NFL stars made big money in sales this fiscal year. Now the NFLPI is looking for players to benefit from micro-endorsements on Twitter.
It is often stated in sports and in business that, “It’s not how you start, it’s how you finish.” But when it comes to being the commissioner of a major sports league, the two are inextricably linked because a commissioner’s legacy is rooted in what he has been hired by his bosses, the team owners, to initially address and eventually accomplish.
This will soon be abundantly clear to those hoping to become the next MLB commissioner. Moreover, those hoping to ascend to the top job in baseball can learn from the recent transitions of their peers.
Candidates for MLB’s top position recognize that their success is primarily measured by how they increase franchise values during their tenure. In order to increase these values, commissioners must consider what is in the best interest of the league in perpetuity, while recognizing the impact that daily policy decisions have on asset appreciation over time.
To oversimplify the matter, building franchise value requires strong media distribution, a stable labor force, and the ability to successfully manage government relations. Until or unless these three pillars are squarely in place, revenue cannot be maximized. Nor can franchise values steadily increase over time, as has been the case across the major leagues, including MLB where average franchise values increased 9% over the last year to $811 million according to Forbes.
And because perpetuity begins on day one, so too does the opportunity to shape legacy. The two most recent transitions, from NFL Commissioner Paul Tagliabue to Roger Goodell in 2006, and from NBA Commissioner David Stern to Adam Silver earlier this year, could not have been more seamless had each used a telestrator.
In both of these transitions, owners largely sought more of the same; steady leadership on key initiatives where early buy-in was apparent, if not explicit. Goodell needed to address labor relations, extend broadcasting and cable TV deals, and focus on stadium development, especially the gameday experience, among other imperatives. Out of the gate, Silver has been focused on the ever-evolving media landscape, as well as on sponsorship opportunities, international market development, and the enhanced use of technology. Ultimately, both are keenly aware of the need to focus on the fans, whether these fans are consuming content at home, while on the go, or at the venue.
In the short run, one way to measure just how well a commissioner is doing is to take a look at his league’s estimated revenue, as well as his paycheck.
According to Forbes, NFL franchise values have grown steadily under Goodell. The average value of a franchise when he took over was just less than $900 million. Today, more than 70% of teams are now worth in excess of $1 billion. Silver took over the NBA at a time when average franchise values exceed $600 million, and continue to grow steadily, if not rapidly, due to the revenue generated by regional TV networks and “new and improved” arenas.
Much has been made of Goodell’s controversial 2012 salary of $44 million. Regardless of the pension and bonus components of this compensation, it suffices to say that he has delivered on owner’s mandates; mandates that have escalated league revenue to approximately $10 billion annually.
Stern, for his part, earned an estimated $23 million his final year, a year in which league revenues approached $5 billion, up from the estimated $118 million when he began in 1984.
The lessons learned during these transitions will no doubt serve MLB well when Commissioner Bud Selig steps down at season’s end following more than twenty years guiding the sport. His replacement will likely result in those throughout the industry, as well as the sport’s fans, reminding themselves of the classic lyric by the Who, “Meet the new boss, same as the old boss.” But this time around, more of the same may not be enough.
While baseball indeed remains America’s pastime, it has much work to do to reclaim its title as America’s sport. Addressing issues ranging from the game’s pace and its aging fan base, to lagging attendance in many markets and an ever-burgeoning large market/small market divide caused by regional TV deals, will be among the next commissioner’s initial undertakings. With league revenue surpassing $8 billion, there is much to be bullish about regarding MLB.
Nevertheless, the sport’s next leader will need to be proactive in tackling these challenges, while simultaneously taking further advantage of the opportunities associated with Major League Baseball Advanced Media, the internationalization of the game, and its recent approach to performance enhancing drugs.
As is always the case this time of year, baseball fans look forward to perfectly manicured fields and the smell of clean cut grass. And, as is the case this year, commissioners in-waiting are paying close attention to two other forms of green.
Television broadcasters await a ruling against Aereo from Supreme Court as sports leagues everywhere watch with bated breath.
Ten players that stand to take the biggest financial hit on tax day.
Professional athletes are among our nation’s highest-paid employees and, as such, a huge chunk of their income is plowed into the government via the IRS. In fact, federal taxes owed by professional baseball, football, and basketball players will exceed $3 billion in 2013, according to tax experts who specialize in representing athletes.
And, like every other U.S. taxpayer, their bill is due today.
That’s $3 billion of the $2.5 trillion paid in federal taxes by all Americans, contributed by a select but paltry work force of about 3,000. On average, every MLB, NFL and NBA player pays $1 million in federal taxes.
According to data bases compiled by USA Today, players in these three major leagues alone earned nearly $9 billion in 2013. Most of that income is taxed at the highest rate of 39.6 percent, and for the first time a surcharge of .9 percent was added to the previous 1.45 percent Medicare tax employees pay on income that exceeds $250,000 to help pay for Obamacare.
Even though the overall federal tax burden of nearly 42 percent for these athletes is reduced by deductions, experts say most can only claim enough in agent fees, mortgage interest, dependents and charitable donations to whittle the bill down less than 10 percent. So assuming deductions reduce the overall tax burden to 33 percent, the amount paid in federal taxes on $9 billion of earnings is still $3 billion.
“You definitely look at the bottom-line [tax] figure and you go, ‘Jeesh, that’s a lot of money,’ said Colorado Rockies outfielder Michael Cuddyer, who is in the last year of a three-year, $31.5 million contract. “Then you look at the net income and you go, ‘Jeesh, that’s a lot of money too.’’’
State income tax varies greatly depending where an athlete lives. In addition, some states require athletes to pay tax on the income earned during the days they worked in that state, a levy known as a “jock tax.” When it’s all said and done, many athletes are paying as much as half their income in taxes.
“Wages for athletes can be huge but are earned over a relatively short period of time,” said Mitchell S. Halpern, director of sports and entertainment accounting services at O’Connor & Drew in Braintree, Mass. “The battle with an athlete is, if he’s making $10 million and taxes take half of that, he’s taking home $5 million. Is that paid over a lifetime? No. And their rate of spending can be, well, it’s amazing how much some guys can spend.”
Unless they are getting sound financial planning and tax advice, athletes can find themselves owing a huge tax bill. Teams generally withhold only the mandatory minimum 25 percent of earnings unless instructed to withhold more. A savvy financial or tax advisor will ask the team to withhold as much as 40 percent for his clients.
“We send memorandums to teams requesting 30 to 40 percent withholding,” said Ryan Losi, who represents about 75 NFL players as owner of the PIASCIK CPA firm in Glen Allen, Va. “Otherwise teams will withhold only 25 percent. Someone making a million dollars, say he’s taxed at 35 percent after deductions but had only 25 percent withheld. He’d need to cut a check to the IRS for $100,000 on April 15. It can be a shock.”
Halpern, who has represented athletes since 1985, is among a group of sports financial advisors creating an association to help increase what he calls “financial literacy” among players.
“We are in our infancy,” he said. “It’s a struggle getting traction with the leagues and players unions. We need to reach out in the financial advisor community to encourage best practices. Unions, the NCAA, high schools, they don’t adequately educate players on this stuff. I had a player get his first paycheck and ask, ‘Who is FICA and why is he getting some of my money?’”
Halpern explained the Federal Insurance Contributions Act to the player and its role in funding Social Security. Education on financial planning and taxation can be as important as learning a playbook for athletes. After all, when the federal government is counting on $3 billion a year in tax payments from MLB, NFL and NBA rosters, it behooves a player to grasp tax laws so he can hold onto as much of his income as possible. For Cuddyer, the ramifications struck him when he had to pay taxes on his $1.85 million signing bonus after the Minnesota Twins made him the ninth overall pick in the 1997 draft.
“The first check I ever had to write was like $300,000-plus in taxes,” Cuddyer said. “I didn’t even realize I had that much money, and now all of a sudden I’m writing a check for it. It was almost like it was Monopoly money. I was 18 and I didn’t even realize I had that much. It’s all fake. “Still to this day, when I get the pay stub it’s kind of like, ‘Jeesh, this is unbelievable.’ Both the net pay and what you pay in taxes is all crazy, crazy.”
So, while many of us live vicariously through our favorite players, April 15 may not be the best day to do so. Then again, who among us wouldn’t want a paycheck so large we’d be forced to wrestle with their tax dilemma?
USA Today staff writers Jorge L. Ortiz and Steve Henson contributed to this story.
- NFL: USA TODAY http://www.usatoday.com/story/sports/nfl/2013/09/13/nfl-salary-position-breakdown-opening-day-roster/2808773/
- MLB: USA TODAY http://www.usatoday.com/sports/mlb/salaries/2013/player/all/
- NBA: USA TODAY SMG property HOOPSHYPE.COM: http://hoopshype.com/salaries.htm