Professional athletes frequently gain attention for their drastically high yearly salaries, with basketball players often topping the list. Coupled with endorsement deals, clothing lines, and paid appearances, NBA stars can earn a space amongst the richest men in America. Concerning salary disputes for these all stars, what factors come into play before they sign years of their lives away for millions of dollars?
Should cost of living and state income taxes be a factor in salary negotiations?
In the midst of free agency and draft season, NBA players are cashing paychecks with more zeros at the end than ever before. Since the salary cap’s reintroduction in 1984, the maximum spending amount has been steadily increasing, and will soon see the second most drastic rise in league history- following only the 44% bump of the 1995-1996 season. Due to a $24 billion television deal, this upcoming season’s cap of $68 million will increase by 33% to $89 million for the 2016-17 season when the deal goes into effect. NBA players are licking their chops in anticipation of the new increase, but what do bigger numbers truly mean for over 400 NBA players across the nation?
In response to the recent cap increase and towering salaries, extra speculation has been drawn to the whittling amount of money that trickles down to players after taxes. Due to high federal tax rates for top earners and similarly steep income tax rates in some states, many projections claim players often lose up to half of their paycheck to taxes. While it may be hard for the average Joe to conjure pity for multi-millionaire athletes, players are missing out on a significant amount of their earned salary.
Location, location, location… for teams in the Golden State, location becomes more about money than it does about weather. Teams in certain states face a heavy income tax, such as in California which yields an income tax rate of 13.3%, compared to states like Texas or Florida that face none. Players looking to sign lucrative long term contracts have been forced to take into account more than just cities when determining what place to call their home.
On average, housing is 72% cheaper for someone playing for OKC or the Charlotte Bobcats than it is for a player on the Brooklyn Nets or the LA Clippers.
Take Carmelo Anthony, for example. The twelve year NBA veteran was a free agent entering the 2014-15 season, and toured the US gauging interest from teams like the Chicago Bulls and Los Angeles Lakers. The offers Anthony received from various teams differed only slightly in amount, but drastically in total taxation. Between just the Knicks, Bulls and Lakers, the tax would differ by up to $1.4 million. By accepting a five year, $124 million deal with the New York Knicks, Anthony is expected to receive just $66.7 million in net wages after federal, state and city taxes over the next five years- just 53% of his initial salary. While he has already earned over $158 million from the NBA alone, reaping less than half of what you sow is not ideal for any individual.
Similarly, last year free agent Trevor Ariza agreed to a four-year $32 million deal with the Houston Rockets- the same amount of money offered to him by the Washington Wizards. By choosing to play in a state with no income tax, Ariza will take home as much as $3 million more over four years. Without taxation factors being accounted for in the cap, teams in states with high income tax may end up suffering in the long run concerning players on the fence.
Another concern following location is the cost of living that comes with the area. While certainly less significant than taxation rates, the difference in cost of living can be stark between cities with NBA teams, especially for rookies who have yet to acquire a significant bank account over the years. On average, housing is 72% cheaper for someone playing for OKC or the Charlotte Bobcats than it is for a player on the Brooklyn Nets or the LA Clippers.
For a second round rookie player making about $500,000 per year, their money could go much farther in the midwest than it could trying to find a place near the Staples Center in Downtown LA. By getting drafted to a team with a high cost of living, usually with an equivalent income tax, young players feel the sting of rent and average expenses much more than LeBron James sitting pretty on his accumulated $150 million in Akron, Ohio.
Should athletes take smaller paychecks to make room in the cap for better players?
Selfish All-Stars in the NBA often garner negative media attention by demanding more money from their teams, and sometimes leave their franchise if their goals are not met. Players who follow the money can create big problems for their teams, who are forced to choose players that fit within the NBA imposed salary cap. In order to keep big-name players, teams frequently offer inflated salaries for one or two players at the cost of acquiring new, talented individuals who do not fit in the remainder of the cap. In theory, athletes more concerned with winning than they are with their bank account could forgo the maximum salary in order to make room in the team’s cap to acquire other skilled players and pad their own roster.
Many of the players on the San Antonio Spurs have been practicing this selflessness for years. Already an incredibly successful team, All-Stars such as Tim Duncan, Manu Ginobili and Tony Parker, who have all been with the Spurs and head coach Gregg Popovich for well over a decade, continue to take significantly less than their maximum offer contract after contract. The Spurs team-first mentality is essential to building these selfless relationships, spearheaded by the legendary Popovich. As Parker describes it, “For me personally, why I did it because, deep down in my heart I know Pop will take care of me until the end of my career. So that’s why I felt like I can take less now and help the team out.”
“At this point in my career, it’s all about winning… I want to be in a spot where we can legitimately taste the Finals.”David West
The most recent example of self-sacrifice for the Spurs is David West, 12 year NBA veteran and 2015 free agent coming off of four seasons with the Indiana Pacers. Last week West chose to forego a $12.6 million contract from the Pacers for a $1.4 million contract with the Spurs. Taking an eleven million dollar pay cut to accept the veteran minimum for a year, West claims “At this point in my career, it’s all about winning… I want to be in a spot where we can legitimately taste the Finals.” He will be joining former MVP Tim Duncan, Defensive Player of the Year and 2014 Finals MVP Kawhi Leonard, three time All-NBA forward LaMarcus Aldridge, 2007 Finals MVP Tony Parker, and 2008 Sixth-man of the Year Manu Ginobili.. so it is safe to say the Finals could be within reach for West. Instilling a family-like atmosphere amongst his hard working players, Popovich has successfully created a deep, broad roster that truly behaves as one cohesive team- and he has certainly ‘won’ the free agency for the 2015-16 season.
In contrast to the rarity of players on the Spurs, what is to be said about players who scorn their winning aspirations in exchange for a paycheck? Stars such as James Harden, who signed a five year $80 million contract in 2012 with the Houston Rockets (who had not made the playoffs in the prior five seasons), have knowingly sacrificed winning potential in favor of money. Upon being asked whether or not money had to do with Harden leaving OKC to join a team that had not qualified for the playoffs for the last five years, he responded “Definitely. No question.”
Is this choice selfish? Horace Grant doesn’t think so. Grant claims “Players like LeBron are businessmen. They are extremely talented and are choosing to cash in on their talent. At the same time there is something to be said about players like David West… I know David personally, and what he and his teammates have done to pad the roster is really just amazing.”
Parker describes the same sentiment as “On the one hand, you can take less money like I did, like what Manu did, and stay with a winning team. Or you can do your own thing and be your own man, like McGrady, and try to be a superstar and want to make the All-Star team, and [Harden] decided to do that. I wish him luck. Both ways, you can’t go wrong. It depends who you want to be.”
Apparently, the choice boils down to whether players want to be sitting on a Championship trophy wearing a ring, or on an even larger pile of money.
Is the “jock tax” fair to players? Especially lower paid athletes and rookies?
Another expense adding to the mounting costs professional athletes face is the “jock tax,” which means players are taxed on the income they make during their visit to another state according to that state’s tax rate. For example, if the Miami Heat were to travel to New York to play against the Knicks, every player on the Heat would be required to pay state income taxes for the amount they made during their time in New York. Depending on the state, the fee could represent the exact percentage of games played in that state throughout the season compared to games overall, or total number of days spent in the state throughout the season regardless of games played. This rule applies to every professional athlete, for every state they travel to that applies a jock tax.
Take one of the top earners in the NBA right now, Kobe Bryant of the Los Angeles Lakers. After one game played against the Cleveland Cavaliers, Bryant would be subjected to $5,863 in taxes to Ohio and $5,732 just to Cleveland- totaling $11,595 paid for one day playing at an away game. Five figures for one player visiting for one day can add up for a city continually taxing players traveling to compete against their team, unfortunately at the cost of putting a notable dent in player’s salaries.
It is up to the state to discern exactly how each tax is calculated, and although most choose the same one or two methods, Tennessee uses a nontraditional means to retrieve their tax. The state collects their mandated jock tax in the form of a three-time flat rate of $2,500. Every professional athlete, including those in Tennessee, must pay this fee the first three times they play in the state, reaching a maximum of $7,500. While this is pocket change for big name players, lower paid athletes and rookies take a more significant blow. For sports such as soccer, where a professional player can have a yearly salary as low as $35,000, giving a fifth of their salary to the Tennessee government is wholly unfair. Possibly the most controversial aspect of the tax are the designated benefactors- the Memphis Grizzlies and the Nashville Predators. By simply following their schedule and working in a different state, players are reluctantly coughing up a part of their salary to directly support an opposing team.
Certain games and tournaments are particularly lucrative for host states. For example, Super Bowl XLVIII was held at MetLife Stadium, meaning the Seattle Seahawks and Denver Broncos were forced to pay nearly 9% of their earnings, including winning bonuses, to the state of New Jersey. Without the Super Bowl, the Garden State brought in about $10 million in revenue every year just from the jock tax- meaning the 2014 must have been a particularly fruitful year for New Jersey.
Overall, even if a player lived and played in a state without income tax, they could end up paying state income tax on 65% of their total income. Baseball player Alex Rodriguez plays half a million dollars in jock tax every year- ten times the average annual American salary. Similarly high rates come when players compete outside of America, mostly against Canadian teams, where the income tax rate climbs to 48% at its maximum for high earners.
One of the greatest criticisms of the jock tax is its poorly directed nature. While there are many people besides athletes who earn their income in another state, professional athletes are the only ones targeted with the law. Proponents claim that it is easiest to gear the tax towards traveling athletes because both their salaries and schedules are made public, as opposed to lawyers and commuters who may not be as transparent.
The legality of jock taxes will continue to be questioned immensely by players and managers, but for the time being the states who impose the tax will continue raking in money at the expense of professional athletes nationwide.
Who really benefits from salary cap increases?
Due to a $24 billion TV deal taking effect just before the 2016-17 season, NBA salary caps are expected to rise from $67 million to $89 million for the same season. While it may seem like players throughout the league on and off the bench could see significant salary boosts, this may not be the case.
Players expected to benefit the most from the increase are big-name stars entering the season of the spike as free agents, who are likely to max out on their contracts in order to remain on the same team, or as motivation to join another. Players expected to benefit the most are Anthony Davis, who recently signed the largest contract in NBA history, LeBron James, and Kevin Durant, who will both become free agents before the 2016-17 season.
Due to a $24 billion TV deal taking effect just before the 2016-17 season, NBA salary caps are expected to rise from $67 million to $89 million for the same season.
Despite entering the free agency after next season, Kevin Durant is not in a hurry to negotiate a contract that will take him away from Oklahoma- he hasn’t even imaged leaving his home on the Oklahoma City Thunder. “I’ve never thought about it, to be honest,” KD confirms about possibly choosing the Washington Wizards as his new home, “I love playing for Oklahoma City, man.” OKC must be overjoyed to hear so, but regardless, they intend to offer Durant a maximum contract to ensure he will stay. His salary is a mere $20 million per year at the moment, but could jump upwards of $25 million every year for his next contract.
Anthony Davis is already assured a significant monetary gain from the salary cap increase, and has recently agreed to the largest contract in NBA history. Coming off of his four year $23.2 million rookie contract with the Pelicans that ends after this coming season, Davis agreed to a five year $145 million deal with New Orleans just one week ago, and can formally sign the documents tomorrow. Topping Kobe Bryant’s $136.4 million contract between 2004 and 2011, Davis now holds the record for richest contract signed in NBA history.
The player’s bank account likely to benefit most from the salary cap increase is shockingly… LeBron James. By signing a two year contract with the Cleveland Cavaliers for $42.4 million and opting out of the second year, LeBron is technically a free agent entering the 2015-16 season. James is presumably going to keep entering contracts that he can opt out of after the first year in order to continually raise his salary along with the increasing cap. Once he deems his long term contract lucrative enough, he is expected to sign a long term deal with the Cavs. His salary for the 2016-17 season could reach $29.3 million, or even max out at $35.5 million during the following 2017-18 season. If LeBron were to sign a one year contract during the latter year, it would become the largest single-season player salary of all time- beating out Michael Jordan’s $33 million deal during his 1997-98 season.
Any way you slice it, if the greats continue to be great, and are lucky enough to enter the free agency during the next couple seasons, their salaries should see a massive increase. Significant salary cap increases and subsequent pay raises are only some of the expected changes to follow the $24 billion influx into the NBA- and franchises and fans alike will be waiting at the edge of their seats to determine what the changes to follow will be.