By DJ Sixsmith
This Thursday, LSU product Ben Simmons is widely expected to be taken No. 1 overall by the Philadelphia 76ers in the NBA Draft. While playing for the Los Angeles Lakers with former high school teammate D’Angelo Russell is much more appealing than playing for a team that lost 199 games over the last three years, being in Philly is more financially lucrative for Simmons. According to the “Sports Tax Man” Robert Raiola, the Australian will end up making the most money as the No. 1 pick of the 76ers.
“California has a 13.3 percent income tax rate, which is the highest rate in the country. Pennsylvania only has a 3.07 percent income tax rate & Philadelphia has a 3.90 percent tax rate for residents. Simmons will end up netting more money as the 76ers 1st pick compared if he was the Lakers No. 1 pick. If the Lakers had won the lottery, he would’ve made less as a No. 1 overall pick in LA than he’ll make in Philly.”
Simmons is not the only lottery pick who will be affected by state taxes. The player selected by the Orlando Magic at No. 11 will make more money than the Toronto Raptors 9th overall selection because Florida has no state income taxes. Raiola, who is the director of the sports and entertainment group at PFK O’Connor Davies, a top 30 U.S. accounting and advisory firm, has followed the big business of sports and taxes for decades. The industry transformed in 1991, when Michael Jordan and the Chicago Bulls beat the Los Angeles Lakers in the NBA Finals. Thanks to Jordan, athletes are taxed for most games they play in. Raiola believes the system treats athletes unfairly.
“If a surgeon operates in Chicago, but lives in Denver, nobody cares. If an athlete travels to Illinois for a game, it’s a different story. It is much easier to track high profile, high paid athletes.”
Known as the “jock tax”, this income tax’s impact can be seen in many places in sports. For example, Los Angeles Rams quarterback Jared Goff was the No. 1 pick in the 2016 NFL Draft, yet won’t make the most money of all the players in his draft class after taxes. According to the Sports Tax Man, Philadelphia Eagles quarterback Carson Wentz and Dallas Cowboys running back Ezekiel Elliott will net more money than Goff because of California’s sky-high tax rate.
“This is the one time in sports where finishing first isn’t the best thing for you. In this case, finishing first actually means finishing third. Wentz & Elliott will all end up netting more money than Goff.”
Whether it’s the NFL Draft or NBA free agency, state tax rates transformed how players approach contract negotiations and how teams make their pitches. This topic will certainly come into play with Kevin Durant’s upcoming free agency. While KD can get more years and make more money with the Oklahoma City Thunder, Durant wouldn’t worry about paying state taxes in the state he plays if he signs with the San Antonio Spurs or the Miami Heat.
“The teams that have high tax rates complain about it,” said Raiola. “The teams with lower tax rates flaunt it and use it in their free agency pitches.”
Dwight Howard’s decision to sign in Houston a few years ago is an example of why times have changed. In 2013, Howard passed up a 5-year, $118 million contract with the Los Angeles Lakers and instead signed a 4-year, $88 million deal with the Houston Rockets. Despite the large difference in dollar amount, Raiola points out that Dwight made only $9 million less after taxes in Houston.
“Dwight didn’t have to pay state taxes in Texas. In 2013, the state of California made $229 million taxing resident and non-resident athletes. Howard netted approximately $50 million from an $88 million contract. He would have only netted $59 million from his $118 million Lakers contract.”
Howard’s situation demonstrates that state taxes and the jock tax can add up in a hurry. Athletes today are learning the hard way that wherever you play, you’re going to need to pay. That’s why the biggest contract isn’t always the best contract.
DJ Sixsmith hosts CBS Sports Radio Roundup from 2-6pm. The Fordham University graduate is also a play-by-play announcer who has called games on Fox Sports, ESPN 3 and the Big East Digital Network. Follow DJ on Twitter @DJ_Sixsmith.