So Much Talk About Taxes!

It may not be a new trend, but every time I hear of a high profile athlete signing with a new team I always hear about taxes. It makes sense that we only hear about the high profile players because they have the most to lose in taxes by signing big value contracts.

The latest example is Dwight Howard. Howard is currently a free agent and exploring different teams that he could play for next season. The only thing that is a near certainty for Dwight is that he will receive a max contract or something close.

Currently Dwight is being rumored with many teams across the league. Two of particular interest for tax reasons are the Dallas Mavericks and the Houston Rockets. Both of these Texas state teams have an added advantage when signing free agents because they operate in a state without income tax via the state. Florida professional sport teams also enjoy this added incentives to acquire free agents.

If Dwight resigns with the Lakers, he might be subjected to the 13.3% state income tax in California for individuals earning more than $1 million. The reason why Dwight would not automatically be subjected to this tax is because of his residency. State income tax is assessed by where someone is considered to have primary residency. Dwight has a home in Florida that he could attempt to use as his primary residency.

The tax factor for Dwight Howard is significant because if he has to declare residency in California, he could be accepting a lower value contract with the Lakers. Although the contract with the Lakers would be a max deal, a four year deal from a Texas team could result in higher net dollars.

Final Thought
It will be tough for Dwight to declare residency in Florida because the state of California has more aggressive policies in tracking information related to taxes. Dwight would also be an easy target because of the high gross value he would receive per season. I would be curious to know how big of a factor taxes play in Dwight's decision. Although I do not think taxes alone will decide where Howard plays next season, it is understandable that taxes will weigh into the decision.

For teams who have the benefit of playing in a state with low or no state income tax, they should take advantage of it. These teams have the ability to add an incentive that another team could not match no matter what they do. Taxes are one of the rare things that teams do not have the ability to control.

@dmrosen7

Ticket Sales Can Be Counterintuitive

Remember on Monday I wrote about the dust clearing in the Dwight Howard trade?  Well let’s stir it up a little bit, but the stir won’t necessarily have Howard as the centerpiece. 

When talking and listening to coworkers at Comcast-Spectacor throughout the week, a very interesting point dawned on me.  NBA season ticket sales are about extremes, and nobody wants to get stuck in the middle-of-the-road purgatory.  This idea could have been a basis for the deal that the Orlando Magic pulled off in dumping Howard.

Dwight Howard as a Laker

No matter what your opinion of Howard may be, on the court the man is a star.  He’s a freakishly athletic, highly talented, and highly skilled star, which are all reasons why the Magic, ESPN, and the NBA put up with his antics.  Point being, when teams deal star players, ownership is involved.  General Managers don’t wake up one day and decide to trade one of the most dominant players in the sport without involving the owners.

Why?  Because star players have many more implications than simply the on-court product.  Howard impacts both merchandise and ticket sales greatly.  I cannot italicize the text enough to stress Howard’s importance to merchandise and ticket sales.  To put it in perspective, when the Philadelphia 76ers acquired Andrew Bynum in the same deal that Howard was dealt in, the Sixers had one of the best ticket sales days in franchise history.  I’ll let that sink in.

Andrew Bynum as a Sixer

Given the newfound perspective, the impact that Howard can have on ticket sales is almost unfathomable.  So clearly going for it all is one extreme, but what about the other extreme.  Hitting rock bottom, which must be noted is less than ideal for long term sustainability, can also be a selling point to boost season ticket sales.

Hitting rock bottom can be spun into hope.  Instead of saying “we had the worst team in the league last year so you should totally purchase a family plan for the season” a team in this position can say “hey look we didn’t have the year we were looking for but things are looking up.”  Most importantly to be added in is “oh yea and we have the most ping pong balls in the draft lottery” and when the top pick is a guy like Anthony Davis, season tickets get sold.  Of course, the impact is smaller than adding the proven star player, but it is better than being stuck in the perpetual middle ground.

The middle ground is somewhere that Philadelphia fans in particular are all too familiar with.  Barely missing out on the playoffs.  First round exits.  Year after year spent outside of the draft lottery.  Everybody’s goal, naturally, is to make the playoffs, but if a team goes to the playoffs and loses in the first round year after year, then the team’s season ticket sales group is going to have a tough time.  Many people don’t buy season tickets for first round exits and a lot more people than you expect don’t even buy season tickets for the team.  Aside from business purposes, people buy season tickets to see the next big thing or to see the team make a run through the playoffs (not to be confused with into the playoffs). 

This is where the theory gets applied to the Magic dealing Dwight Howard.  Many thought that the Magic did not get enough back in dealing their star.  Many thought that they should have gotten Pau Gasol from the Los Angeles Lakers.  Gasol is a costly option at about $38.2 million over the next 2 seasons (Sham Sports), but is that why the Magic stayed away from him?  People may say yes, but I don’t think that’s true.  The Magic had the flexibility to pay Howard what he wanted, so with Howard out they would have just reallocated that money to Gasol. 

And look at that neck beard

Although Gasol is not the same star type player that Howard is, he is still worth a good number of wins.  That number of wins that he is worth could very well have pushed the Magic from hitting rock bottom to the middle ground.  But remember that you don’t want to be in the middle ground.  The additions of Afflalo, Harrington (whose contract may get bought out before he even plays), Vucevic, and Harkless are nothing compared to what Gasol would have been.  However, those 4 (or 3) give the Magic a young base to build on into the future especially with all those draft picks.  One of those draft picks could end up being a guy that sells tickets.  The Magic still have payroll flexibility so they could go after big name free agents in the coming years.  One thing is certain though, the Magic consciously chose the bottom over the middle ground in trading Dwight Howard.

Follow Kevin Rossi on Twitter @kevin_rossi.

Dollars & Sense - The Dwight Howard Saga Ends

The unthinkable has happened.  The dust is clearing.  The Dwight Howard saga is over!  Let us all rejoice! If anybody was able to keep count of how many days the whole “Dwightmare” lasted, then I commend you because I lost track about a year ago.

Unfortunately, Dwight Howard took advantage of sides of sports that the purists like to ignore.  He took advantage of power and greed, but more importantly he showed a side of immaturity and indecision that was magnified at a daily national level.

But the obsession is over now.  We can all sleep soundly; no longer checking Twitter on an hourly basis through the night solely to know the latest Dwight Howard trade rumor for talk around the water cooler the next morning. 

Late last week, trade rumors emerged about the 4-team deal that would send Dwight Howard to the Lakers.  Talks progressed quickly (and stole my thunder when I broke news about Samme Givens signing with a Dutch pro team on Philahoops).  By the time the dust cleared, the trade was bigger than anybody could have ever imagined.  Details:

Los Angeles Lakers Get – Dwight Howard (from Orlando)

Philadelphia 76ers Get – Andrew Bynum (from LA) and Jason Richardson (from Orlando)

Denver Nuggets Get – Andre Igoudala (from Philadelphia)

Orlando Magic Get – Arron Afflalo (from Denver), Al Harrington (from Denver), Nikola Vucevic (from Philadelphia), Moe Harkless (from Philadelphia), and future first round draft picks.

It is up for you to decide which team you think was the big winner of the deal.  I must say, as a Sixers fan and Philadelphia guy, I was not expecting the Sixers to be in on this.  In reality though, it’s just too early to tell.  For now, let’s break down this trade further to look at contract money given away and contract money taken on (2013 contract numbers are from ShamSports.com).

Los Angeles Lakers:

Give – Andrew Bynum ($16.1 million)

Get – Dwight Howard ($19.5 million)

Trade Difference – Lakers take on $3.4 million in salary.

Philadelphia 76ers:

Give – Andre Igoudala ($15.9 million) – Nikola Vucevic ($1.7 million) – Moe Harkless ($1.7 million)

Get – Andrew Bynum ($16.1 million)

Trade Difference – Sixers shed $3.2 million in salary.

Denver Nuggets:

Give – Arron Afflalo ($7.8 million) – Al Harrington ($6.7 million)

Get – Andrew Igoudala ($15.9 million)

Trade Difference – Denver take on $1.4 million in salary (but shed a good amount of long term money)

Orlando Magic:

Give – Dwight Howard ($19.5 million)

Get – Arron Afflalo ($7.8 million) – Al Harrington ($6.7 million) – Nikola Vucevic ($1.7 million) – Moe Harkless ($1.7 million)

Trade Difference – Magic shed $1.6 million in salary.

Nobody in the trade went for a huge salary dump and nobody took on an abnormal amount of salary.  The Magic seem to be looking to the future by taking on the young talents of Afflalo, Vucevic, Harkless, and a handful of future draft picks.  The Sixers were able to flip Igoudala’s inflated, expiring contract for Andrew Bynum’s potential to be a top big man in the NBA and willingness to resign with Philadelphia at the end of his current contract.  The Nuggets trade long term salary for short term salary, which could give them some flexibility down the road.  And the Lakers get Superman. 

Any trade needs time to determine whether the dollars make sense.  For now this trade is a blockbuster that was able to overshadow the US Men’s advancement to the Gold Medal game at the London 2012 Olympics.  The “Dwightmare” is over… For now at least.  Now we can start our days with updates on Dwight Howard’s back.  Oh joy.  Check back in 5 to 10 years to find out which teams won and which teams lost in this deal.  Everybody, enjoy the peace and quiet because the Dwight Howard soap opera is over.

Jeremy Lin and the Rest of NBA Free Agency

The Sixers signed Kwame Brown....

For a while ESPN was constantly talking about where Dwight Howard would go this offseason after once again demanding a trade. Nothing has happened with Dwight, but plenty of other transactions have occurred early on in NBA free agency. The Lakers went out and signed Steve Nash. Although Nash is 38 years old and obviously not in the prime of his career, he has shown that he still has game left. The newly name Brooklyn Nets after landing Joe Johnson via trade were able to sign two of their own. Deron Williams and Gerald Wallace both could have left, but the Nets were able to work out deals with both players. As if the Miami Heat were not good enough..... they snatched Ray Allen away from Boston. Allen turned down a bigger contract with the Celtics to go play with the "Big Three." Other moves included the Knicks bringing in Raymond Felton and Jason Kidd. Kidd celebrated by getting a DWI in the Hamptons. Although the offseason has been busy thus far in the NBA, the biggest free agent story may be someone who is yet to sign anywhere, Jeremy Lin.

Everyone knows the impact of Jeremy Lin on the Knicks last season. Although Lin only truly impacted the team for 26 games, he put up statistics that no one could imagine. The result of Jeremy Lin's good play was the start of "Linsanity." Linsanity took over New York City and the rest of the NBA world. Everyone knew that Lin was due for a contract when the season was up, and most assumed it would be significantly more than the $762,195 he made last season. When the Knicks and other teams are considering signing Jeremy Lin, one factor that could be overlooked is his race. Jeremy Lin brings an Asian audience that may present without Lin's presence. The Rockets got a taste of the benefits of having an Asian player with Yao Ming. While Yao was playing for the Houston, the Rockets' value increased by about 100% while the NBA average during this time was 63%. After Yao's retirement, the Rockets' value increased about proportionally to the NBA average. The general manager of the Rockets, Daryl Morey, is known to love statistics so it is not surprising to me that the Rockets' have offered Jeremy Lin a three year contract reportedly worth $25 million. Morey most likely sees the Rockets' having another "Yao effect" if they are able to sign Lin. The Knicks have until midnight tonight to match the offer.


Final Thought


Carmelo Anthony recently said, “It's up to the organization to say they want to match that ridiculous contract that's out there." I do not see the Knicks matching the offer for two reasons. The first reason is that they now have plenty of depth at the guard position so it is not a current need. The other reason is that the Knicks would have too much money tied up in contracts for future years, which could eliminate them from signing big free agents in future years. I think this is a rare move in which two teams are making good decisions. The Knicks are smart not to throw that money at Jeremy Lin, and the Rockets' are smart for trying to signing him. Also not to mention.... Jeremy Lin is a pretty smart guy.




 @dmrosen7




Sources: NBA.com, ESPN.com, USAtoday.com, LAtimes.com