Equity vs. Cash: Evaluating Endorsement Deals and Business Partnership Offers For Athletes

The endorsement landscape has fundamentally shifted. A decade ago, most athlete and entertainer partnerships were straightforward: promote a product, receive a check. Today, brands are offering equity stakes, and high-profile clients are becoming part-owners in everything from sports drink companies to tech startups.

While equity deals can sound appealing, who wouldn't want to be an early investor in the next big brand? They come with complexities that require careful evaluation. Not every equity offer is created equal, and understanding how to assess these opportunities is critical to building sustainable wealth.

The Appeal of Equity Deals

Equity partnerships offer something cash can't: unlimited upside potential. When LeBron James took equity in Blaze Pizza instead of a traditional endorsement fee, that stake reportedly became worth over $30 million. Kevin Durant's early investment in Coinbase through his Thirty Five Ventures reportedly turned into hundreds of millions when the company went public. Serena Williams took equity positions in over 60 startups through her Serena Ventures fund, recognizing that ownership beats endorsement fees when companies succeed.

Beyond financial upside, equity positions can offer:

• Long-term passive income if the company succeeds
• Alignment with brands you genuinely believe in
• Tax advantages through capital gains treatment (more on this below)
• Influence over product development and brand direction

Stephen Curry's partnership with Under Armour included equity that was estimated to be worth over $14 million when the company's stock was at its peak. Compare that to a traditional $4 million annual endorsement fee, the equity upside was substantial.

The Hidden Complexities

Before you trade guaranteed cash for equity, understand what you're actually receiving. Here are the critical factors that determine whether an equity offer is legitimate or just an attempt to secure your endorsement on the cheap:

Vesting Schedules: Your equity often doesn't become fully yours immediately. A typical vesting schedule might be four years with a one-year cliff, meaning you receive nothing if you leave before year one, then gradually earn your full stake over four years.

Example: An athlete signs a deal with a beverage startup for 3% equity vesting over four years. After 18 months, the company pivots to a different market segment and no longer needs athlete endorsements. The partnership dissolves, and the athlete walks away with only 1.5% of the original 3% promised and if the one-year cliff hadn't been met, potentially nothing at all.

Dilution: Your 2% stake today might become 0.5% after future funding rounds. When a fitness app company raises Series A funding, they issue new shares to investors. Your original 2% stake (200,000 shares out of 10 million) becomes 1.3% when the company issues 5 million new shares to investors. After Series B, it drops to 0.8%. After Series C, you own 0.5%.

A real-world scenario: An entertainer receives 1% of a tech startup valued at $20 million (equity worth $200,000 on paper). Three years later, after multiple funding rounds, they own 0.3% of a company now valued at $200 million. Despite the company growing 10x, their stake is only worth $600,000, a 3x return instead of the 10x they expected. Without anti-dilution provisions, dilution ate most of their upside.

Liquidation Preferences: If the company sells, investors with liquidation preferences get paid first.

Example: A company raises $50 million in venture capital with a 1x liquidation preference. The company later sells for $60 million; sounds like a win. But after the VC's take their $50 million off the top, only $10 million remains for everyone else. Your 2% "equity stake" is worth $200,000 instead of the $1.2 million you calculated (2% of $60 million). And if they had a 2x liquidation preference? The VC's would take the entire $60 million and you'd receive nothing.

Valuation Reality: A 1% stake in a company "valued" at $50 million sounds impressive, but that valuation might be inflated or based on unrealistic projections.

Real scenario: A coach partners with a sports analytics company "valued" at $100 million, receiving 0.5% equity (theoretically worth $500,000). That $100 million valuation was set by a small funding round where investors bought just 2% of the company for $2 million. Three years later, when seeking a real exit, buyers only value the company at $30 million because revenue hasn't materialized. The coach's 0.5% is now worth $150,000 and may be worth nothing after liquidation preferences.

Tax Treatment: A Key Consideration

The tax implications of equity vs. cash compensation differ significantly:

Cash Endorsements: Taxed as ordinary income in the year received, at your highest marginal rate (potentially 37% federal plus state taxes).

Example: An athlete receives a $1 million endorsement payment. After 37% federal tax, 13.3% California state tax, and 1.45% Medicare tax, they net approximately $482,500. Over half the payment goes to taxes immediately.

Equity Compensation: Generally not taxed until you sell (assuming it's structured properly), and profits may qualify for long-term capital gains treatment (20% federal maximum) if held over one year.

Example: That same athlete takes $1 million worth of equity instead of cash. Five years later, the company goes public and the equity is worth $5 million. When sold, they pay roughly 20% federal capital gains tax plus 13.3% California tax, netting approximately $3.3 million. After the same initial $1 million "compensation," the equity route generated $3.3 million vs. $482,500 in cash.

However, some equity grants trigger immediate taxation based on fair market value, creating a tax bill without cash to pay it.

Scenario: An entertainer receives restricted stock units (RSUs) in a private company valued at $500,000. The IRS considers this taxable income immediately, creating a $250,000+ tax bill, but the stock is illiquid and can't be sold to pay the taxes. Now they owe taxes on "income" they can't access, potentially forcing them to liquidate other assets to cover the bill.

Framework for Evaluation

When presented with an equity offer, work through these questions with your financial advisor and CPA:

1. What's the cash equivalent? Get a concrete number for what they'd pay in cash instead of equity. This becomes your baseline for comparison.

Real example: A basketball player is offered 2% equity in an energy drink company. When pressed, the company admits they'd pay $300,000 cash instead. That means they're valuing their own company at $15 million ($300,000 ÷ 2%). Now you have an anchor point: is 2% of this company really worth $300,000, or are they inflating the valuation to make the equity seem more attractive than cash?

2. What percentage ownership and what type of shares? Common stock, preferred stock, and profit interests have vastly different rights and values.

 Example comparison:

• Common stock: Last in line for payouts, most vulnerable to dilution, but standard for employee/endorser equity
• Preferred stock: Priority in liquidation, often comes with additional rights, typically reserved for investors
• Profit interests (in LLCs): Only valuable if the company appreciates beyond current value, often used for service providers

A football player offered "2% of the company" needs to ask: 2% of what share class? If it's common stock and VC's hold $20 million in preferred stock with 2x liquidation preference, those VC's get $40 million before the player sees a dollar. The 2% is essentially worthless unless the exit exceeds $40 million.

3. What's the realistic exit timeline? Equity is only valuable when you can sell it. If the company has no clear path to acquisition or IPO within 5-7 years, you're taking on significant risk with no liquidity.

Real scenario: A musician takes equity in a fashion tech startup in 2018. By 2025, the company is still private, the equity can't be sold, and the musician has received zero income from the "valuable equity stake" for seven years. Meanwhile, a $400,000 cash deal would have been invested and growing. The opportunity cost of illiquidity is enormous.

4. What are your financial needs today vs. tomorrow? If you need cash flow now for living expenses, debt payments, or other investments, trading guaranteed income for speculative equity may not align with your financial plan.

Example: A minor league coach earning $75,000 annually is offered equity in a training facility instead of a $30,000 annual consulting fee. The coach has student loans, a mortgage, and kids approaching college age. Taking illiquid equity over needed cash flow would force him to use high-interest credit cards or loans to cover gaps, the worst possible financial decision.

5. How does this fit your overall portfolio? Concentrated equity positions create risk. If you already have significant net worth tied up in illiquid investments or single-company stock, adding more equity concentration may not be prudent.

Scenario: A professional athlete already has $2 million in illiquid real estate investments, $500,000 in a private restaurant venture, and now receives offers for equity in a sports betting app. Taking more illiquid equity means 60%+ of net worth is locked up with no access to cash. If an emergency arises or markets crash, there's no liquidity cushion. Better to take cash and maintain portfolio balance.

When to Take Cash

Choose cash when:

• You need immediate income for near-term financial obligations
• The company is pre-revenue or extremely early stage with high failure risk (95% of startups fail)
• You don't understand the business model or industry
• The equity terms include aggressive dilution without protections
• You already have significant illiquid assets in your portfolio
• The company won't provide detailed financials or transparent cap table information
• Your career earnings window is limited (injury risk, age, contract uncertainty)

Example: A 32-year-old running back with a history of injuries is offered equity in a wellness brand. His realistic career window is 2-3 more years maximum. Taking guaranteed cash now makes more sense than betting on equity that won't be liquid for 5+ years after his earning power is gone.

When to Take Equity

Consider equity when:

• You have sufficient cash flow from other sources to cover 2-3 years of expenses
• The company has proven revenue (at least $5-10 million annually), strong fundamentals, and a clear path to exit
• You receive meaningful ownership (typically 1%+ in early-stage or 0.1%+ in later-stage companies)
• The vesting schedule is reasonable and you plan to maintain the partnership long-term (you genuinely believe in the product)
• You can negotiate founder-level terms including anti-dilution protection
• You genuinely believe in the product and would invest your own money at the same valuation
• The company provides full transparency on financials, cap table, and future funding plans

Example: An NBA player in year 5 of an 8-figure contract has substantial cash reserves and diversified investments. A sports recovery technology company with $15 million in annual revenue, contracts with multiple teams, and interest from strategic acquirers offers 1.5% equity. The player uses the product daily and believes in the market. With solid financials secured, this becomes a reasonable speculative position within a balanced portfolio.

The Hybrid Approach

The best deals often combine both: guaranteed cash to meet immediate needs plus equity upside for long-term wealth building. Don't be afraid to negotiate for a split structure that provides downside protection through cash while maintaining upside participation through equity.

Real-world example: A prominent sports agent negotiates a deal for his client with an athlete recovery brand. Instead of the company's offer of $500,000 cash OR 2% equity, he negotiates:

• $250,000 cash annually for three years ($750,000 total guaranteed)
• 1% equity with a two-year vesting schedule
• 0.25% additional equity if the company hits $50 million in revenue
• Anti-dilution protection through Series B funding

Result: The athlete has guaranteed income regardless of company performance, maintains meaningful equity upside if the company succeeds, and has protection against excessive dilution. Three years later when the company is acquired for $300 million, the athlete receives $750,000 in cash already paid plus $3.75 million from equity, far better than taking only cash or only equity.

Another example: A musician negotiating with a headphone company structures the deal as:

• $100,000 annual base payment
• 0.5% equity
• Additional performance bonuses tied to sales (2% of net revenue from products she's featured in)

This creates three income streams: guaranteed base, performance-based cash tied to her direct impact, and long-term equity appreciation. The diversification protects her downside while maximizing upside.

Due Diligence Is Essential

Before accepting any equity offer, have your advisory team review:

• The company's financial statements and projections (actual P&L, balance sheet, cash flow, not just pitch deck projections)
• The term sheet and equity agreement with an attorney experienced in equity compensation
• The cap table to understand dilution risk (who owns what, what preferences exist, how many shares are authorized vs. issued)
• The tax implications with your CPA (will this trigger immediate taxation or defer until sale?)
• How this fits within your comprehensive financial plan (liquidity needs, risk tolerance, diversification)

Real mistake example: A tennis player signed an equity deal with an athletic apparel startup without reviewing the cap table. When the company was later acquired, she discovered that 75% of the company was owned by the founders and early investors who had liquidation preferences. Her 3% stake was diluted down to 1.8%, and after preferences, her share of the $40 million acquisition was $180,000, far less than the $1.2 million she calculated (3% of $40 million). Had she reviewed the cap table upfront, she would have negotiated different terms or taken cash instead.

At Courtside Wealth Partners, we work alongside Courtside CPA & Associates to evaluate these opportunities through both a wealth management and tax planning lens. Our clients don't make equity decisions in isolation, we assess how each opportunity impacts their overall financial picture, tax situation, and long-term goals.

The Bottom Line

Equity deals can be powerful wealth-building tools when structured properly and aligned with your financial goals. But they're not inherently better than cash, they're just different, with unique risks and rewards.

The athletes and entertainers who build sustainable wealth don't chase every equity opportunity. They carefully evaluate each offer, understand the terms, and make strategic decisions based on their comprehensive financial plan rather than headlines about other people's successful equity stakes.

For every LeBron-Blaze Pizza success story, there are dozens of equity deals that returned nothing. You don't hear about the athlete who took equity in a fitness app that shut down, or the entertainer whose "valuable stake" in a streaming service was wiped out by liquidation preferences.

Your name and influence have real value. Make sure you're compensated fairly, whether that's in cash, equity, or a combination of both.

Want to discuss an equity offer you're considering? Let's evaluate it together. Contact Courtside Wealth Partners to schedule a consultation.