Sometimes it’s the weather. Sometimes it’s the scenery. Sometimes it’s the nightlife or the endorsement potential or spouse-and-family priorities. Sometimes it’s even the basketball, the rest of the roster, the chance to win.
And sometimes it’s the money.
There are a skidload of reasons why NBA free agents choose the destinations they choose and the league can’t do much (beyond the collectively bargained rules already in place) to control them. But money is something the NBA is very good at controlling. From the maximum salary a superstar can earn to the minimum wage paid to some undrafted rookie, from the “floor” that a team must spend on its player payroll to the luxury-tax threshold that acts as a de facto hard salary cap for most owners, the league manages to the dollar its costs, cash outlays and other budgets and expenditures that impact competitive balance.
So what’s up with the state tax disparity?
When Washington free agent Trevor Ariza agreed to a four-year, $32 million deal with Houston earlier this month — accepting essentially the same salary the Wizards offered him — multiple outlets noted a big difference in Ariza’s take-home pay with the Rockets. The lack of a state tax in Texas vs. the local taxes (and higher cost of living) in and around Washington, D.C., meant the veteran wing player would pocket as much as $3 million more by working and living in Houston.
And when Carmelo Anthony was making the VIP rounds on his team-selection tour that landed him right back in New York, SI.com’s Michael McCann and tax expert Robert Raiola painstakingly crunched the numbers to account for federal, state, city and “jock” taxes (most NBA markets require visiting players to pay local taxes on the portion of their income earned within their jurisdiction).
Their findings? The “same” $95.9 million/four years offer to Anthony from Houston, Miami and Chicago would have differed, in what he actually took home, by as much as $1.4 million. Yet because of New York’s high state and city tax rates, a maximum offer from the Knicks – $129.1 million/five years, or $33.2 million more than what those other clubs could have paid him – would have been whittled down to $66.7 million in net wages.
The net gap, thanks to tax liabilities, would have been less than $13 million compared to what the Bulls could have paid him (had Chicago cleared maximum cap space) and about $11.4 million more than the Heat or Rockets would have paid.
Remember, too, that just four summers ago, the decisions by LeBron James and Chris Bosh to join Dwyane Wade in Miami weren’t made in a tax vacuum. Much attention was paid to their willingness to sign for slightly less than maximum salaries, but it was mostly tax experts, academicians and NBA insiders who tracked the actual savings James and Bosh realized by shedding the liabilities of Ohio and Canada, respectively.
So what are teams and fans to do in places such as Milwaukee, Minnesota or Portland, where the highest marginal income tax rates in 2014 are 7.65 percent, 9.85 percent and 9.9 percent respectively? Or in Sacramento, which doesn’t benefit from the glamour factors as the franchises in Los Angeles or the Bay Area but still is saddled with a 13.3 percent tax rate on high earners? A million here, a million there and pretty soon you’re talking real money compared to what the Rockets, Spurs, Mavericks, Heat, Magic and Grizzlies can toss at free agents without state taxes.
Apparently, there’s little interest and no movement at the league’s highest levels to equalize the marketplace.
That’s a departure from what was done about a dozen years ago for the Toronto Raptors, when the NBA took on that franchise’s financial disadvantages, which stemmed not only from Canadian tax rates but an unfavorable (unfavourable?) exchange rate that left Raptors players with less money than their U.S. counterparts.
Shortly after Vancouver moved to Memphis in 2001, and with Toronto’s long-term sustainability in doubt, the NBA provided assistance to the Raptors and their players with a stipend reported at $2 million and other concessions. The exchange rate, however, has evened out since then and Toronto, though it still earns its revenue in Canadian currency, conducts its NBA business – salary cap figures, player payroll – in U.S. dollars. The tax rates for Toronto residents are said to be no better, perhaps, but no worse than for wage earners in many U.S. states.
As for adjusting every team’s cap ($63.065 million for 2014-15), tax level ($76.829 million) and minimum salary ($56.759 million) to factor out state taxes, a league source said the NBA has no such plans.
What might seem to be a simple math exercise grows more complicated when other differences between markets – not just the fuzzy intangibles or “quality of life” preferences – are considered. Property taxes, sales taxes, real estate prices and overall cost-of-living adjustments might cry out for attention, too.
The NBA, already deep into luxury-tax and revenue-sharing policies it says were designed for greater competitive balance, could wind up with a crazy quilt of figures, rules and bottom lines. Instead of point guards and two-way wing players becoming the darlings of the league, it might be a bunch of tax attorneys for whom fans start rooting.
Then there’s this: Do the Lakers and the Knicks really need any sort of cap advantage to be more desirable destinations than they’ve traditionally been?