I spent most of Monday night in the PSA Slack channel, discussing with the rest of the staff the merits and pitfalls of the Mets’ alleged 10-year, $325 million extension offer with star shortstop Francisco Lindor. Of course by now we know Lindor is staying with the Mets for 10 years and $341 million, but while the channel speculated on a contract, I wondered whether a player would ever accept equity in a team instead of just a salary.
To be clear, MLB forbids players from owning parts of an MLB franchise while still active. Such an arrangement would introduce a bunch of ethical concerns around transactions, focus, strategic direction of the team, and so on. But what if we lived in a world without ethics, where MLB had a true unregulated market, and Steve Cohen could offer his shortstop shares in the New York Mets, instead of just cold hard cash?
The better question is, perhaps, how much salary would a player give up in exchange for shares of the club? The only investment better than a pro sports franchise is heroin, and thus, Lindor would take less than $340 million. The Mets were valued last week by Forbes at $2.45 billion, so one percent of those shares would be around $24,500,000 at present value. The easy answer might then be that Lindor would take $315 million, plus, say, one percent of the Mets, and that would be equivalent to the deal he signed.
What that doesn’t take into account, though, is the growth potential of an MLB club:
The Marlins are the only team valued at less than a billion dollars at present. As a rate of return over the last ten years:
Like I said, pro sports teams and heroin.
The Yankees are actually towards the back end of returns, below the median 13.46 percent at merely 11.94 percent over the past 10 years. Had they offered that hypothetical one percent stake to, say, Cliff Lee in the winter before the 2011 season, that one percent would have been worth $17 million. Now, Cliff Lee would still own one percent of the Yankees, but that chunk would be $52.5 million. This is also why I don’t care how much owners whine about a single year of lost revenue. It’s not hard to map out capital appreciation.
So returning to Lindor, he’ll earn $34,100,000 a year with this extension, starting next year. That’s $34,100,000 every year, but we have to discount that because inflation exists. So just to keep the math simple, let’s assume a two-percent discount rate to his cash payouts. That means, over the life of his contract, this is how he’ll be paid in 2021 dollars:
And again, let’s say Hypothetical Lindor could accept one percent of the Mets in lieu of $24,500,000 cash. That changes his cash payout every year, but if the Mets continue to appreciate at 12.6 percent a year...
So in a world where players could negotiate for shares of their teams, our Hypothetical Lindor comes out about $50 million ahead by giving up a little cash and taking one percent of an incredibly stable investment. The real plus here is how little maintenance being a one percent owner of a ballclub would be. You don’t do any work or make any decisions, and steadily watch the capital appreciate.
The interesting angle to this world is what happens if the player leaves the team? You wouldn’t offer shares to the Corey Kluber kind of free agents, but you might to the Bryce Harper variety — the kind that are signing career deals. But what if, halfway through Harper’s contract, or our hypothetical Lindor one, he wants to leave? You can’t have an owner of a team playing against that team.
In negotiations, you’d have to work out some form of buyback option, that if a player was traded, they would sell the shares at some kind of agreed-upon rate of return. In stocks, we know what a share trades for and we know a company’s market cap — pretty much instantly and on demand.
With private entities, we don’t know. They’d have some internal measure of valuation, but it’s more complicated than just calling up Boeing’s stock price. So both parties would have to agree, that if Lindor was traded on July 20th, 2028, his shares would be purchased by the Mets at x-percent return — like around that 13.4 percent median return that MLB franchises have enjoyed.
It’s probably a good thing, from a competitive standpoint, that players can’t be owners. But in the rare instances where shares of a team could reasonably be offered to the franchise-contract style of player, the player probably does better off. Maybe that’s the reason it’s not allowed in the first place.