George Osborne, the United Kingdom’s chancellor of the exchequer, told his party’s conference this week that the government would propose legislation allowing businesses to offer company shares in exchange for employees’ waiving certain legal rights, such as the ability to sue for “unfair dismissal.” Osborne said that under his plan, the shares would also be exempt from capital gains taxes when sold.
Without passing comment on the UK proposal, the idea of trading employment rights for equity is intriguing. It’s precisely the sort of innovation you never see proposed in professional sports, the one industry that would likely benefit the most from this approach. In the world of ownership cartels and salary caps, the key employees–the players–are kept away from equity at all costs. While management personnel, who are not subject to salary caps, can receive partial shares of a club as compensation, players cannot.
But consider a small-market club desperate to retain a star player. Even under the NBA’s salary cap, which allows a club to pay its own free agents more in nominal salary than any other club, equity cannot be part of the package. And in some cases, salary isn’t enough. Just look at LeBron James, who took a lower contract offer from Miami to leave Cleveland. Might the Cavaliers have retained James if he’d been offered 10% of the team on top of his salary? It’s impossible to say, and without a free market we’ll never know.
Aside from messing up their bureaucratically perfect salary caps, leagues oppose player equity because commissioners and franchise operators can’t fathom the notion of players having any say in league governance beyond the heavily restricted framework of collective bargaining. With a CBA, players get a single chance to participate in governance every few years–every 10 years now in the NFL’s case–and that’s through a single union boss. If active players became shareholders, they’d suddenly starting demanding things like full access to financial statements and seats on league committees.
Yet the price of control is greater franchise instability. Teams in less attractive markets have to constantly beg for free agents. The alternative is to perform poorly for several years and hope to guess correctly on high draft picks that you then have to retain through increasingly complex CBA restrictions. This creates a perpetual cycle of mediocrity. Allowing players to receive equity won’t magically solve every struggling team’s problems, but it certainly wouldn’t make things worse. Particularly in a star-driven league like the NBA, it would be a better alternative than greater restrictions on player movement (e.g., a “franchise tag”).
Remember, in sports the players aren’t really “employees”–they’re the product. During lockouts, the leagues pay lip service to the idea that they want players to be their “partners,” but in practice they do everything possible to prevent that from becoming a reality. Sadly, it probably would take a suggestion from a government official a la George Osborne to ever change the status quo.