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Naked Capitalism

New ownership technologies can also help spread the risk of making bold bets.

Dror Poleg
3 min read
Naked Capitalism

Lionel Messi became a remote worker. Physically, he moved from Barcelona to Paris, but financially, he moved from Spain to the world. The Spanish league enforces strict Financial Fair Play rules that limit how much teams can pay. These rules prevented Messi from earning the highest possible salary for his talent. The French league has similar rules, but it does not enforce them as strictly. As a result, Messi can earn much more by moving from one jurisdiction to another.

Financial Fair Play (FFP) rules were designed by the European Football Association to "help clubs break free of the vicious cycle of escalating costs that has led to a number of clubs almost falling into the financial abyss." Many of Europe's largest teams are heavily in debt. They are in debt because they spend a fortune in the hope of winning trophies (and broadcasting rights) that will bring in a bigger fortune. Most of them fail to do so.

This dynamic has always been true, but the internet and global TV rights put it on steroids. The winners win bigger prizes than ever, which means everyone is willing to take bigger risks in order to win the prize. As a result, losing money for years and going into debt are perceived as a legitimate strategy for a "healthy" club. Even in the NBA, where salary caps are stricter and affect all teams the same way, many teams lose money.

A similar dynamic is apparent in other industries — tech, in particular. The internet and globalization are making the prizes larger than ever. Securing top talent is becoming critical. And more companies (and investors) are choosing to lose money with the hope of hitting a home run that will make it all worthwhile.

The tech industry does not have a formal salary cap, but its salaries are still capped — by geography. As a result, engineers mostly compete in a local market. Local markets are smaller, and smaller markets are less competitive and offer lower pay even for the highest performers. Smaller markets put a ceiling on earnings, but they also put a floor. Many people make a nice living just because they live within commuting distance.

Many engineers are now going remote. By doing so, they leave behind Geography's salary cap. But higher salaries are no longer enough to attract the world's best talent. And on this front, soccer still has something to learn from the tech industry.  As Sequoia's Michael Moritz pointed out in a recent FT article:

"No vibrant organisation in my little world compensates valued performers in such a ham-fisted manner. Instead, they grant equity whose ultimate value is tied to the overall health of the business...

Imagine if every football club set aside about 25 per cent of its equity for player compensation, requiring that players sell their shares upon leaving the club. If Barcelona had compensated Messi with a combination of 50 per cent cash and 50 per cent equity, both he and the club would be far better off today. Two years before Messi joined the club it had revenues of $123m which, during the pre-pandemic season, had risen to more than $1bn."

Soccer players put their bodies on the line. They deserve a piece of the pie, not just a salary and bonus.

But owning a piece of the pie is not just about money; it's also about power and freedom. Earlier this week, OnlyFans announced it would "ban sexually explicit videos" from its platform, bowing to pressure from "banking partners and payout providers." The move will impact the livelihood and possibly risk the lives of thousands of adult performers who make a living on the site.

The crypto community quickly pointed out that a blockchain-based version of OnlyFans would enable all performers to own a piece of the platform, participate actively in its governance, process payments directly, and resist dictates from governments, banks, and other institutions. They're right.

New ownership technologies can also help spread the risk of making bold bets. Everyone can share some of the rewards, meaning that fewer "clubs" need to be perpetually bankrupt while society tries to figure out the best big technology or entertainment stars. The most successful inventors and performers will still earn more than everyone else, but life will be better for everyone.

Maybe.

Have a great weekend!