Employment & Labor Insider

In Part One of this series, I examined the basis for players’ possible claims to equity in their teams. This post will focus on how that might be done.

One of the principal concerns over providing players with ownership interest is how the equity is valued for salary cap purposes. The leagues believe that salary caps and luxury tax systems are important cost control mechanisms that help level the financial playing field among clubs, thereby promoting competitive balance and fan interest. Providing players with equity might distort that system.

Consider a hypothetical example. Paolo Banchero of the Orlando Magic is scheduled to become a restricted free agent after the 2025-26 season. Before the 2024 season, Forbes estimated the Magic to be worth $3.2 billion. Under the collective bargaining agreement between the National Basketball Association and its Players Association, Mr. Banchero could sign a maximum five-year deal with a salary equal to 25 percent of the salary cap, worth approximately $40 million a year. Mr. Banchero’s contract would meet one of the exceptions to the NBA’s salary cap, but it still must be accounted for and does count against the club’s luxury tax thresholds.

But what if instead of paying Mr. Banchero $40 million per year, they paid him $30 million per year and gave him a 1 percent interest in the team? As an initial accounting matter, the share in the team would need to be valued, which is not easy. Sports franchises are typically valued only at the time of a sale of some or all of its shares. On paper, that 1 percent interest might be worth $32 million (according to Forbes’ estimates), but its actual value could depend on several factors. These include the benefits and rights that are provided, the limits on resale, and the market for the stake in the event that Mr. Banchero wanted to sell.

If Mr. Banchero’s interest were valued at $32 million, should it count against the salary cap for the 2026-27 season? Or should it be prorated across the life of a contract like a signing bonus in the National Football League? Should it be taxed?

It gets even more complicated for the 2027-28 season. Annual valuations of the value of a franchise, purely for salary cap purposes, would be an uncertain, tedious, and costly exercise. Choosing the valuator would also be complicated because players and teams may have competing interests in the valuation. Indeed, the teams themselves could have conflicting interests –would they want the valuation to be low for salary cap purposes, or high in the event of a possible sale? What happens if a player gets traded to another team?

Perhaps most importantly, few if any franchises are limited to the teams employing the players.  Sports franchises are increasingly conglomerate in nature and often include multiple sports teams, a stadium or arena, ancillary property development, sports-adjacent businesses, and more.  These holdings can help explain some of the large discrepancies in franchise valuations. It would seem odd to provide a basketball player with an equity interest in an entity where the basketball team is only a partial holding in the entity’s portfolio. Nevertheless, it could be done if the franchise thought it worthwhile.

For player equity to work, there would have to be a fair and efficient process for valuing the club. The collective bargaining agreement between the NBA and the Players Association painstakingly identifies the revenue streams considered “Basketball-Related Income,” from which the salary cap is derived. Perhaps there is a multiple of that number that is a reliable predictor of a club’s value when compared with past transactions for minority stakes in NBA clubs. Sportico estimates that NBA teams are valued at an average of 11.9 times their annual revenue. From there, a player’s equity interest could be treated the same as salary or a signing bonus for salary cap purposes.

There are lots of questions around the possibility of players owning equity in the professional sports teams, and at present, there are few answers. Yet leagues and players have a long history of hashing out how to fairly divide the spoils of their joint efforts, sometimes amicably and sometimes not.

It remains to be seen whether equity ownership is an issue over which players are prepared to take a stand.