The Big Idea

The Lesson of the Shaq-FTX Saga

In the ever-evolving landscape of sports business, the lines between endorsement, investment, and liability are becoming increasingly blurred.

The recent settlement involving NBA legend Shaquille O’Neal and the collapsed cryptocurrency exchange FTX serves as a stark, multi-million-dollar cautionary tale. O'Neal's agreement to pay $1.8 million to settle a class-action lawsuit from aggrieved investors is more than just a headline; it's a critical case study for professional and collegiate athletes alike, signaling a pivotal shift in how endorsement deals, particularly those involving equity, must be approached.

From Spokesperson to Stakeholder: The Peril of Equity

For years, the legal precedent surrounding celebrity endorsements has largely shielded the endorser. The traditional model was simple: an athlete was paid a fee to lend their name, image, and likeness to a product. They were a "paid spokesperson," a role that generally insulated them from the company's operational or financial misdeeds. As O'Neal himself stated to CNBC in 2022, he believed he was "just a paid spokesperson for a commercial."

However, the FTX case highlights a crucial distinction that alters this dynamic entirely. While many celebrity endorsers were named in the lawsuit, including Tom Brady and Stephen Curry, the legal arguments against them hinged on portraying their roles as more than just passive promoters. The plaintiffs argued that these high-profile figures, many of whom are savvy business people in their own right, were not just reading from a script; they were leveraging their credibility to present FTX as a legitimate and safe investment. When an endorsement deal moves beyond a simple cash payment and into the realm of equity or company tokens, the endorser's legal position can shift from that of a hired gun to a stakeholder with deeper ties and, consequently, greater potential liability.

According to a detailed legal analysis by Sportico, endorsers who take on an equity stake or a leadership role in a company become more exposed to the legal fallout from that company's wrongdoing. They are no longer just faces in an ad campaign; they are, in a legal sense, partners in the enterprise. This transition is critical. While taking equity can offer a tantalizing upside far beyond a standard endorsement fee, it comes with significant strings attached. These "strings" are the fiduciary and ethical responsibilities that come with being part of the company's structure. The potential for a massive payday is tied directly to the company's success and, more importantly, its integrity. When that integrity implodes, as it did spectacularly with FTX, the equity-holding endorser can find themselves legally and financially entangled in the wreckage.

A Warning Shot for the NIL Generation

This ruling reverberates far beyond the world of retired Hall of Famers. It lands squarely in the new, high-stakes arena of Name, Image, and Likeness (NIL) deals for college athletes. The NIL era has unleashed a torrent of opportunities, with student-athletes suddenly able to monetize their personal brands. Many of these deals, particularly from startups and companies in emerging tech sectors like crypto, may be offered in the form of equity or company tokens instead of cash.

For a young athlete, an equity offer can seem like a golden ticket—a chance to get in on the ground floor of the "next big thing." The FTX saga, however, demonstrates the immense risk of this approach. A college athlete, often with limited financial literacy and business experience, could easily be swayed by the promise of future riches without understanding the due diligence required. They might see a beloved superstar like Shaq in an ad and assume the venture is safe, not realizing the complex legal web they are entering.

The O'Neal settlement is a flashing red light for this new generation. It underscores that accepting equity is not a passive act. It implies a deeper level of partnership and, as courts may argue, a greater responsibility to vet the company being promoted. The excuse of "I didn't know" becomes far less tenable when one's compensation is tied directly to the company's value.

The Agent's New Mandate

This new reality places an immense burden on the agents and advisors representing these athletes. The role of an agent is no longer simply to negotiate the highest fee. In the age of equity deals, their mandate must expand to include rigorous, forensic-level due diligence.

Agents must now become proficient in scrutinizing the business models, financial health, and leadership integrity of any company offering their client a stake. This involves:

• Financial Vetting: Analyzing balance sheets, funding sources, and the viability of the business model. Is the company built on a solid foundation or a house of cards?

• Leadership Background Checks: Investigating the track record and reputation of the founders and executive team.

• Legal and Regulatory Compliance: Ensuring the company is operating within the bounds of the law, a particularly complex task in nascent industries like cryptocurrency.

The failure to perform this diligence is a dereliction of duty. An agent who allows a client to take an equity stake in a fraudulent or unstable enterprise is not just risking their client's reputation but exposing them to the kind of significant financial liability Shaq is now facing.

Ultimately, the Shaquille O'Neal-FTX settlement, which, according to CNBC, resolves the claims without an admission of wrongdoing, is a landmark moment. It serves as a powerful example of how the allure of equity comes with profound risk. For athletes, both professional and collegiate, and the agents who guide them, the message is clear: the potential for a greater reward demands a proportionally greater level of scrutiny. In the modern world of sports business, ignorance is no longer a defense; it's a liability.

Merchandise

All About the Merch

Team merchandise can be an overlooked segment of sports team revenue. It’s a big business in its own right.

Merchandise sales drive significant revenues for teams, but are rarely mentioned in the same light as media rights, ticket sales, and even concessions. Some might be surprised to learn that the global licensed sports merchandise market was valued at $37 billion in 2024 and is expected to grow 4-6% a year for the next decade. North America accounts for just over 50% of that marketplace. Teams and leagues don’t generally break out their merchandise revenues, but observers estimate it makes up 10-25% of revenues, depending on the league and team.

Merchandise Breakdown

According to Market US, Apparel is the top category of global merchandise sales, followed by Footwear and Headwear. 

Predictably, the leading sports merchandise varies by region. In the US, football and basketball are the top sellers. In Europe, soccer dominates sales. Asia goes for cricket and basketball.

The top teams globally are dominated by soccer. Man United, Barcelona, and Real Madrid are the top sellers around the world. In the US, the Yankees and Lakers take the top two spots. 

Economics

In general, the money trail for merchandise flows as follows:

While the arrangements vary by league, most treat a large portion of merchandise licensing as a shared revenue source similar to national media deals. Some leagues, like the NFL, direct a portion of the licensing revenue to players. But teams also act as retailers with their own in-stadium and online team shops, which means they get both their share of the licensing fee and the retail markup. Most leagues treat these retail profits like parking and concessions, for which the teams get to keep all or most of the revenue.

Buyer Motivations

Several studies of buyer motivations for sports merchandise show they are driven by three main factors:

Identity - Team merchandise gives people a sense of belonging to a larger community. For iconic teams, it represents not just an identity with the team but with the city or region. Merchandise for these purchasers is a signal of pride and belonging.

Memorialization - Games are often attached to positive emotional experiences. Moments like a fun family outing, a first trip to a stadium, or a playoff victory all create a desire to capture the moment in a tangible and lasting form. Merchandise provides a way to note, relive, and even brag about those moments.

Fashion/Culture - When Dr. Dre sported a White Sox cap in “Nothing But a G Thang,” sales of White Sox apparel jumped as it became a staple of hip-hop fashion. Similarly, as certain sports stars like LeBron James and Messi cross into mainstream celebrity, their uniforms become popular independent of team affinity and more as cultural statements.

Keys to Success

Experts cite four key attributes of successful merchandising programs:

1. Ease and Convenience - The emotional factors involved in sports merchandise tend to drive a high degree of impulse purchase behavior. That makes it critical to make it easy to purchase. Long lines at in-stadium venues,  multi-step online checkout processes, and inventory shortages all discourage impulse buyers.

2. Exclusivity - As evidenced by the number of uniform variations being rolled out by almost all the leagues, buyers are attracted to limited edition offerings. A combination of unique design and FOMO drives a higher sense of value for customers.

3. Wide Price Range -  Merchandise not only generates immediate revenue, but it also creates a connection with fans. People wearing team gear, and people seeing other people wearing team gear, helps drive future fandom. High-end merchandise helps satisfy the need for something special, commands higher margins, and provides a signal of quality that reflects on the whole offering. Low-end items give a path for more people to participate with and connect to the team. 

4. Fashion Forward - There will always be a place for the traditional hat and t-shirt. But as athleisure continues its influence on the fashion industry, people are looking at sports merchandise with a new eye. As the leagues have started to work with high-end designers, and players themselves have become promoters of fashion, there is an increased opportunity to benefit from the appeal and margins of merchandise targeted to a higher design standard. 

The Downsides

Sports merchandise is not without its risks and failures. Some of these include:

Counterfeiting - It's easy to slap a logo on a cheap shirt, and the sports merchandise world is rife with fakes. It’s a game of whack-a-mole. The best leagues can do is to work closely with law enforcement agencies, require manufacturers to use tags, holograms, and other marks to prove of genuine product, and police their own supply chains for potential abuses.

Authenticity Backlash - Given the strong emotional element, design changes have to be sensitive to fan perceptions. The NBA’s experiment with sleeved uniforms in 2013-2017 is an example of fans rejecting a move they saw as manipulation. The NBA admitted they were trying to create uniforms that would be better sellers than the traditional sleeveless versions. But there were also rumors that the NBA was trying to create more space to introduce sponsor ads on uniforms. It hit bottom when LeBron James ripped his sleeves in frustration during a game. The shirts never took off on or off the court, as fans saw it as an inauthentic intrusion on the game. 

Merchandise is a key part of the revenue picture and an opportunity for growth if handled to its full potential.

Nerding Out

The Future of Television and Sport

The influence of streaming has already impacted sports viewing and will accelerate.

Nielsen just reported that this past May marked the first time streaming viewership exceeded broadcast and cable combined. We’ve already seen the effect of streaming on media deals across leagues. What can we expect as streaming continues to gain in viewership?

More deals for more sports

Sports are a core driver for attracting viewers. Streaming services will continue to use sports as a way to attract subscribers. As such, we can expect a broader market for sports content. This is a good time for younger and less established leagues to get a media deal.

Richer deals for the big sports

We’ve seen some consolidation in the streaming world, but there are still a lot of players and a lot of competition for viewers. Until the market thins out some more, we can expect streamers to spend more on known quantities that attract large and dedicated audiences.

Long-term fragmentation

The fragmentation of viewers will continue as viewers split their time among more and more options. Sports have long been the exception to the shrinking audiences associated with most televised programming. While the nature of sport will likely keep it ahead of other content in terms of appointment viewing, we’re likely to see total audience sizes shrink as sports content becomes less universally accessible and divided over more distribution channels.

Reach vs revenue decisions

As we discussed recently, teams will be increasingly forced to strategize about the tradeoffs in reach vs revenue. The accessibility and reach of broadcast help attract new fans to build future audiences, but the revenue from high-spending streamers brings immediate gains. Leagues and teams will have to get increasingly sophisticated on how they allocate their schedules in an attempt to serve both objectives, setting aside key games and events for broader audiences while using streamers to maximize regular-season revenue. 

By The Numbers

Numbers That Jumped Off the Page

19%- This year’s matchup between the Thunder and Pacers is averaging 9.2 million viewers, down 19% from last year’s finals between the Celtics and Mavericks. It’s not all bad news, though. Despite the struggling comparisons to previous NBA Finals, all five games so far are the highest-viewed primetime programming of May and June.

$4.3 Million- After his winning putt to win the U.S. Open this past weekend, J.J. Spaun came away with $4.3 million. It was only Spaun’s second PGA Tour win since making the tour 11 years ago.

$10 Billion- The Los Angeles Lakers, the premier franchise of the NBA, sold for a whopping $10 billion valuation, breaking the record recently set by the Boston Celtics ($6.1 billion) by a whopping 63.9%. The Buss Family originally bought the team for $67.5 million back in 1979, so it’s safe to say it was a solid investment. Check out our breakdown on how teams are valued to see just how they came to that final number.

Pulse Check

Last week, we asked BTS readers, “Which League Has the Best Playoffs?” Here’s what they thought.

The Highlight Reel

Catch up on our most-read articles from previous weeks

Do you have a topic you want us to cover, a survey question you'd like us to ask, or any news you'd like to share? Let us know at [email protected].