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Fay Vincent has a (severely flawed) idea about how to compensate players

Nov 29, 2010, 5:00 PM EDT

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Former baseball commissioner Fay Vincent has a column in today’s Wall Street Journal in which, after noting how businessmen and actors get an equity stake or points on the gross in their deals, why baseball players can’t do the same thing and take an ownership interest in the team:

Mr. Pujols will in all likelihood negotiate a salary of around $35 million annually in a four- or five-year agreement. He and his agent will surely notice the enormous bite the tax collectors will take of that income. Why not take some of the pay in the form of a piece of the Cardinals franchise? Who would argue the Cardinals are not more valuable if they can keep him?

First: $35 million? Really? I kind of figured it would be like $30 million, but let’s save that for another day.

Second: As Vincent himself notes, baseball prohibits players from owning a stake in their team unless they get approval from the commissioner and unless, pursuant to Major League Rule 20(e), they sell their stake in the team if they switch teams.  Specifically, that rule provides that the agreement “shall provide for the immediate sale (and the terms there of) of such stock or other proprietary interest or financial interest in the event of the [player's] transfer to or joining another Club.”

I’m just a dumb litigator, but I don’t think I’m wrong when I say that a player-ownership scenario that is designed to provide tax savings and greater flexibility is a tad bit hampered by a rule that requires the stake be divested immediately if the player switches teams.  That, my friends, would lead to an immediate taxable event. It would also severely hamper the value of the ownership stake, which would piss off both the player and the team’s majority owners, who likely don’t want to have to force chunks of the team out into the market the moment the team’s GM comes up with a spiffy trade.

Sure, you could change the rules about immediate divestment upon being traded, but then you run into the uncomfortable scenario of someone playing for the Cardinals, for example, who owns a stake in the Cubs. Or a Dodgers player — Juan Uribe, for example — whose wealth depends on the Giants having a greater franchise value.  In an age where franchise values are dependent upon regional sports network ratings, and those ratings are dependent upon winning and losing, that’s a recipe for disaster, is it not?

In other news, for all of Fay Vincent’s virtues, the game is way healthier, financially speaking, today than it was when he was commissioner. If this article is evidence of his business acumen, there may be a reason for that.

  1. Ryan Lansing - Nov 29, 2010 at 5:24 PM

    If the answer is a way for millionaires to pay lower taxes than they already do, you’re asking the wrong question.

  2. Paul - Nov 29, 2010 at 5:59 PM

    I don’t see it being that big of an issue… surely any player that would be getting an ownership stake would also have a no-trade clause in his contract?

    • Panda Claus - Nov 29, 2010 at 8:53 PM

      You’d almost have to add-in that no-trade clause to any contract of this type. On the other hand, it’s not like every Jeff Francoeour or Juan Uribe has to worry about getting this offer (of partial ownership).

      Really, you’d only ever offer this to a few players per decade, covering the entire league. Had this been an option for Jeter about 7-8 years ago we might not be having this melodrama playing out in NY right now.

  3. Detroit Michael - Nov 29, 2010 at 8:05 PM

    Regarding how much Albert Pujols might earn annually, here’s an even higher guess from economist J.C. Bradbury:
    http://www.sabernomics.com/sabernomics/index.php/2010/11/albert-pujols-the-first-40-million-man/

  4. fquaye149 - Nov 29, 2010 at 8:38 PM

    I do applaud him for looking for a way to get players a bigger chunk of the scads of money ownership is making off them, though. That’s a rarity, and kind of refreshing to see from a (former) member of baseball establishment

  5. The Rabbit - Nov 30, 2010 at 12:25 PM

    I’m not sure that Vincent’s scheme avoids current income taxes.
    Unless it’s a bona fide loan, an ownership share (or stock) is still compensation in the year it’s received. Taxes should still be due on its value. Even bartering is taxable.
    The ownership share may be eligible for the capital gains tax rate depending when it’s sold.
    There are a few creative things you might be able to do, but many wouldn’t pass IRS scrutiny.

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