Sacto Kings players dream of no-tax state

April 19, 2013

By Katy Grimes

As the behind-the-scene negotiations take place between the NBA, the owners of the Sacramento Kings and prospective buyers, there is really only one thing to remember: everything is economic.

The top Kings player is paid more than $8 million. Wouldn’t he like to save a cool $600,000 a year in income taxes just by moving from Sacramento to Seattle?

Even uber-liberal HBO “Real Time” host Bill Maher recently said he may leave California, due to the state’s high tax rate.

Basketball is big business

Sports franchises are multi-million dollar businesses.

Team owners and accountants spend a great deal of their time scrutinizing the finances. A move from the economically depressed Sacramento to Seattle is a hardly a conundrum.

As the Maloof family has suffered losses in their Las Vegas business ventures, unloading the Sacramento Kings, a generally losing NBA team, probably looked good.

Migrating businesses

The marginal personal-income tax rate for wealthy Californians  is 13.3 percent. Washington state has no state personal income tax. So after deductions and tax write-offs, the California state income tax on an $8 million NBA salary would be something like $600,000.

“According to migration data from the Internal Revenue Service, over the 15-year period from 1995 to 2010, King County, where Seattle is located, has gained $32 million in adjusted gross income from Sacramento County,” Forbes reported in January.

“Other California counties have added significant amounts to King County’s coffers, too,” Forbes reported. “During those same 15 years, Orange County lost $98 million in net AGI to King County. Los Angeles saw a huge hit, with King County gaining $313 million of Los Angelenos’ net AGI.”

As the negotiations continue, Sacramento officials seem only to be getting more shrill. The only way Mayor Kevin Johnson, a former NBA star player, can seem to attract and keep business is to promise millions of dollars in public subsidies.

But Sacramento taxpayers have already voted down a public subsidy.

Public subsidy is how the NBA plays

“The league and its players have enjoyed over $3 billion in public funds for new arenas since 1990 and sources tell PBT on the condition of anonymity that the league is sensitive to what a move out of Sacramento could do to future subsidy collection efforts by the NBA,” NBC’s Pro Basketball talk found.

“Any additional ammunition given to public subsidy opponents could impact the league’s bottom line much more than what owners would proportionately receive in a relocation fee, which some have guessed to be in the $30-$45 million dollar range.  The fee can be anything the league wants, and can be as high as the most recent franchise fee or franchise sale amount according to legal scholars at Loyola Marymount.”

Despite this “new norm” of publicly subsidized arenas, Mayor Johnson is spending money he doesn’t have. Cities like Sacramento just don’t have the money, and it is irresponsible and unrealistic of Johnson and the Sacramento City Council to claim tax revenue generated by a new downtown arena would pay for the subsidy. The numbers don’t pencil out.

“With opposition of public subsidies for sports facilities growing every day, sources say the league wants to avoid a situation in which Sacramento provides a “model offer” only to have their team taken away,” Pro Basketball talk said. “This would send a message to future cities that their long-term investments in the NBA are not safe, even if the city does everything reasonably expected of them.”

We can hope. In the meantime, can any public subsidy really take precedence over the high income taxes pro-ball players must pay to live and play in California?

“The Golden State’s new 13.3 percent income tax on top earners prompted golfer Phil Mickelson to say earlier this month he was considering a move, and according to the accountants who advise millionaire athletes, he was just saying what a lot of jocks were already thinking,” Fox News reported in January.

“They’re going to have an exodus of people,” said John Karaffa, president of ProSport CPA, a Virginia-based firm that represents nearly 300 professional athletes, primarily in basketball and football. “I think they’ll see some [leave California] for sure. They were already a very high tax state and it’s getting to a point where folks have to make a business decision as well as a lifestyle decision.”