At a recent Q&A and book signing, I was asked why professional athletes who make so much money always seem to end up in financial straits.
Of course, it is not “always”, but a significant number of athletes end up eventually having money troubles despite playing for seven-figure or eight-figure contracts.
The answer is “poor money management’’, but I thought about the conversation again with the approach of Super Bowl XLVIII.
Peyton Manning, the most famous player participating in the Super Bowl this year, could lose money if his Denver Broncos lose to the Seattle Seahawks. Manning and everyone else involved in the game has to pay New Jersey’s “jock tax”. It is a state income tax enforced on visiting professional athletes (and coaches, and all other team personnel) who ply their trade within state boundaries.
Although it would be funny if New Jersey was the only state that taxed visiting athletes, it is not. Of the 25 states that have professional teams in the four major sports (NBA, NHL, NFL, MLB), 21 of them have state income taxes they enforce on pro athletes. Only Texas, Washington and Florida do not tax athletes from visiting teams because they do not have state income taxes. Tennessee also does not have a state income tax but imposes a “privilege tax’’ on athletes of $2,500 per game, up to three games a year.
In the unique case of Manning, he will lose money if the Broncos lose the game. He will earn $46,000 if the Broncos lose on Sunday (players on the winning team get $92,000). The jock tax is not on just that amount, however; it is on what a professional athlete earns throughout the entire year, pro-rated for the amount of time he spends in New Jersey.
Manning will be taxed for the seven days he is in New Jersey leading up to the Super Bowl. Because the Broncos play the New York Jets in New Jersey next season, Payton will be taxed for those two days as well, assuming he continues to play into the 2014 season. Based on his estimated salary of $15 million next season, plus the money he made in the early rounds of the playoffs, Manning would have a 2014 New Jersey tax bill of $46,844 on the tax rate of 8.97 percent, the state’s highest income tax bracket.
So, besides losing the game, Manning would also lose $844. If the Broncos win, and the rest of the assumptions remain true, he will end up making a very small sum from the Super Bowl.
Going back to the start of this story, athletes in baseball, basketball and football could end up filing up to 20 state income tax returns every year they play. Obviously, without proper financial supervision, an athlete can make big mistakes with his taxes.
That does not begin to explain how they lose eight figures worth of money; it just shows how complicated it is financially to be a professional athlete.
Fun facts to go along with this topic:
· The NFL has been criticized for holding the Super Bowl in a cold-weather city when it has warm city venues like the SuperDome in New Orleans or the University of Phoenix Stadium in Arizona available for use. The athletes and everyone else that works for NFL teams probably would enjoy seeing the Super Bowl played in either Texas or Florida every year, for both warmth and tax purposes.
· Thanks to Ted Sherman of the New Jersey Star-Ledger, I am reminded of a part of my life that played a role in the tax burdens of the professional athlete. Although the tax could have been imposed at any time, the first state to tax a professional athlete from a team representing a city in another state was California, which taxed Michael Jordan of the Chicago Bulls after the Bulls beat the Los Angeles Lakers in the 1991 NBA Finals that year. Illinois responded with its own tax and a new and sizable tax revenue stream was born. I covered the Bulls for 11 years through the entire Jordan era for the Chicago newspaper the Daily Herald, and remember now when that story broke.
· There are cities that have income taxes as well, including Cleveland, Detroit and Philadelphia. Yet another reason pro athletes don’t necessarily enjoy visits to Cleveland, Detroit and Philadelphia.
How does this affect you, the reader? It gives you an excuse for not becoming a professional athlete.
“I could have been a (pick your sport, pick your position), but I didn’t want to have to pay the taxes,’’ you can say.
And you will.