Getting in on the Action?

Fay Vincent in his pomp.

Former commissioner Fay Vincent has an op-ed in the Wall Street Journal suggesting that baseball players negotiate for ownership shares in their teams as part of their compensation. (The piece is behind the WSJ.com pay wall, but if you have a login it’s worth a look.)

Why would players prefer stock to cold, hard cash? As Mr. Vincent notes, it’s all about taxes. Capital gains — the kind of income realized when you sell shares that have appreciated in value — are typically taxed at a much lower rate than regular salary income. Since professional athletes earn major dollars and often have their entire lifetimes’ earnings collapsed into relatively short careers, optimal tax planning is extremely important.

Indeed, tax issues have received some attention in the sports media recently. When LeBron James chose to sign the Miami Heat this summer, the media was quick to note that Florida has no personal income tax. More recently, articles about the race for Cliff Lee’s services have recognized the fact that Texas is another state without a personal income tax. New York on the other hand does have an income tax (although it also has the Yankees).

For my part, I’m not sure most baseball players are suited to being significant corporate shareholders. People who own large amounts of shares in individual companies should be very knowledgeable about the businesses in which they are invested. Your typical player might have a good understanding of the on-field team, but I doubt he knows (or wants to know) everything about his team as a business. Also, the player would only get the lower tax rate on any gain in share value, as the initial payment of shares would be taxed at ordinary rates.

Still, for those players with an interest in the business of baseball, it could certainly make sense. It’s somewhat surprising that agents and teams haven’t gotten creative and tried this more than they have.