NBA: Do The Players Deserve Equity?

NBA owners have seen the valuation of their franchises surge in recent years, but are superstar players like LeBron James, Kevin Durant, and Stephen Curry missing out on the upside?

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Friends,

Here’s a wild stat:

When Lebron James re-signed with the Cleveland Cavaliers in 2014, following a four-year stint with the Miami Heat, the Cavaliers saw their franchise valuation almost double immediately — from $515 million to $915 million within one year.

Another one?

When the Milwaukee Bucks selected back-to-back MVP Giannis Antetokounmpo in the 2013 NBA draft, they were valued at just $312 million.

Today, less than 8-years later, the team is valued at $1.86 billion — a ~500% increase,

Ok, one more.

In 2013, when the Golden State Warriors selected Stephen Curry 7th overall in the NBA draft, they were valued at $335 million.

After winning three world championships and building a new $500 million arena, they are worth $5.2 billion — the second most valuable NBA franchise.

My point?

While it’s true that an increase in league-wide media rights has assisted in the valuation bump of franchises all over the NBA — from Detroit & Charlotte to Orlando & Phoenix — teams like Cleveland, Milwaukee, and Golden State have seen outsized returns due to superstar players.

This idea led me to ask a question on Twitter last night:

Given the recent surge in NBA franchise valuations, should top players like LeBron James, Kevin Durant & Stephen Curry be able to negotiate an equity stake vs. cash?

Furthermore, it’s important to point out that the current NBA Collective Bargaining Agreement (CBA), which runs until 2024, prohibits players from owning an equity stake in a franchise.

The interesting part?

Michele Roberts, executive director of the NBA Players Association, told Sportico earlier this week that players are interested in negotiating that option when a new CBA is agreed upon with league owners.

Here’s the quote (Source):

“We’ve got a collective bargaining agreement that says we can’t [own stakes], and hopefully down the road we’ll make some changes.”

“The players will be the last to suggest that we want to see the game’s value, or teams’ values, in any way diminish, but it sure would be nice to be able to go to the party.”

But is this even possible?

Let’s take a look.

Here’s the way I think about it…

Whether NBA players want to admit it or not, they already participate in the league's financial upside through the existing CBA.

What am I talking about?

NBA players currently receive about 50% of total league revenue in a given year, which is then distributed throughout the league to set the salary cap.

The NBA salary cap has jumped 75% in the last 5 years alone, from $63 million in 2015 to $109 million this season.

Put simply, as league revenue grows, so do salaries for all NBA players — from role players to superstars.

There’s just one problem — valuation growth and revenue growth aren’t aligned.

Here’s an example…

From 2010 to 2019, the NBA saw their annual revenue increase from $4 billion to $8.3 billion — an increase of 107%.

The average NBA franchise valuation went from $370 million to $2.4 billion in the same time period — an increase of 548%.

Given the divergence between revenue and valuation growth, NBA owners have participated in much more of the upside than NBA players themselves.

The result?

Players want more.

In the end, similar to any Fortune 500 company or startup, NBA players are employees.

Why shouldn’t they negotiate their worth and participate in the financial upside of their employer through an equity stake?

To me, that’s a no-brainer — the real question is how they can do it?

With players often switching teams through free agency and trades, there are inherent conflicts of interest with the traditional equity distribution model.

The answer?

They’ll have to get creative.

Here are a couple of ideas:

  • Rather than a standard four-year time-based equity vesting schedule typically used by corporations, have the equity set at a certain valuation, put limits in place to avoid big markets dominating, and don’t allow players to access it until x number of years into retirement.

  • Create an equity distribution model where the players association receives the funding. While the top players won’t benefit as much directly, it allows all players to participate in the valuation upside proportionally — you can even base payouts on NBA service-time.

Ultimately, with NBA owners profiting at an uneven rate to the increase in player salaries, I think it’s a matter of when not if this happens.

Only time will tell, but it’ll be interesting to see how they structure it.

Have a great day, and we’ll talk tomorrow.

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