Lebron: Can he own stock in MSG and not circumvent the CBA?

[jdennis187]

Stock tip: Forbes national editor Michael K. Ozanian thinks the New York Knicks have the best shot of signing James because he can buy shares of Madison Square Garden stock.

Ozanian wrote on Forbes.com: "They cannot pay James with MSG stock because it would violate the league's collective bargaining agreement. But there is nothing to stop James from buying shares of MSG with his money. This would allow James to in essence work for himself and capture the upside in revenue from higher ratings on the MSG [network], a soon-to-be renovated Madison Square Garden and much higher profits he will bring to these platforms."

Is this true?

Does this , or does this not circumvent the CBA?

[answerthink]

Art XXIX Sec 8: During the term of this Agreement, no NBA player may acquire or hold a direct or indirect interest in the ownership of any NBA Team; provided, however, that any player may own shares of any publicly-traded company that directly or indirectly owns an NBA Team.

[Three34]

http://basketball.realgm.com/src_wireta ... of_knicks/

[answerthink]

It may be important to note the distinction between what Ozanian is saying and what the NBA is saying.

It would appear that the NBA has declared trading in MSG stock as an incentive to sign with the Knicks to be considered circumvention. It may also have SEC implications.

Ozanian's point appears to be different. Ozanian is saying LeBron should buy shares in MSG after he signs with the Knicks due to the systemic profitability he would create over the course of years.This approach appears to be within NBA rules (as per Art XXIX Sec 8).

But Ozanian's logic is a bit flawed, in my opinion. While Lebron may be able to trade after he has signed with the Knicks, so can any player (or any person, for that matter). He would gain no advantage. And any advantage he could potentially gain in such trading would certainly pique the interest of the SEC.

These are just my thoughts on the topic.

[FGump]

It may be important to note the distinction between what Ozanian is saying and what the NBA is saying.

It would appear that the NBA has declared trading in MSG stock as an incentive to sign with the Knicks to be considered circumvention. It may also have SEC implications.

Ozanian's point appears to be different. Ozanian is saying LeBron should buy shares in MSG after he signs with the Knicks due to the systemic profitability he would create over the course of years.This approach appears to be within NBA rules (as per Art XXIX Sec 8).

But Ozanian's logic is a bit flawed, in my opinion. While Lebron may be able to trade after he has signed with the Knicks, so can any player (or any person, for that matter). He would gain no advantage. And any advantage he could potentially gain in such trading would certainly pique the interest of the SEC.

These are just my thoughts on the topic.

As I read it, Oz was proposing that LBJ run out and secretly buy a boatload of shares in MSG, then sign with the Knicks thereafter ...which in actuality would be an insider trading move in which he's acting on "unknown to the public" info (the info being, LBJ will sign with NY) rather than buying after he becomes a Knick where everyone in the public has an equal chance to trade on what they think his presence will do for MSG.

From an SEC standpoint, AFTER he is a Knick, I can't see a problem. That situation is no different from the world's greatest software designer going to work for Apple and being given stock.

But from an NBA angle, seems to me that owning MSG stock (which is certainly "ownership") is an end run around salary limits for his work and violates the prohibition on player-owner angles (which carries all kinds of potential conflict of interest issues when a player on one team might own stock in another).

[answerthink]

Not sure I agree with you.

While I imagine we can all agree that purchasing MSG shares prior to such an announcement would violate league and perhaps SEC rules, the author clarifies in the commentary below his article that his intention is for Lebron to buy shares on the open market after he becomes a Knick.

From an NBA standpoint, can’t say I agree that owning such shares for general investment purposes after he becomes a Knick would constitute secondary salary. Art XXIX, Sec 8 seems to articulate this point.

From an SEC standpoint, there would be larger issues at stake. The SEC would certainly monitor any trades Lebron makes, in accordance with Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. He would also be subject to SEC reporting requirements (at a certain level of ownership) as well as the company’s own compliance regulations. However, ownership in and of itself would not appear to be problematic.

This is why I suggest that the author’s logic may be a bit flawed. Once Lebron becomes a Knick (an event upon which he would not be allowed to trade), the stock price will adjust to reflect the revised earnings potential of the company. Any further stock price appreciation thereafter would be based on the company’s ability to meet those revised expectations, for which Lebron would be no more qualified than any other investor to determine. He would gain no advantage over anybody who would otherwise view MSG as a solid investment opportunity. And if he did gain an advantage, he wouldn't be allowed to trade on it.

[FGump]

While I imagine we can all agree that purchasing MSG shares prior to such an announcement would violate league and perhaps SEC rules, the author clarifies in the commentary below his article that his intention is for Lebron to buy shares on the open market after he becomes a Knick.

I only read the blog item. I see the commentary now.

From an NBA standpoint, can’t say I agree that owning such shares for general investment purposes after he becomes a Knick would constitute secondary salary. Art XXIX, Sec 8 seems to articulate this point.

It appears that either Art XXIX, Sec 8 does NOT apply, or it has been rethought in the wake of the article ... because of the NBA's public stance in response.

This is why I suggest that the author’s logic may be a bit flawed. Once Lebron becomes a Knick (an event upon which he would not be allowed to trade), the stock price will adjust to reflect the revised earnings potential of the company. Any further stock price appreciation thereafter would be based on the company’s ability to meet those revised expectations, for which Lebron would be no more qualified than any other investor to determine. He would gain no advantage over anybody who would otherwise view MSG as a solid investment opportunity. And if he did gain an advantage, he wouldn't be allowed to trade on it.

All of that is true. I see no general problem from an SEC standpoint from Lebron purchasing MSG stock after he signs with the team and it becomes public knowledge.

But I do see cap issues ...and there are potential conflict of interest issues for a player to own stock in a team, too. If MSG stock is open to Lebron to buy, then it's open to Kobe and DWade too ... and let's say NY is on the edge of making the playoffs but finish against LA and Miami ...in which case the player has a competitive reason to do one thing but a financial incentive to do the opposite. It opens a whole can of worms. And should they go back and limit shares of MSG stock to NY players only, then you have acknowledged the tie between player and ownership, with a window for certain players to gain financial benefit from their team and their own play on a different level other than what is in the cap - and I believe that's exactly what Art XXIX, Sec 8 was attempting to avoid.