The National Basketball Association has rules limiting how much teams can pay players. There is a salary cap set by the league each year based on projected total “basketball-related income” for that year; for the upcoming season, the cap is about $165 million. Loosely speaking, a team is not supposed to pay players more than the salary cap, though there are exceptions. There are also caps on individual players’ pay; the most any individual player can get paid is 35% of the salary cap, or call it something like $58 million a year this year.^[1]

The point of these rules is to create competitive balance. Different NBA teams have different amounts of money, in part because some teams are more lucrative businesses than others and in part because some teams’ owners have more money than others from their non-basketball endeavors. For instance, by far the richest NBA owner is Steve Ballmer of the Los Angeles Clippers, the former chief executive officer of Microsoft Corp., whom Bloomberg ranks as the ninth-richest person in the world with a net worth of $173.5 billion. If he was allowed to spend freely on player salaries, then (1) he could hire all the best players at astronomical prices, (2) the Clippers would win the championship every year and (3) a bunch of regular-billionaire NBA owners might bankrupt themselves chasing him. So there’s a cap.

Of course Ballmer might prefer not to be constrained by the cap. He owns the Clippers, presumably, because he thinks it would be cool to win NBA championships. If he could throw some players an extra $100 million a year, that would cost him almost nothing — 6 basis points of his net worth — and he’d be able to build a really good team by outbidding everyone else for the best players. 

If you think about this for five minutes, you could come up with ideas to get around the cap. The simplest idea goes like this: The Clippers call up a star free agent and say to him “we’d like to hire you to play for us. We’ll pay you the maximum salary, $58 million per year, which is what like six other teams are offering you. But, each year, Steve Ballmer will also give you $50 million, out of his own personal account, as a Christmas present. We, the Clippers, will pay you $58 million a year, complying with NBA rules. But you will receive $108 million a year.” We talk about this basic approach — paying a low nominal amount to keep under some limit, and then throwing in some sort of extra Christmas present — all the time.

That’s too easy, though. The NBA thought about it, and the collective bargaining agreement — which sets the salary rules — prohibits it.^[2] 

But, okay, you can do better. Basketball teams are big businesses, they do lots of business with other companies, and their owners do lots of business with other companies. Star basketball players are also big businesses and do lots of business — endorsement deals, investments, etc. — with other companies. There are all sorts of opportunities to exchange Christmas gifts. A few ideas:

1. The Clippers negotiate a sponsorship deal with some outside company that genuinely wants to spend $50 million a year putting its name on the Clippers’ uniforms or arena or whatever. The Clippers call up the company and say “instead of charging you $50 million, we will charge you $20 million. But please sign our star player to a $30 million endorsement deal that does not require him to do anything.” 
2. The Clippers buy a big electronic scoreboard from an electronic scoreboard manufacturer. The electronic scoreboard manufacturer sends the Clippers an invoice for $10 million. The Clippers call it up and say “instead of paying you $10 million for this scoreboard, we will pay you $40 million. But,” etc.
3. Steve Ballmer gets a call from a promising startup asking him to invest $100 million for a 10% stake. He calls up the startup and says “instead of investing $100 million for a 10% stake, I would like to invest $130 million for a 10% stake. But,” etc.^[3]
4. Etc.

The collective bargaining agreement also prohibits all of these things, or tries to. A team or owner is not allowed to “enter into an agreement or understanding with any sponsor or business partner or third party under which such sponsor, business partner, or third party pays or agrees to pay compensation for basketball services (even if such compensation is ostensibly designated as being for non-basketball services) to a player.”^[4] I think that more or less covers all of my proposals. The NBA has thought of all of this stuff, and you’re not supposed to do any of it.

As it happens, though, the Clippers, did all of it? Allegedly? We talked about this last year, when journalist Pablo Torre published a report alleging that the Clippers paid their star player, Kawhi Leonard, more than the maximum salary for a few years by funneling money through an environmental startup called Aspiration Partners. Aspiration Partners was a weird tree-planting fraud run by a guy named Joseph Sanberg, who was sentenced to 14 years in prison for defrauding Aspiration’s investors in various baroque ways that we have also discussed. One of them was an accounting fraud in which it would (1) sell tens of thousands of dollars of vague tree-planting services to Colombian celebrities (??) and (2) pay those same Colombian celebrities those same tens of thousands of dollars for vague endorsement services, thus booking the tree-planting fees as revenue without any money changing hands. When Torre broke the Clippers/Aspiration story, I wrote:

I guess that if your main product, as a company, is fake endorsement deals, there are a couple of different markets that you can sell into. If you are generally in the business of paying for fake endorsements to create fictitious revenue, you might also get into the business of paying for fake endorsements to get around the NBA salary cap? 

Torre’s report led to an NBA investigation, and yesterday the NBA announced the results, penalizing the Clippers, Ballmer and Leonard for violating the rules. It also released a “Summary Report of Independent Investigators Concerning the LA Clippers and Kawhi Leonard,” written by the law firm Wachtell, Lipton, Rosen & Katz,^[5] which is a delightful read and which seems to confirm Torre’s reporting and then some. 

Basically the story is that “Mr. Leonard’s uncle and business manager, Dennis Robertson,” wanted and expected the Clippers to pay Leonard more than his contracted salary by finding him endorsement deals:

Mr. Robertson communicated a target: he expected the Clippers’ assistance in obtaining approximately $10 million per year for Mr. Leonard. He communicated these demands primarily to [Clippers President of Basketball Operations Lawrence] Frank, but also to Mr. Ballmer and [Clippers President of Business Operations Gillian] Zucker. …

In April 2020, Mr. Robertson spoke with Mr. Ballmer and Mr. Frank to express his frustrations about what he perceived to be a lack of effort by the Clippers to facilitate off-court business opportunities for Mr. Leonard. According to contemporaneous notes kept by Mr. Frank … Mr. Robertson complained to Mr. Ballmer that Ms. Zucker was making “introductions” for “bull**** deals,” and that “I [Mr. Robertson] cant [sic] wait on [Ms. Zucker] - I have to get paid.”

So “Ms. Zucker made a series of email ‘introductions’ connecting Mr. Robertson to executives at three companies with which the Clippers were in active conversations about potential business relationships: Boingo (a provider of wireless and other communications networks), Daktronics (a manufacturer of scoreboards and video displays), and Lockton (an insurance brokerage).” Leonard quickly signed $18 million worth of endorsement deals with them. The deals “imposed minimal performance obligations on Mr. Leonard relative to the amount he was paid,” and “Mr. Leonard’s only confirmed activity under any of the agreements was a visit to a military base on a single occasion under one agreement and signing some memorabilia under another.”

The implication is that the companies did the deals, not to get Leonard’s services, but to get deals done with the Clippers. Or, really, not even to get deals done with the Clippers; just to get cash from the Clippers:

Within weeks following the “introductions,” either before or on the same day as the companies signed endorsement agreements with Mr. Leonard, each company entered into a multi-million dollar consulting agreement with the Clippers. …

A former executive of one of these companies told investigators that the consulting agreement entered into by the executive’s company and the Clippers was highly unusual, for at least the following reasons: (i) the company was not in the business of providing “consulting” services, (ii) the services contemplated by the consulting agreement were not worth the money the Clippers were paying for them and, indeed, were typically supplied by the company to clients for free in connection with other business, and (iii) it was atypical for the company to receive any portion of its fee in advance of providing at least some amount of services, and atypical in the extreme (as occurred here) for the company to receive virtually the entire fee in advance. …

These payments may in fact have been made principally to fund the endorsement deals with Mr. Leonard. Indeed, a credible witness with direct knowledge told investigators that the consulting agreement one company signed with the Clippers was in fact a ruse, designed and intended to be a vehicle for the team to provide the company with funds to be paid to Mr. Leonard.

“Consulting fees” is a decent euphemism for “Christmas presents.” You pay your business partners millions of dollars for some vague consulting, and they turn around and pay your star player the same millions of dollars for some vague endorsements.

Also apparently the Clippers bought a scoreboard from the scoreboard company at an agreed-upon price, and then increased the price to get more money to Leonard:

In the spring of 2020, and in response to a request-for-proposal process initiated by the Clippers, Daktronics began to compete to obtain a lucrative contract to supply digital scoreboard and signage technology at the Intuit Dome. In May 2020, the Clippers informed Daktronics that it was the team’s preferred provider for this project, but that the team wanted to agree on a “spend back” arrangement whereby Daktronics would provide some amount of business back to the Clippers — which Daktronics told investigators is not uncommon in its industry. Ms. Zucker thereafter suggested to a Daktronics senior executive that this “spend back” could be accomplished through an endorsement agreement between Daktronics and Mr. Leonard. …

In February of 2021, before the end of the first year of the Daktronics-Leonard endorsement agreement, the same senior Clippers’ executive approached Daktronics again. This time, the Clippers’ executive told Daktronics that, because the team had decided to increase the amount it would spend on the scoreboard, Daktronics should correspondingly increase the amount it would pay to Mr. Leonard. After some negotiation — and again based on its concern that failing to comply could jeopardize its business with the Clippers — Daktronics ultimately agreed to increase its second-year payment to Mr. Leonard by $2 million.

“We would like to pay you an extra $2 million for a scoreboard so you can pay an extra $2 million to our star player,” sure.

All of this is before the Aspiration deal, which apparently really did involve a round-trip where the Clippers paid Aspiration an arbitrary amount for vague tree-planting services and in exchange Aspiration paid Leonard a similar amount for vague endorsement services. Aspiration agreed to pay Leonard $7 million a year in cash (and $5 million a year in stock) for four years, an amount that experts found “extraordinarily high, especially in view of the limited obligations required of Mr. Leonard under the agreement and Mr. Leonard’s relatively insubstantial endorsement profile.” Sanberg apparently negotiated this deal, and other Aspiration executives didn’t like it:

“I have no idea why we’d do this,” wrote one senior executive; “this is not a good investment of our capital [. . . .] It’s $48M over 4 years for Kawhi, who is not a big name [. . . .] Not sure why we would make such a commitment considering we are already paying a huge sponsorship fee to Clippers,” wrote another.

But Sanberg explained “that ‘the Clippers are asking us to do this with Kawhi Leonard’ and that the team would provide additional business back to Aspiration to help offset the financial impact on Aspiration.” And it did:

In January 2022, Mr. Sanberg and Ms. Zucker texted and spoke about a potential sustainability services deal between Aspiration and the Forum, an Inglewood arena Mr. Ballmer had acquired in May 2020 and which Ms. Zucker oversaw — a stated purpose of which would be to “zero out” the Forum’s historical carbon emissions. According to Mr. Sanberg, these conversations followed his informing Ms. Zucker that Aspiration would not sign an endorsement agreement with Mr. Leonard unless it received business back from the Clippers. …

While the deal was described by the Clippers to investigators as an effort to “zero out” the historical carbon emissions of the Forum, it did not start with any meaningful analysis or calculation of those emissions. Instead, the initial draft of the deal’s term sheet from January 2022 contained a heading entitled “Business Back Opporutnities [sic]” and added “[t]o be filled in by Eric Chan ($7M back in business).” Thus, at the deal’s inception, it was contemplated that the Clippers would spend $7 million annually with Aspiration — the same amount as the cash portion of the Leonard-Aspiration endorsement agreement. ...

No Clippers witness could provide a credible alternative explanation for the initial appearance of the $7 million annual payment from the team to Aspiration in the Forum Agreement. Mr. Ballmer and Ms. Zucker both claimed that it was based on a study done by a team consultant who had determined that the Forum needed $28 million to offset its carbon emissions and that the team would pay Aspiration for these offsets over four years. But investigators spoke directly with this consultant, who said that the Clippers had given him a $28 million budget with which to address the Forum’s emissions — not the other way around.

“If we need to give this tree-planting company $28 million, how many trees will that buy us,” I guess. The Clippers didn’t really want the tree planting, Aspiration didn’t really want Kawhi Leonard’s endorsement, but the offsetting tree-planting-and-endorsement deals did allow $28 million to move from the Clippers to Kawhi Leonard. Which is what the Clippers apparently wanted.

Anyway the Clippers “vehemently reject the NBA’s findings, which are the result of a heavily biased investigation.” Maybe the $28 million was just for trees? The consulting fees were just for consulting?

There is a idea in corporate governance called “empty voting.” Let’s say you want to take over a public company. One thing you could do is buy a big chunk of its stock, launch a proxy fight to replace its board of directors, and vote your stock for your slate of directors. For reasons, you probably won’t buy a majority of the stock, so you will still need to get some other shareholders to back your slate. But if you own a big chunk of stock, you’ll have a better chance of winning your proxy fight, replacing the board, and putting yourself in charge. 

Another thing you could do is buy a big chunk of the company’s stock — say, 9.9% of the company^[6] — and short some of its stock as a hedge. If you are long 9.9% of the company and short 5.9%, you have more voting power (9.9%) than actual economic interest (4%) in the company. If you are long 9.9% and short 9.9%, you have a lot of voting power but no economic interest: You are indifferent to whether the company’s value goes up or down. That’s weird. What if you win your proxy fight? You’ll control the company, but you’ll have no economic interest in making its value go up.

If you are long 9.9% and short 19.9%, even weirder: If you win your proxy fight, you’ll control the company, and you’ll profit if you drive it into the ground. Much to think about.

“Empty voting” refers to this idea of being able to vote shares that you don’t economically own, having a lot of voting power over the company while having little or zero or even negative economic exposure to its share price. People worry about empty voting in sort of abstract ways, but as far as I can tell actual examples are uncommon. We talked a few times in 2024 about empty-voting allegations at Masimo Corp., but those allegations were more like “a hedge fund helped out its buddy the chief executive officer” than they are like “a hedge fund took over the company with empty votes to drive it into the ground.” Earlier in 2024, we talked a few times about a company called Shareholder Vote Exchange, which supposedly allowed people to buy shareholder votes without buying the underlying shares, but that shut down pretty quickly. There is a related concept of “net short debt activism,” which is like empty voting but with debt, and which might exist a little bit.

But you can see why people worry. Empty voting seems bad. If you could take over a company while being net short the company — if you could grab control by owning X% of the stock, while also being short 2X% — then you would have incentives that are very much not aligned with those of other shareholders. You could take over their company and drive it into the ground, hurting them, for your own profit. At the very least, if an activist in a proxy fight is doing some empty voting, you might think it should have to disclose that, so other shareholders, in deciding how to vote, can evaluate whether its incentives are aligned.

We have also talked a couple of times about an activist fight at Empery Digital Inc. Briefly:

1. In mid-2025, there was a vogue for DATs, digital asset treasury companies, pots of cryptocurrency with stock-market listings. For a while $1 of crypto traded for $2 on the stock market, so a lot of companies got into the business of selling stock at a premium to buy crypto.
2. Empery is a classic digital asset treasury company, or DAT: It was an electric motorcycle company that pivoted, at the peak in July 2025, to holding $500 million of Bitcoin and trading at a premium.
3. The DAT trade faded, and Empery — like other DATs — started trading below its net asset value.
4. Some holders of Empery stock figured that it should run the trade in reverse: Sell its Bitcoin to buy back stock at a discount, thus shrinking the company and closing the discount.
5. The company’s managers actually did some of that (selling Bitcoin, buying back stock), but some holders wanted it to do more and launched a proxy fight to try to replace the board of directors to accelerate the reverse-DAT trade.
6. Meanwhile the DAT trade is so 2025, and its 2026 equivalent is pivoting to become an AI infrastructure company, which Empery also did.

The main activist investor in Empery is a fund called ATG Capital Opportunities Fund LP, run by a guy named Gabi Gliksberg, which owns 16.3% of the stock. It launched a proxy fight to get its own slate of nine directors elected to Empery’s board. As part of this fight, it submitted a notice of its nominations to Empery’s current board, but the board rejected that notice and said that ATG’s nominees were not eligible to be elected to the board. ATG sued, and last week it won: A Delaware court ruled that “the nomination notice is valid and the investor’s slate will stand for election.”

For our purposes there are two interesting facts here. One is that, while the main activist investor in Empery is ATG, another big shareholder who has pushed Empery to sell its Bitcoin is a guy named Tice Brown. He is all over the court’s opinion, including here:

On February 3 … Brown emailed Bloomberg columnist Matt Levine, writing: “I’d like to liquidate a bitcoin treasury company. I’d like to speak publicly about it[.]” The next day, Levine published an article titled “Cracking Open the DATs,” which named both Brown and ATG. It described an arbitrage and liquidation strategy whereby an investor buys a stake in a DAT company that is trading at a discount to its NAV, and agitates for the company to liquidate its cryptocurrency to return the money to its stockholders.

Disclosure, I guess. (Here’s the column.) The other interesting thing is one of the reasons the board gave for rejecting ATG’s nominees. From the opinion:

The Rejection Letter cited three primary grounds for the Board’s decision, tied to provisions of Empery’s advance notice bylaws (the “Bylaws”). ... 

The Rejection Letter’s second main ground for rejecting ATG’s Nomination Notice was its failure to disclose a Bitcoin hedge. At the time ATG submitted the Nomination Notice, it had hedged its Empery equity position “dollar for dollar” to isolate and eliminate the risk of Bitcoin price movement by shorting Bitcoin ETFs. The defendants assert that this undisclosed hedge misaligned ATG with Empery’s long-only stockholders and incentivized ATG to push for the liquidation of the Company’s Bitcoin. 

The court rejected this reason, because Empery’s bylaws did not actually require any disclosure of Bitcoin hedges:

To determine what a stockholder must disclose, the court looks first to the plain text of the contract. Empery’s Bylaws are specific regarding the disclosure of economic hedges. Section 2.4(c)(ii) requires the disclosure of derivatives, synthetic equity, and short positions in Empery’s own stock. Some DAT corporations’ bylaws require the disclosure of commodity hedges. By contrast, neither Empery’s Bylaws nor its questionnaire for director candidates require the disclosure of commodity hedges, cryptocurrency hedges, or positions in unrelated ETFs.

Fine. But: Should it? Some DATs do “require the disclosure of commodity hedges,” where “commodity” means “crypto.” If you are long 10% of a DAT with 1,000 Bitcoins, and also short 100 Bitcoins as a hedge, is that empty voting? An ordinary unhedged shareholder in the DAT really wants Bitcoin to go up, because the DAT is after all just a pool of Bitcoins. But you don’t care if Bitcoin goes up or down: You are long shares in a pool of Bitcoins, and short Bitcoins. Are you “misaligned … with Empery’s long-only stockholders,” because they are long Bitcoin (via Empery) and you are not?

I suspect the answer is mostly no. Shareholders of Strategy Inc., the original DAT, might be Bitcoin true believers,^[7] but as far as I can tell most copycat DATs were created largely for the benefit of arbitrageurs who wanted to capture the magic of selling $1 of crypto for $2. To me, and I suspect to Brown and Gliksberg and a lot of other DAT shareholders, a DAT is a premium trade: The essential investment thesis of a DAT is “this thing trades at a premium to its underlying Bitcoin,” the job of the DAT’s managers is to maximize the premium, and if they are not doing that then they are not aligned with shareholders and should perhaps be replaced. An investor who is long a lot of DAT shares and short Bitcoin has a large unhedged position in the central economic fact of the DAT, its premium, and is aligned with shareholders who also care about that premium.

But that’s just one way of looking at it, and the simpler and more intuitive view might be that a DAT is a pile of Bitcoins, the shareholders are long Bitcoins, and someone who is not long Bitcoins really should not be put in charge of a pile of Bitcoins.

Why was Jeffrey Epstein rich? The direct answer is that a handful of billionaires — Leon Black, Les Wexner — gave him a lot of money. But for what? The two main theories seem to be:

1. They were paying him for very high-end financial and tax advice; or
2. Bad reasons.

They gave him a lot of money, though, which raises the question: Was his tax advice all that good? A few years ago, Apollo Global Management did an investigation of Epstein’s relationship to Black, who was at one time Apollo’s CEO; that investigation concluded that, yep, the advice was really good. I wrote at the time:

Why was Epstein, who was not a lawyer or an accountant or a college graduate for that matter, so good at tax? I actually don’t have too much trouble believing this — in my experience, some people are just born with a natural gift for tax structuring, and need surprisingly little formal training to achieve their potential — but it is fascinating. Black would go his lawyers and say “hey my guy found this way to save a billion dollars in taxes, is it legal,” and the fancy lawyers in the Paul Weiss tax department would say “wow, sure is, this is amazing, why didn’t we think of this, this guy is a Michelangelo of tax minimization”?

That was maybe slightly sarcastic, but only slightly. Later — when I searched my own name in the Epstein files — I actually discovered an admiring email from a fancy Paul Weiss tax lawyer kind of confirming that view. 

Anyway today Bloomberg’s Dylan Sloan, Tom Maloney and Francesca Maglione have a story about the quality of Epstein’s tax advice. He thought it was really good, apparently:

“Leon, you hired me to produce a work of art. it was not inexpensive,” Epstein wrote in a May 2016 email. “the value far exceeds any other piece in your collection.- by FAR.”

Epstein’s art, as he saw it, was a complex plan to help Black minimize taxes. The cost: $158 million, which Black paid to the convicted sex offender between 2012 and 2017, and which Epstein himself found difficult to justify in itemized fashion.

“I guess the value is in the eye of the beholder,” he wrote in an email. “It reminds me of those people looking at a modern art piece and saying ‘my child could do that.’”

Maybe, like, the Mark Rothko of tax minimization. Other experts are less impressed:

“On the surface, the only remarkable aspect of this planning is the price tag,” said Victoria J. Haneman, a University of Georgia law professor specializing in tax issues and estate planning. “You could probably employ all of the top law firms in New York at the same time on the same estate plan and not hit $150 million” in fees….

Jay Soled, a Rutgers accounting professor, said it was “hogwash” for Epstein to suggest his strategies were novel. Most of the tactics were “just-run-of-the-mill stuff that people do.” …

Haneman noted that while there were instances in which the documents show execution strategies that were slightly aggressive, the overall architecture of the estate was rather conventional.

“My child could do that,” several tax professors almost actually said.

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