Generally getting stock options instead of cash upfront is the better deal, you end up with an appreciating asset instead of just cash. Especially in the bull market we have been in over the past 8 years. Of course, if those stock options are for a failing company than the point is moot.
Not sure if anyone on here actually understands this stuff at all.
Stock is stock. If you are given $10M in stock, it is stock. The reason a company gives it is because it is "equity", it technically doesn't cost the company anything, and it dilutes all the other shareholders.
Stock OPTIONS are completely different. It is hard to value them up-front, though for accounting purposes, you usually use a well-regarded index such as the Black-Scholes model. A stock option is an OPTION to purchase stock, and it is completely dependent on what your strike price is. If you give someone stock options to "pay" them for something, then you usually give a low strike price. If you use stock options as an incentive to stay with the company and/or increase share value, you create a higher strike price.
From the face of the information provided above (both the summary of compensation, as well as the news reports of the loss in value), Auburn was given stock worth $10M at the time of the contract signing, and NOT stock options.
I work on stuff like this as my day job.
I don’t exactly know the content of the contract between UA and Auburn, so I don’t know how they structured the stock payment.
But some of us are more than familiar with the concepts of ESO’s, RSU’s etc. Especially if we’ve benefitted from them.
What I have a hard time understanding is why Auburn would accept stock instead of cash as a portion of the payment if the stock was valued at current market price. It makes literally zero sense. Which is why I think this has to be more than, hey, in lieu of 10 million in cash here’s 10 million worth our stock at today’s closing price
I understand, I'm certainly not criticizing any posters at all.
ESO's are usually employee stock options and follow a particular format so that someone can be compensated, but the tax is deferred until the time of the exercise. Even though you can exercise the options freely (there may be an initial waiting period), the options are yours, though the options aren't really "worth anything" prior to your exercise.
RSU's are restricted stock units, and anything with the word "restricted" in it usually means that the corporation itself can't even yet take a deduction because YOU don't actually OWN the units yet until the restrictions are removed. This is a very tricky section of the Internal Revenue Code, but the short version is that it is usually NOT an "option" for you to exercise, you merely have to wait out the time and restrictions (i.e., ongoing employment).
The bottom line is that most of that stuff is for employee compensation purposes, and is likely forfeited if you leave the company. But the stock that Auburn got was pure payment, and upfront.
As I mentioned before, in a large non-employee deal such as what UA offered AU, UnderArmour probably offered "more" total compensation than they would have offered in an all cash deal, because stock technically doesn't cost the corporation anything (by the way, this is common even in corporate acquisitions). On Auburn's side, they probably think "hey, we can put this $10M of stock aside, and when it doubles, we have the money to build a building or add onto the football stadium". Or maybe the money goes into the football scholarship endowment fund.
Bottom line, Auburn probably viewed the stock as a long-term appreciation situation. And possibly even that the "mighty Auburn Tigers" would add so much value to UnderArmour that Auburn itself would help to boost the stock price. Obviously, that did not happen, and now the stock has lost 75% of the value in a short period.
The reality is that the only way that Auburn gets to deduct the capital loss is if they sell the stock. And if they hold onto it, not only do they need to regain the original value, but hope for even more run-up in the price. Highly unlikely. Bottom line, Auburn already recognized $10M of income, and will have to pray that the stock is worth $20M someday.
