Ricky Rubio’s Buyout
Ricky Rubio (wikimedia)
The Minnesota Timberwolves continue to have trouble bringing their draft pick Ricky Rubio over from Spain. Not, as it initially seemed, because Rubio doesn’t want to go to the Twin Cities. Rather the issue is that Rubio’s contract with DKV Joventut Badalona involves a $6.6 million buyout and the Timberwolves “can only contribute $500,000 toward the buyout under NBA rules, which handicaps their ability to convince an 18-year-old kid who made just $97,000 to make a huge financial commitment to chase his dream in the league.”
One thing that strikes me is that this seems like a scenario in which we could use some financial innovation. I would say that loaning Rubio $6.1 million to complete the buyout and let him come to the NBA is an investment that’s likely to pay off. He could raise the money by selling “Rubio bonds” that pay out a fixed percentage of his NBA earnings over the next ten years. If he turns into a star, you’ll win big. If he turns into a bust, you’ll lose a lot of your investment. I’d buy one. And actually buyouts aside this seems like a device that could be popular for a lot of young players. Promising rookies could sell bonds bring future income into the present and also to hinge against the possibility (*cough* Greg Oden *cough*) that injuries will prevent them from living up to their hype.
The other thing is that once you ignore the principle-agent problem facing Minnesota’s managers, it’s not clear to me that resolving this issue is really in the Timberwolves’ interest. Rubio “has two years remaining on his contract” and is 18 years old. 20 year-old basketball players are almost always better than 18 year-old basketball players. If Rubio doesn’t buy out his contract, Minnesota will still have his draft rights, will still be able to bring him to the United States, and will still be able to pay him a rookie scale contract. But they’ll be paying for what is, in effect, a better player while some Spanish team needs to finance his further development.
23 Responses to “Ricky Rubio’s Buyout”
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August 11th, 2009 at 2:35 pm
shame on my country and crazy expensive buyouts
other than that, it’s a problem of justice in spain: under EU labour rules, the buy out of ricky’s contract it’s totally disproportionate (he gets a 2% of the buy out as salary).
If he goes to court, a judge will considerably lower that amount, but that can take a long time until it’s resolved.
he already tried to do that.
Free market really screws labour rights in this case
August 11th, 2009 at 2:37 pm
He could raise the money by selling “Rubio bonds” that pay out a fixed percentage of his NBA earnings
I’d have to say that’s more equity than debt.
August 11th, 2009 at 2:45 pm
the possibility (*cough* Greg Oden *cough*) that injuries will prevent them from living up to their hype.
You do not know that!!! You do not know that!!! I still believe in The Dentist!
And I don’t understand why a normal bank loan wouldn’t work for Rubio.
Rubio “has two years remaining on his contract” and is 18 years old. 20 year-old basketball players are almost always better than 18 year-old basketball players. If Rubio doesn’t buy out his contract, Minnesota will still have his draft rights, will still be able to bring him to the United States, and will still be able to pay him a rookie scale contract. But they’ll be paying for what is, in effect, a better player while some Spanish team needs to finance his further development.
Exactly. This is why I liked the pick by MN. Unless Rubio is worse than anticipated, he should hold his value or increase it. So maybe you trade him down the line for the fifth pick in 2011 draft.
August 11th, 2009 at 2:50 pm
Principal-agent, Matt, like a school principal. Oh right–they called him a headmaster.
August 11th, 2009 at 3:00 pm
Investing in young athletes has been going on for years in the inner-city. The problem is that the investors are gang-bangers and drug dealers and the players are stuck with them for the rest of their careers.
August 11th, 2009 at 3:12 pm
I’m really surprised that the European transfer system has held out. It’s one thing for a young player to agree to something like that when they have little leverage, but even very established players lock themselves into long-term contracts and then arrange for large sum transfers that benefit the club almost exlusively. Ronaldo was just sold to Real Madrid for $132 million and he probably got very little for that. It’s insane.
August 11th, 2009 at 3:13 pm
Also, following up on Marshall’s point, we should bear in mind that Matt does not know what a bond is when evaluating his pontifications on finance.
August 11th, 2009 at 3:17 pm
“Minnesota’s managers, it’s not clear to me that resolving this issue is really in the Timberwolves’ interest.”
Minnesota was third-to-last in the league in home attendance as percentage of capacity. Call me crazy but Jonny Flynn (as good as he is) is not going to make that number shoot up. Rubio is going to sell tickets way above his ability level for years to come.
http://sports.espn.go.com/nba/attendance?sort=home_pct&year=2009&seasonType=2
If this pick was so genius, Kahn should have been genius enough to prepare fans for the fact that he probably wasn’t coming over this year. But here he is, still keeping Jonny Flynn and every Minnesota fan in limbo waiting to see who’s playing point come November. It was easy to do the math and see that this kid was not going to be able to pay that buyout on a rookie salary, unless he was picked in the top 3. Now he’s reduced to begging the Spanish team to lower the buyout.
August 11th, 2009 at 3:27 pm
Rubio is going to sell tickets way above his ability level for years to come.
Why, because he looks so dreamy? Is this the vaunted “Luke Ridenour effect” in action?
August 11th, 2009 at 3:29 pm
One thing that strikes me is that this seems like a scenario in which we could use some financial innovation. I would say that loaning Rubio $6.1 million to complete the buyout and let him come to the NBA is an investment that’s likely to pay off. He could raise the money by selling “Rubio bonds” that pay out a fixed percentage of his NBA earnings over the next ten years.
I don’t see why he couldn’t do that unless NBA rules prohibit it. David Bowie incorporated himself some years ago and sold “Bowie Bonds” secured by royalties on his music: http://en.wikipedia.org/wiki/Bowie_Bonds
August 11th, 2009 at 3:43 pm
Maybe the entire problem is the North American league structure. If eastern European soccer clubs can buy the rights to 14 and 15-year-old Senegalese kids, I see no reason the NBA can’t get an 18-year-old over here from… Spain.
August 11th, 2009 at 3:49 pm
Yeah, great, and then you can hire a swarm of lawyers like me to register the Rubio bonds with the SEC. That will potentially cost hundreds of hours of our time at something like $150-500 per lawyer hour. Is that kind of regulation worth it from a societal perspective? Unclear; maybe yes, maybe no, but definitely a lot hazier than a lot of progressive bloggers who generally disparage the notion of financial innovation and the costs of regulation would like to believe.
August 11th, 2009 at 4:10 pm
If Rubio had been picked 26 places later, this wouldn’t be a problem. There is no salary cap on the second round picks. For this reason, the Suns’ second round pick last year, Goran Dragic, was able to get paid enough to afford his own buyout.
August 11th, 2009 at 4:33 pm
“Rubio is going to sell tickets way above his ability level for years to come.
“Why, because he looks so dreamy? Is this the vaunted “Luke Ridenour effect” in action?”
If the Luke Ridenour effect was supposed to mean driving and dishing like Pete Maravich, then yes. But I don’t think it meant that. The kid isn’t Chris Paul but he’ll easily sell enough to pay for his meager rookie scale salary. The letdown from not bringing over Rubio also has to be considered–with the Washington trade, the Wolves are a worse team than they were last year. Unless they get Rubio.
August 11th, 2009 at 5:17 pm
He’s hot. I’d watch a little basketball to feast my eyes on him. Hell, I’d watch golf if he were playing.
August 11th, 2009 at 5:26 pm
I’d have to say that’s more equity than debt.
I was thinking by analogy with the “Bowie Bonds”.
August 11th, 2009 at 5:29 pm
This scheme is like the “human capital contracts” idea pushed by the Cato institute.
August 11th, 2009 at 10:28 pm
Wow once again the T’Wolves organization dropped the ball. Best wishes to them and Ricky Ru. I’d like to see him play in the NBA this year, however, there is always next year. Somebody from the organization should loan him the cheddar.
August 12th, 2009 at 9:43 am
They were asking for this bullshit by drafting him. All this math was on the table already. Now this angst. It’s all sooooo Minnesota. Why the hell Rambis walked from LA instead of waiting on Jackson to expire, er, retire, is beyond me. Also, what of the slowly exploding time bomb the 80’s Celtics let loose on the NBA? McHale runs the Wolves into the ground as Bird mucks up the Pacers. I’m beginning to wonder if either team will ever be the same.
August 12th, 2009 at 1:48 pm
Promising rookies could sell bonds bring future income into the present and also to hinge against the possibility
“Hinging” is better than “hedging”, because allows you to visualize the hedge swinging open trapdoor-style and dumping you on your ass.
August 12th, 2009 at 4:45 pm
Why don’t they at least pay the 6 million and trade him for 6 million and player(s). Otherwise they get nothing.
August 13th, 2009 at 6:49 pm
There are so many variables involved in this RubioCube.
Left unmentioned is the financial state of DKV Joventut. In short, the club is on the verge of bankruptcy. This fact places DKV is a bind. If they settle for less than the full buyout amount, they deprive themselves of disparately need funds while weakening their business model. If they let RubioCube play for another two years, they lose out entirely on the incredible buyout.
The DKV owner has placed matters into a further bind, saying that RubioCube can no longer play for his team (allegedly because has offended the club beyond reproach). Conversely, RubioCube states that he is ready to complete the full term of his contract and continue playing for DKV the final two years.
Finally, it should be noted that endorsements are a big prize for RubioCube. His agent has been busy lining up corporations in pursuit of endorsement contracts. We shall see how this factors into the equation.
August 17th, 2009 at 1:01 pm
[...] I proposed a while back that Minnesota’s fans just start sending Rubio money, but this is a better idea: One thing that strikes me is that this seems like a scenario in which we could use some financial [...]