Aug 16, 2023
Whether they’re a star player on a basketball team or a blue-chip company, professionals operating at their peak can expect to earn a big payday.
But of those two groups mentioned, are the members of either one worth a hefty paycheck? Billionaire investor Chamath Palihapitiya recently got the internet buzzing on this topic exactly when he tweeted the following: “There are now more players in the NBA making $30M+ [$30 million-plus] per year than there are CEOs of S&P 500 companies who make that much.”
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However you might feel about the comparison — or whether another billionaire is the right person to make it — it’s a topic worthy of discussion.
CEOs vs. athletes
At least 44 NBA players are set to earn more than $30 million in salary for the 2023-24 season, according to ESPN, while only 36 S&P 500 CEOs earned more than $30 million in 2022, according to the AFL-CIO’s Executive Paywatch.
Eight of the top-earning CEOs, however, made more than the highest paid NBA star, Stephen Curry of the Golden State Warriors, who is set to make nearly $52 million in salary next season. Topping the list of S&P 500 CEOs, per AFL-CIO’s data, was Sundar Pichai of Alphabet, who earned a shade below $226 million in 2022.
But it’s important to note that business leaders and athletes are rewarded in strikingly different ways, which makes it hard to compare them accurately — even Palihapitiya admits it’s not a fair comparison.
“While W2 comp for players is great, they still pay 40-50% tax on it,” he said in a subsequent tweet. In other words, NBA players earn a traditional salary that’s fully exposed to personal tax rates.
Meanwhile, C-suite executives and CEOs earn a substantial amount of compensation in the form of stock grants, stock options and non-equity incentives. These are subject to lower tax rates, if any at all.
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Effectively, a CEO who earns $30 million partly paid in stock options takes home more money than an NBA player who receives the same in salary.
Things get even more interesting when you consider performance-based compensation.
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Performance measures
One might think both athletes and CEOs should be paid based on their performance. However, CEO compensation is often disconnected from how well the company does. For instance, Robinhood CEO Vladimir Tenev in 2021 earned a total compensation package of $796 million, according to S&P Global Market Intelligence. Yet, Robinhood stock lost more than half its value in 2021. It now trades at around 64% lower than its initial public offering in July 2021, and 77% off its peak.
By comparison, NBA players negotiate contracts every few years based on past performance and career cycle. This can make it appear as though they're underpaid or overpaid, depending on their current contributions.
All 30 NBA teams operate under a salary cap that limits the total amount of money teams can pay their players. The salary cap is calculated as a percentage of league revenue and is subject to a complex system of rules and exceptions. Teams must spend at least 90% of the salary cap each season, and there's a maximum amount a player can earn based on their years of service. If a team exceeds the salary cap it will be subject to penalties, including a luxury tax if a certain spending threshold is met.
So, the pay of NBA players is closely tied to the league’s total take. Plus, they create the product that drives the business.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
Managing Money • 4h ago
