5 Celebrities Who Chose Equity Over Cash, and How the Everyday Person Can Also Benefit from (Sweat) Equity
Gimme my check, put some respek on my check
Or pay me in equity (Pay me in equity)
Watch me reverse out of debt (Skrrt)
When Beyonce says, "Pay me in equity," she is referring to the monetary value that is returned to investors if all of a company's assets are liquidated, and debts are paid off. Simply put, equity is calculated by the company's total assets minus its total liabilities.
Equity allows investors to build long-term wealth by holding a stake (the amount of stock an investor owns) within a company. Being an investor, and particularly an early investor (or stakeholder), comes with risk. However, the reward may be large, compounding returns in the long run, allowing investors to accumulate wealth.
Although the everyday person's finances are not the same as celebrities earning millions of dollars, pop culture and celebrities have long been something many look to for financial motivation. While many celebrities have a reputation of being irresponsible and reckless with their money, here are five stars who chose equity over cash as a long-term play at building wealth.
Uber offered Beyonce $6 million in cash to perform at a concert hosted in Las Vegas, Nevada, in 2015. Instead of accepting the cash, she decided to receive payment in stocks (equity). Today, Beyonce's stocks are reportedly worth more than $300 million, according toRefinery 29.
Lebron James is expected to surpass $1 billion in career earnings in 2021, per a Forbes report. Known as a savvy businessman, Lebron infamously chose equity over cash in a proposed endorsement deal in 2008. The product? It was none other than Dr. Dre's Beats by Dre. James partnered with Dr. Dre to receive a stake in Beats Electronics in exchange for promoting the top-of-the-line headphones. When Dr. Dre decided to sell his company to Apple in 2014, James reportedly earned $30 million in profit.
In 2005, Facebook wanted Graffiti artist David Choe to paint murals in their new Silicon Valley office space. David was given the option between a hefty cash compensation of $60,000 or stock in the company. Choe decided to take the stock. When Facebook went public in 2012, Choe's stock was worth more than $200 million.
Yes, that's $60,000 < $200,000,000!
In 2015, Golden State Warriors player, Stephen Curry, signed a contract with Under Armour. Although all the details of Curry's contract have not been released, Sports Illustrated reported that his deal with Under Armour included him having an equity stake in the company.
In 2004, businessman and rapper 50 Cent was offered a deal by Glacéau (owned by Energy Brands) to leverage his celebrity status to promote VitaminWater. 50 Cent accepted the offer along with a minority stake in the parent company, Energy Brands. In 2007, Coca-Cola bought Energy Brands for $4.1 billion, which allowed 50 Cent to earn $100 million.
Differences between equity and cash
When investors have equity in a company, it allows them to have partial ownership. For example, Beyonce's decision to take equity instead of cash enabled her to be a partial owner of Uber, which proved to be more valuable than the original cash amount offered.
The phrase "cash is king" is in reference to the immediate access to cash to pay for goods and services. Unlike taking equity, cash is guaranteed. However, the celebrities mentioned above decided to accept all or partial equity instead of accepting "right-now" cash.
When it comes to the everyday person, the option or opportunity to take equity over cash is not the same as celebrities who may already have a hefty bank account. However, sweat equity over immediate cash can be presented to the everyday person in the form of a startup founder asking you to do some work now for cash later or doing work on a house and getting your payment after the home is sold.
Associated risks with equity compensation vs. cash compensation
There is a risk when it comes to choosing equity over cash. One of those risks includes not knowing whether a stock will rise or fall. The uncertainness is why it's essential to do your research before investing in anything, whether it's stock, real estate, bonds, or any other financial investment. However, like the celebrities mentioned in this article, equity compensation was an essential factor in building long-term wealth. Although cash is guaranteed money, there is always a risk with cash as well. That risk is called inflation.
Recommended Read: You can read more about inflation here.
Example of equity compensation for the everyday person
Many companies may offer their employees equity compensation along with cash compensation. If you decide to accept equity compensation, you will have ownership of the company's assets after any liabilities associated with the company are cleared. Some companies may have a valuation (an estimated value of a company's assets) worth millions, and some companies could lose all their monetary value.
Whether you decide to take cash compensation or equity compensation, be sure to assess the risk.
Would you take equity over cash? Comment your answer below and share this article with others for more answers.