WNBA number 1 draft pick and college superstar Caitlin Clark recently agreed to a Nike endorsement deal that pays her $28 million over 8 years plus a signature shoe, according to The Athletic and The Wall Street Journal.
And the Federal Trade Commission (FTC) just issued a final rule banning non-compete agreements.
What do these two stories have in common? The incredible power of leverage. We can learn from each.
First, how did Clark generate this 8-figure Nike deal? With an auction that included Nike, Adidas, Under Armour and Puma (although Puma reportedly dropped out after learning the bidding would start at $3 million per year).
Auctions, whether for companies or shoe deals, are THE proven leverage-related negotiation process that almost always generates the best offer when the main issue involves zero-sum elements like money.
After all, investment bankers/sports’ agents/anyone selling something of value use auctions (including online sites like eBay) to create leverage by developing alternatives/Plan Bs to not doing a deal. The better their alternative or Plan B, the stronger their leverage.
For Clark, she got Nike (ultimately Plan A), Adidas and Under Armour (her Plan Bs) to bid for her endorsement. I don’t know if multiple bidding rounds occurred, but it’s safe to conclude that Nike’s offer in the end topped her Plan Bs’ offers.
Without an auction and the resulting strong Plan B, Clark would almost certainly have received a worse deal.
That’s creating strong leverage.
Second, the FTC’s rule banning non-competes shifts leverage – from an economic policy perspective – away from employers and to employees. How?
Employers have traditionally used non-compete agreements to take away employees’ Plan Bs if and when those employees leave. This is a huge disincentive to employees thinking about leaving. It’s far harder to get a new job as the non-compete prohibits them from working for a competitor for a period of time.
In other words, non-competes remove employees’ possible Plan Bs upon leaving (accepting a job with a competitor). This massively weakens their leverage if they want to leave.
The FTC rule banning non-competes thus flips this leverage. Policy-wise, the FTC estimates this will “generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation.”
How? By giving employees stronger leverage that increases their ability to leave undesirable jobs, the FTC estimates workers will be much more likely to leave and start new businesses and/or get better jobs elsewhere with improved benefits, etc.
The important learning here? One, economic policy decisions on a national scale impact individual leverage in critical negotiations. And two, deals signed today can strengthen or weaken your future negotiation leverage.
Latz’s Lesson: Auctions will almost always maximize sellers’ negotiation leverage when price matters. Similarly, policy decisions like banning non-competes can also massively change leverage – now and in future negotiations.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com.