When Athletes Transition to Moguls

In the past few weeks, there have been a handful of news reports regarding active or retired athletes’ off-court business interests, each of which has exhibited a good example of when athletes transition into moguls by turning their brands built on the court into off-court empires.

This week Forbes Magazine reported that LeBron James is now the first active NBA player billionaire due, largely, to his off-court business dealings augmenting his on-court earnings.  LeBron has earned $385 million from his NBA contracts during his 19-year career.  Meanwhile, the bulk of his wealth lies in his off-the-court value which largely consists of:

• Endorsement deals with Nike, AT&T, PepsiCo, Crypto.com, Walmart, among others;
• More than $500 million in earnings from and investments in SpringHill (James’ production company that produced “Space Jam: A New Legacy”, “The Shop” and a docuseries with tennis player Naomi Osaka), the sale to Apple of an interest in Beats by Dre in 2014, and a percentage ownership of Beachbody;
• Roughly $80 million in real estate holdings in Ohio and California;
• $90 million value for his minority ownership stake in Fenway Sports Group which own Liverpool FC, Fenway Park, the Boston Red Sox, part of Roush Fenway Racing, and which recently agreed to purchase the Pittsburgh Penguins for $900 million; and
• $30 million for his 10% ownership stake in Blaze Pizza, which he purchased for less than $1 million in 2012.

In just the past year (from May 2021 through May 2022), it is reported that James earned a total of $121.2 million in on-court and off-court earnings—second only to Lionel Messi’s $130 million.  Messi himself has substantial off-court endorsement deals with Adidas, Lay’s, PepsiCo, and a $20 million deal with digital fan token company Socios.com, among a number of other commercial deals.  In addition, it has been recently reported that upon the expiration of his current playing contract with Paris Saint-Germain F.C. in the summer of 2023, Messi could acquire a 35% ownership stake in Major League Soccer’s Inter Miami CF, joining the club as a player-owner.

Messi’s latest reported potential investment showcases the old adage, “invest in what you know”. Although James and Messi are two of the biggest sports brands in the world, other athletes have gone down similar routes by either investing in ownership of a sports club or franchise, or a sports related business.  A number of athletes have been able to invest through a “pay me in equity” agreement in connection with endorsement deals—oftentimes with small or start-up companies that want a big brand name to endorse their product or service in exchange for issuance of a minority ownership stake in the company rather than cash compensation.  This allows athletes to benefit from the growth of the enterprise from use of the athletes’ endorsement and does not require a cash investment from the athlete or cash compensation from a small, growing company that may not have the resources on hand to pay such an athlete’s normal “take”.

When it comes to the compensation aspect of commercial and endorsement deals for athletes, the agreements can oftentimes become complex and require a number of areas of proper planning. It is important that an athlete have the proper advisors to help advise on the tax, financial planning, and legal matters so that the athlete’s off-court empire grows while the pitfalls are avoided.