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The New Moneyball

Alan Pogroszewski, MBA, Kari Smoker, JD, and Keith Donnelly, JD, CPA
Published Date:
Sep 1, 2019

Professional sports teams in high-tax states need to adjust to a new economic reality under the Tax Cut and Jobs Act of 2017.

Section I. Introduction

In 2003, Michael Lewis’ book, Moneyball: The Art of Winning an Unfair Game, outlined the economic disadvantages the small-market Oakland A’s faced competing against the New York Yankees and other large-market teams. Lewis’ book also examined the A’s strategy of exploiting market inefficiencies in the valuation of Major League Baseball players to not only compete, but actually succeed, within the parameters of large-market and small-market teams. Such is the business of sports.

Today, however, a new economic reality is hitting the Oakland A’s, along with every other team based out of New York, California, and to a lesser extent Minnesota. Teams based in these high individual income tax states find themselves, after enactment of the Tax Cuts and Jobs Act (TCJA), at an even greater disadvantage competing for talent in a national labor pool. Higher state taxes mean players take home lower net pay, and the TCJA’s new limitation of the federal income tax deduction for state and local taxes (IRC § 164(b)(6)) compounds the effect. By limiting a player’s ability to deduct their state and local income taxes, the new law erodes any savings they otherwise realize because of the reduction in federal income tax rates (IRC Code § 1 (j)) In contrast, players signing with teams in no-tax states are less affected by any limitation in their ability to deduct state and local income taxes. Therefore, they realize a net savings under the TCJA because of the reduction in federal tax rates.

Our exploration of these issues begins by reviewing the residency and nonresidency rules of both New York and California and the ways in which the new federal tax laws can adversely affect taxpayers in these high-tax states. The adverse effects on players in New York and California are then illustrated using two large contracts signed with big-name free agents this past July, when the National Basketball Association (NBA) and the National Hockey League (NHL) free agency period began. Specifically, the NBA’s Los Angeles Clippers landed NBA Finals Most Valuable Player Kawhi Leonard, while the NHL’s New York Rangers signed Artemi Panarin. Although many different factors ultimately influence a player’s decision to sign with a specific team, Leonard and Panarin are each paying a monetary price to play for their respective teams. It is important for similarly situated players to know the actual cost of signing with a team in a high-tax state and to understand how the disparity in net pay between high-tax states and no-tax states has increased exponentially under the TCJA.

Section II. Exposure to state income tax: resident vs. nonresident athletes

State taxation of nonresident professional athletes gained national attention in July 1991 when the Illinois General Assembly endorsed the tax bill known as Michael Jordan’s Revenge. The bill was a retaliatory measure against California because of the nonresident tax California assessed on members of the Chicago Bulls following their 1991 NBA Championship against the Los Angeles Lakers. Although this “jock tax” is often cited as the beginning of nonresident taxation of professional athletes, New York and California had already at that time been assessing taxes on nonresident athletes for twenty years or more. (In re White, 1980 N.Y. Tax LEXIS 535 (Tax Comm'n 1979; In the Matter of the Appeal of DENNIS F. AND NANCY PARTEE, 1976 Cal. Tax LEXIS 35)

From a state income tax perspective, professional athletes are particularly unique because they face wide-spread exposure to taxes across the United States and even across the globe. Their economic  presence in a state is easily gleaned from widely-published team rosters and game schedules, and they may be subject to tax not only in their team’s home state but also in every other state in which they engage in sporting events. State tax residency rules are significant, then, because they determine the nature and the extent of this exposure.

States generally classify individuals, including professional athletes, as either residents or nonresidents. Within this framework, states typically tax residents on income earned from all sources, including income sourced from within the state as well as income sourced from other states (often providing a relief mechanism for income subject to double taxation in multiple states). Conversely, states tax nonresidents on only that income apportioned to the state, with each state determining its own income apportionment rules. Both New York and California subscribe to these principles.

Generally, New York State Tax Law Section 605(b) broadly defines a resident as an individual who (1) is domiciled in the state; or (2) maintains a permanent place of abode in the state for more than 11 months of the year and spends 184 days or more (including part days) in the state during the tax year. Domicile means the place (1) a taxpayer intends to have as a permanent home; (2) where the taxpayer’s permanent home is located; or (3) where the taxpayer plans to return after being away. An individual can have only one domicile regardless of the number of homes they own.

The California Code of Regulations, on the other hand, defines a resident as an individual who is present in the state for other than a temporary or transitory purpose. Unlike New York, California views residency as the place with which  an individual is most closely connected and bases its determination on at least several different factors, namely: (1) the amount of time spent in California; (2) the location of principal residence, spouse, or family; (3) the state of driver/professional licenses and vehicle/voting registration; and (4) the location of bank accounts and financial transactions. An individual may thus be domiciled in California but not be a resident thereof, or vice versa.

Professional athletes who play for a sports team situated in a given state, or who engage in sporting events there, must be cognizant of that state’s residency rules and, if they are a nonresident, its income apportionment rules. While maintaining a domicile in a given state is likely to provide some basis for establishing residency there, other facts and circumstances may also be relevant. In view of this, with all things being equal and if given the option, players are less likely to sign with a team if it means establishing residency in a high-tax state.

This creates a competitive disadvantage for professional teams in states like New York and California, where the highest marginal income tax rates for individuals are 8.82% and 12.3%, respectively. Team members based out of New York City potentially face an additional 3.876% local tax, and under Section 12 of  California’s Mental Health Services Act, residents who earn over $1,000,000 are subject to an additional 1% surtax. This can increase the highest marginal tax rate for a resident athlete to 12.696% in New York and 13.3% in California. The broader effect is that professional sports teams in high-tax states have no choice but to increase their players’ salaries to offset the additional tax burden. Otherwise, they stand to lose talented players to the competition in low- and no-tax states.

Section III. Changes in federal income tax laws under the TCJA

The purpose of the TCJA was, ostensibly, to reduce the federal income tax burden on American taxpayers. Although this may be true for most professional athletes, it has not generally been the case for professional athletes in high-tax states. The cost they incur because of the loss of significant tax benefits under the TCJA often outweighs any savings they realize because of reduced federal tax rates.

Without question, a lower overall tax rate structure benefits all taxpayers, and the TCJA effectuated a lower federal tax rate structure for individuals for tax years 2018 through 2025. Previously, the highest marginal tax rate was 39.6% and was imposed on income exceeding $418,400 for single taxpayers. (IRC § 1(c)) Under the TJCA, the highest marginal tax rate was reduced to 37% and is imposed on income exceeding $500,000 for single taxpayers. (IRC § 1(j)) Thus, professional athletes save at least 2.6% of federal income tax on that portion of their income subject to the highest marginal tax rate. To quantify these savings, a professional athlete with $1 million dollars of income taxed at the highest marginal rate of 37% will save $26,000 in taxes on that $1 million under the TCJA.

But the TCJA also imposes new burdens. To meet the demands of budget reconciliation, which was required for enactment of the new law, the TCJA suspends certain tax benefits for tax years 2018 through 2025. Specifically, it suspends personal and dependency exemptions and miscellaneous itemized deductions for business expenses, and it sets a new limit on the deduction for state and local taxes.  

Under prior law, taxpayers could deduct a personal and dependency exemption amount of $4,050 for themselves and for each qualifying child or relative (IRC § 151). Although the TCJA suspends these exemptions (IRC § 151(d)(5)), the TCJA compensates in some ways by doubling the standard deduction (IRC § 63(c)(7)),  and providing for an enhanced child tax credit (especially for dependent children under 17) (IRC § 24(h)). However, the TCJA affects each taxpayer differently based on his or her circumstances, and there is no guarantee these benefits will result in the same tax savings that the personal and dependency exemptions afforded.

In addition, the TCJA modifies certain itemized deductions. First, there is a new $10,000 combined total limit on the deduction of state and local taxes, which includes either real property taxes, personal property taxes, and income taxes, or, alternatively, sales taxes. The limit is $5,000 for married taxpayers filing separately. (IRC § 164(b)(6)) In addition, the TCJA suspends miscellaneous itemized deductions relating to business expenses. (IRC  § 67(g)) Prior law permitted employees to deduct unreimbursed employee business expenses to the extent they exceeded 2% of adjusted gross income. (IRC  § 67) Professional athletes traditionally utilized these deductions as they related to sports agent fees, union dues, training and conditioning expenses, the cost of trade journals, and both financial advisor and tax preparation fees.

The ultimate effects of the TCJA on professional athletes must be determined on a case by case basis. However, if the associated tax costs of playing for a team in a high-tax state created any disincentive for  players to add their names to the roster, the disincentive has only grown after enactment of the TCJA. Under the new law, players lose significant tax deductions—including an unlimited deduction for state and local taxes—and, therefore, valuable tax savings that helped soften the blow of establishing residency in a high-tax state. Players in low- and no-tax states, in contrast, still generally enjoy greater net tax savings under the TCJA, giving their teams a distinct competitive advantage in attracting sports talent.

Section IV. State taxation and the TCJA: the economic reality

The most significant changes under the TCJA include a lower federal tax rate structure that benefits individuals of all income levels (IRC § 1(j)) and a new $10,000 cap on the federal income tax deduction for state and local taxes (IRC § 164(b)(6))—a limitation that penalizes most heavily those athletes playing for teams in high-tax states. But to what extent does this new limitation erode the savings that a player realizes as a result of the TCJA’s reduction in federal tax rates? This depends largely on where the player’s team is based (which likely establishes the player’s residency for state and local tax purposes) as well as the team’s game schedule (which determines where the player may be subject to state and local nonresident taxes). Even those players who reside or play in no-tax states are subject, in one place or another, to state and local taxes for games they play on the road. Thus, they too are affected by the $10,000 cap on the federal income tax deduction for state and local taxes.

To illustrate the effect of the TCJA, consider a hypothetical NHL player who earns an average salary of $2,697,017 in 2017–before enactment of the TCJA—and in 2018–after enactment of the TCJA. (As of 8/1/2019, there were 748 players under NHL contract, for a total of $2,017,483,250, in 2019. These number are subject to change as contract negotiations continue.) For simplicity’s sake, assume that he is single, plays in all home and away games as determined by his team’s 2017 and 2018 game schedules, and is a resident of the country, state, and city in which his team is located. Applying the corresponding federal, state, and city tax rates for 2017 and 2018, as well as the appropriate apportionment factors to determine the player’s nonresident taxes, it is evident that the player’s 2017 and 2018 after-tax net salary amounts, as shown in Table I, vary depending on the city and state in which his team is based.

Table I

2017 & 2018 After-Tax Net Values of Average $2,697,017 NHL Salary





New York Rangers




New York Islanders




Anaheim Ducks




Los Angeles Kings




San Jose Sharks




Minnesota Wild




Buffalo Sabres




Washington Capitals




Calgary Flames




Edmonton Oilers




Montreal Canadiens




Ottawa Senators




Toronto Maple Leafs




Vancouver Canucks




Winnipeg Jets




New Jersey Devils




Columbus BlueJackets




Philadelphia Flyers




St. Louis Blues




Pittsburgh Penguins




Chicago BlackHawks




Arizona Coyotes




Detroit Red Wings




Carolina Hurricanes




Boston Bruins




Colorado Avalanche




Dallas Stars




Tampa Bay Lightning




Florida Panthers




Nashville Predators





The differences in the after-tax net salary for 2017 and 2018 illustrate the corresponding effects of the TCJA on professional athletes who play in high-, low-, and no-tax states. As Table I indicates, players for the New York Rangers, located in New York City, are hurt the most, with an NHL player who earns an average league salary of $2,697,017 netting $44,614.82 less in 2018–after the TCJA took effect—than in 2017. (Although the highest marginal rate for New York is lower than California’s, the lower tax brackets in New York impose more tax than California’s do.) Also negatively impacted are players for the New York Islanders, as well as those for California-based teams. In contrast, players in no-tax states—Florida, Nevada, Tennessee, and Texas—are subject to the lowest potential jock taxes, and they net the greatest savings under the TCJA. The net difference in salary from 2017 to 2018 for the New York Ranger player (a decrease of $44,614.82) versus the Nashville Predator player (an increase of $54,494.54) represents an extensive widening of the gap in after-tax net salaries—to the tune of $99,109–effectuated by the TCJA.

The fact that there are winners and losers illustrates not only the cumulative effects of jock taxes and the TCJA but also the competitive disparity it creates between teams. When competing for talent in a national labor pool, the disadvantages for teams in high-tax states are readily apparent. Kawhi Leonard’s recently signed contract with the Los Angeles Clippers and Artemi Panarin’s with the New York Rangers demonstrate the real disparity between teams at opposite ends of the state tax spectrum. The result is staggering.

Kawhi Leonard recently signed a three-year $103,137,300 contract with the Los Angeles Clippers, resulting in an average annual salary of $34,379,100. Although the Miami Heat were never in contention to sign the three-time All-NBA selection, a hypothetical three-year $103,137,300 contract with the team illustrates the competitive disparity between California- and Florida-based teams before and after the TCJA. As depicted in Table II, Kawhi Leonard’s contract net of three years’ worth of annual taxes, computed using the tax laws in effect pre-TCJA in 2017, would have varied widely from the net amount computed using the tax laws in effect after enactment of the TCJA in 2018. The amounts also vary widely depending on whether Leonard played in Los Angeles or Miami.

Table II

After-Tax Net Value of Kawhi Leonard’s Three-Year $103,137,300 NBA Contract


Pre-TCJA Net Value (using 2017 Tax Laws)

Post-TCJA Net Value (using 2018 Tax Laws)


Los Angeles Clippers




Miami Heat




Disparity (Net)




Salary Premium

(Gross in Clipper $)





As Table II indicates, Kawhi Leonard realizes over $1.5 million less, net of taxes, under his contract with the Los Angeles Clippers when applying the tax laws in effect in 2018 after the TCJA took effect. In contrast, he would have netted a $2.5 million after-tax increase after the TCJA took effect had he signed with the Miami Heat. The $4 million after-tax gap effectuated by the TCJA is staggering, but even more so considering that there was already an after-tax gap of over $9 million between the two contracts applying the tax laws in effect in 2017 before the TCJA took effect. This brings the total after-tax gap between the Los Angeles contract and the Miami contract to over $13 million under the TCJA. If Kawhi Leonard had been debating between the two contracts based on money alone, the Los Angeles Clippers would have had to bridge this gap by paying him a salary premium of over $28 million. Conversely, the Miami Heat could have taken a discount, decreasing his gross annual salary to $80,885,217, and still matched the Los Angeles Clippers’ after-tax net salary dollar-for-dollar.

The second example is Artemi Panarin’s seven-year $81,500,000 contract with the New York Rangers, which is depicted in Table III. His after-tax net salary amounts also vary widely depending on whether the tax laws in effect in 2017–before the TCJA took effect—or those in 2018–after the TCJA took effect—are used to compute his annual taxes. The results also vary widely depending on whether he signed with the New York Rangers or, instead, with the Predators in Nashville, Tennessee, where there is no state income tax.

Table III

Artemi Panarin $81,500,000


2017 Net Value

2018 Net Value


New York Rangers




Nashville Predators




Disparity (Net)




Disparity (Gross in Rangers $)




After-Tax Net Value of Artemi Panarin's Seven-Year $81,500,000 NHL Contract

Again, the TCJA effectuates significant after-tax disparities. The after-tax net salary with the New York Rangers decreases by $1,067,405 when applying the tax laws in effect in 2018 after the TCJA took effect, while increasing by $1,983,033 with the Nashville Predators. The gap in after-tax net salaries thus widens by over $3 million in 2018, after enactment of the TCJA, to over $9 million total. To bridge this gap, the New York Rangers would need to increase Artemi Panarin’s gross annual salary by a premium of over $19 million. Conversely, the Nashville Predators could offer a discounted gross salary of only $65,848,997.55 to match the New York Rangers’ after-tax net salary dollar-for-dollar.

As Tables I, II and II indicate, the disparity in after-tax values between a contract signed with a team in a high-tax state, like the ones signed by Leonard and Panarin, and the same one signed with a team in a no-tax state have grown significantly with the passage of the TCJA. This places teams in high-tax states at a competitive disadvantage in so far as they must pay a significant premium—or hope the competition offers a significant discount—to secure talent from a national labor pool.

Section VI. Conclusion

To ensure their market power, leagues have limited not only the number of teams within their league but also the number of teams within each market. Historically, this created a competitive disparity between large-market and small-market teams as they fought for talent from a national labor pool. But now a new set of circumstances is causing teams–this time, those in large markets like New York City and Los Angeles—to operate at a competitive disadvantage. First, high state taxes, in combination with recent changes in federal tax law enacted under the TCJA, put these large-market teams at an increased disadvantage. In addition, while large-market teams like the Los Angeles Clippers and the New York Rangers may have the financial ability to pay a premium that allows them to compete with teams in in no-tax states, they are unfortunately thwarted by their league’s salary cap policies. These salary caps ultimately limit a large-market team’s options, forcing them to operate at a competitive disadvantage.

On the flip side, league salary caps and state and federal tax law present a golden opportunity for small-market teams in low- and no-tax states to compete against traditional large-market teams in high-tax states. This could explain how the NHL’s Nashville Predators, Tampa Bay Lightning, and Vegas Knights—all small-market teams— have risen in the ranks, competing in three of the last five Stanley Cup Finals. In any case, the appropriate response to changes in the tax law should be the reliance on professional guidance from a tax accountant who specializes in these areas of tax law. Teams and athletes alike must carefully navigate the unique tax issues facing the sports industry today in order to maintain a competitive advantage.


Alan Pogroszewski, MBA, is an associate professor in sport management at St. John Fisher College and is also the founder and CEO of AFP Consulting LLC, which specializes in tax consulting and income tax preparation for professional athletes worldwide.  Alan is seen as a leader in professional athlete tax matters, having been published numerous times in national law journals and interviewed by national media outlets. Alan’s article “Is Tennessee’s Version of the ‘Jock Tax’ Unconstitutional?” co-authored with Kari Smoker in the Spring 2013 edition of the Marquette Sports Law Review proved to be instrumental in Tennessee lawmakers voting to repeal this tax. Alan is also the creator of the Jock Tax Index (JTI) which was presented at the 2015 MIT Annual Sloan Sports Analytics Conference and has been featured on “Off the Charts” by Scarlet Fu on Bloomberg Television’s Market Crashers.  The JTI measures how a team’s location dictates the tax burden on an athlete and allows individuals to compare the net take-home income, after tax liabilities and credits, of any contract proposal between competing offers from different tax jurisdictions.  Over the past several years, Alan has advised several of the top free agents in sports by assisting them in understanding the tax situation for each of the potential offers they receive. Alan also has an MS in taxation.

Kari A. Smoker, JD, is an assistant professor in the school of business at Ithaca College. She was previously an associate professor at the State University of New York, The College of Brockport, and has received a number of awards, including the Rochester Business Journal’s Forty Under 40 Award and the SUNY Chancellor’s Award for Excellence In Teaching.  Ms. Smoker is also a consultant for AFP Consulting LLC, specializing in tax issues for professional athletes.  She publishes regularly with co-author Alan Pogroszewski and has been interviewed by various news outlets on contemporary sports tax issues. She co-authors the legal text, Law, Business, and Society, published by McGraw Hill Education. She has an MS in taxation.

Keith Donnelly, JD, CPA (Inactive, Pennsylvania), is an assistant professor in accounting at the State University of New York (SUNY), The College at Brockport. He previously taught as an adjunct professor at Penn State Greater Allegheny and, prior to entering academia, worked as a tax professional at Deloitte.

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