“A shoe is just a shoe until someone steps into it”
The recently released film Air, Courting a Legend, which depicts the backstage of the signing of then-newcomer Michael Jordan’s contract with Nike, and the news involving the new destination of acclaimed football player Lionel Messi for Inter Miami, in the United States, have reignited the debate about the common trajectory not only of these two legends of world sport, but also of other talents, in different segments and eras.
Starting with Steve Ballmer, employee number 24 at Microsoft. The company, as we know, was founded by Bill Gates in 1975 and Ballmer was hired four years later. In other words, he did not found the startup and was not there in its early days. However, through the partnership system, Ballmer earned shares for his commitment and great work, progressively evolving in the company. And, in 2008, he reached the position of CEO and held this position for six years. The partnership model, which can also be called vesting or stock options, is a resource much explored in nascent companies, especially those that do not have the resources to remunerate new employees, but need to compete with other companies, mainly competitors, in attracting and recruiting good names. In this sense, offering participation in the capital stock, mainly tied to goals and deadlines, has been a valid and effective mechanism in the acquisition and retention of talents.
These mechanisms must be accompanied by an efficient business plan, since, obviously, the number of shares of the company’s capital for this type of program is limited and it must be distributed in a balanced manner among the target professionals, the so-called equity pool. Moreover, the legal aspects are essential, as in the example of the cliff clause, hypothesis of termination and extinction of rights in cases of dismissal for just cause and also in the execution of the shareholders’ agreement, in order to regulate the political and financial rights upon the acquisition of shares, as well as their types.
Employee Stock Option Plans (ESOPs), such as Ballmer’s at Microsoft, are indeed a success story and have been widely replicated at technology companies, especially those with rapid and exponential growth.
However, on the side of the plan’s beneficiary, it is necessary to evaluate the risks involved in ESOPs, insofar as it is a bet on the success of the business and, furthermore, in the absence of greater benefits, in the case of regular hiring. A careful analysis of the founders is also relevant, to the extent that, once the shares are won, the beneficiary, as a rule, will start to contribute and participate in the company’s deliberations and assemblies. And, of course, in the success or bankruptcy of the enterprise. An affection between the partners, therefore, is elementary, since they shall nurture interests and profiles towards the success of the business.
It should not be forgotten that the ESOP model is an original resource of the North-American legal system. In civil law systems, for example, special care must be taken when importing this mechanism, as it implies in the analysis of a possible employment relationship, if coated with the characteristics of labor principles and legislation. In Portugal, for example, the recent Startups Law brought important news regarding the tax aspects involving ESOPs, which only reinforces the attention and planning in the creation of the program.
Another famous case involves the controversial Sean Parker and Mark Zuckerberg. Parker has in his curriculum the co-founding of Napster that, years ago, shook the structures of the phonographic market. His know-how was essential in the origin of Facebook and as mentor to the young and immature Zuckerberg. Parker’s collaboration, as a Trust Advisor, is well portrayed in the biography of the social network and how he influenced Zuckerberg in making strategic decisions, as in the episode of restructuring the company’s captable at a relevant moment in its history. She was also crucial in fundraising, opening doors for angel investors, fundamental to the rapid growth of the platform. Parker, by all accounts, was also the one who advised Zuckerberg to adjust the brand of the now powerful planetary social network.
The other side of the coin, however, was that Zuckerberg’s Trust Advisor, who owns a small but significant percentage of Facebook’s shares, violated the company’s compliance rules in a reputational episode. The fact resulted in his resignation as a member of the Board but, as they say, he still works as an informal advisor to Mark Zuckerberg. Parker is on the list of billionaires and certainly catapulted by his portfolio of shares, including those of Meta. Between being paid at the time as an advisor or receiving a stake in the startup, Parker made the right choice.
Besides ESOPs and Trust Advisor, another widespread modality is Media for Equity. Basically, the beneficiary is an ambassador of the company’s brand, carrying out advertising, publicity and participation in activations in exchange for a percentage of the share capital. A kind of exchange, where the currency is prestige on one side and the possibility of receiving dividends on the other. A successful case is that of the singer Anitta and the Brazilian fintech company Nubank. The Media for Equity model also allows a plurality of situations, such as the beneficiary’s participation in a seat on the company’s board, even with limited powers, or granting advertising space in certain media, as a famous Brazilian venture capital fund, Globo Ventures, does.
As the reputational and image factor of the beneficiary is the soul of Media for Equity, the risk for the equity grantor is high, as there is no control over the beneficiary’s behaviour and idiosyncrasies. In times of “cancellation” and public judgement in social media, certainly Media for Equity can be one of the most expensive bets.
And in citing celebrity vs. equity, it is in the unmissable film Air, Courting a Legend, that we witness the behind the scenes of one of the most iconic cases in the market. A mix of daring, innovation and creativity. A kind of rupture of the status quo and marketing stunts, typical of the audacious. Facing a symmetry between competitors Adidas and Converse, it was up to Nike to create its own context, engaging and, above all, based on exponential revenues for the Jordan family. To paraphrase one of Nike’s commandments, if we do the right things, we will make money almost automatically. In other words, in an ethical approach, combined with making the right decisions, financial success will be a natural consequence. The phrase, in fact, fits the definition of equity like a glove.
The receipt of royalties, i.e. a percentage on the sales of Air Jordan products, is based precisely on the property rights over certain assets, in an indeterminate, indefinite and, above all, unlimited character. The so-called passive income, the dream of any investor. In Nike’s case, certainly the equity component was the differential to win Mrs. Deloris Jordan, whose decision, declaredly, would be to sign with the German brand Adidas. That is, history was made by the detail of equity.
It is never too much to remember that the episode was a watershed in the market, in a precedent that balanced the scales between the parties and, mainly, in the direct involvement, a kind of uninterrupted donation, the wearing of the company’s jersey, by the beneficiary of the licensing dividends. Years later, for example, and in the wake of the historic case, it fell to Under Armour to do a similar double with superstar player Steph Curry.
Finally, and not to be left out of the party, Argentinean player Lionel Messi, regarded as one of the greatest in football history, made the decision to sign with a modest North American team, Inter Miami, generating a certain frenzy in the footballer’s market. To overcome the offer of 400 million dollars a year from the Arabs and accept a salary of “only” 60 million euros, the American team had to do some mathematics to make it work. And the numbers are brutal: participation in the broadcasting rights of Major League Soccer games, whose ownership and payment belong to Apple. Percentage on revenues from the sales of sports materials and product licensing. Team shares and future access to the board, opening the way for the agency of athletes and betting on new talents, among other benefits. In short: equity.
But what, then, do Ballmer, Parker, Jordan and Messi have in common? Long-term strategic vision, affection for risk and, most of the time, well advised by agents. However, beyond these clichés, they all nurtured the same characteristic, typical of round pieces in square holes and who see things differently: confidence that they are exceptional, authentic outliers in what they do. As Jobs said, you may disagree with them. However, the one thing you can’t do is ignore them. Because they change things. And in this case, the power of equity is calling the shots.
