Tuesday, November 30, 2010

Athletes, Unions and Ownership

In today's post at Economix, Catherine Rampell wrote about how giving ownership stakes to professional athletes can be a successful tax strategy.
This summer we wrote about how tax considerations might have figured into a decision by LeBron James to leave the Cleveland Cavaliers and join the Miami Heat, since Florida does not have personal income taxes. There is, however, an even more advantageous tax strategy that he missed out on entirely.
To make this point, she points to a Wall Street Journal article by Fay Vincent. Here's a key excerpt:
My question is why sports figures are not taking steps to generate tax-favored income by bargaining to get ownership interests in their teams. Imagine how much better off old-timers like Mickey Mantle and Roger Maris would have been if they had been able to obtain even tiny shares of the Yankees franchise in 1961. In today’s context, it is true enough that the tax rate on capital gains income may soon rise to 20 percent — but that’s still far below the rates levied on top income earners.
What I find interesting about this proposal is not the tax advantage, but the incentives advantage of player ownership. Giving athletes an ownership stake in their teams might be a great way to align players' and owners' interests in long-term negotiations. On balance, I'd expect this to be in the interest of both players and owners.

For example, if marquee players in the NFL had some non-trivial ownership stake, they would reap some of the benefits of the proposed 18-game (instead of the current 16-game) season. If this is such a tremendous opportunity from the owner's standpoint, maybe a little slice of the ownership pie is enough to convince the players that it is worth playing an extra 2 games (subject to some concessions, of course).

If player-ownership is such a great idea, why hasn't it taken hold? I see two reasons off the top of my head.
  1. Players having an ownership stake in the team might disrupt the hierarchy of the team, which can affect the performance of the team. On a typical team, owners usually step into conflicts between marquee players and coaches as a third-party arbiter (either demanding that the two work it out, firing the coach, or trading the player). Successful franchises are able to balance the demands of high-profile players and team hierarchy.
  2. A more cynical reason that player-ownership hasn't taken hold is that player-ownership (if it is a good idea) is not good for the players union. Most American professional sports organizations have a players union, which would stand to lose if players and owners can find a more efficient way to bargain on amicable terms. With unions taking the lead in these contract negotiations, it is no wonder that unions don't propose a contracting solution that -- in the long term -- could reduce the role of unions in professional sports.
If my cynical reason is correct, unions probably raise my first objection to player ownership whenever it comes up in these negotiations.

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