believe it or not, the value of the LA Clippers was less than the value of the Utah Jazz. According to Forbes, the Utah Jazz was the 17th most valuable franchise in the NBA with a worth of $430 Million v. the LA Clippers at slightly less than that. But then came the Donald Sterling debacle and Steve Ballmer came in and bid over $2 Billion for the franchise.
What if Blake Griffin received a piece of that action? I would argue that his worth to the Clippers is worth at least 5% conservatively to the Franchise. That would make him worth over $100 Million dollars. What did Blake make in salary last year? It was under $8 Million bucks.
Apple’s stock market value under Jobs leadership went from $10 Billion to $400 Billion. And because he took equity rather than salary, he made Billions more than if he would have taken, say, $20 Million in annual salary like LeBron will be doing. If James took a mere $10 Million in salary and took the rest in stock in the NBA and or the Heat directly, he could make as much as $100 Million.
Now, I understand that the concept of players’ taking equity would probably be met with resistance from some of the owners- at least initially. But the NBA should be taking a longer term view of all of this. One sports agent, Steve Stoute, has encouraged just such an arrangement. Stoute is the founder and chief executive of Translation Consultation and Brand Imaging. Stoute worked closely with entertainers and athletes, including Jay-Z and LeBron James, to help Fortune 500 corporations extend the companies’ marketing reach. He thinks that players — like many star actors — should have been negotiating for equity stakes a long time ago. For example, Sandra Bullock took far less money up front for her hit movie ‘The Blind Side’ but received a huge piece of equity.
According to one pudit: “Owners would benefit because players would be sharing the risk. Under the current system, owners take all of the risks; players, whose contracts are guaranteed, take very few. Under an equity arrangement, players would give up some of the money that is now guaranteed. In return for smaller guarantees, players would receive a share of the league’s profits — including a percentage of profits from the sale of N.B.A. franchises.”
Now these situations don’t change over night but I would argue LeBron would be better off taking a chapter from the Steve Jobs’ book of wealth management and consider a big equity piece in his upcoming negotiation, rather than just settling for a mere $20 Million in pure salary.
What do you think? Contrasting points of view are welcome. I’d love to hear your thoughts in the comments section below.