Ricky Rubio’s Buyout

Ricky Rubio (wikimedia)

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.