President Clinton's new tax plan could cause an upheaval in the financial structure of professional sports, from how teams pay their athletes, to how agents negotiate contracts, to how businesses entertain at sporting events.
Sports executives and athletes can't yet pinpoint what the impact will be and how they will respond. But after hearing Clinton's proposals, they are bracing for the blows.One proposal - not allowing companies to deduct as business expenses any salaries over $1 million - has sports franchises especially nervous. The average baseball salary is $1.1 million. The average basketball salary is $1.2 million.
"As you know, we have many players making over $1 million," said Kathleen Phillips, senior vice president of finance for the Oakland A's. "It would be devastating to baseball as an industry and to the A's as an organization."
The A's, for example, have a player payroll of approximately $36 million. The most they can deduct from that would be $25 million, leaving $11 million in non-deductible payroll expenses. Let's say the A's lose $5 million at the end of the year. In the federal government's eyes, however, for taxation purposes they would have made a $6 million profit. So instead of the organization deducting the losses, they would have to pay taxes on $6 million in profits.
"A double whammy," Phillips said.
What will happen, many predict, is that deferred payments will become standard in players' contracts. Teams would get around Clinton's tax proposal by not paying players more than $1 million a year and deferring large chunks of salary until after the player retires. It would be paid over a number of years to keep the yearly payments under $1 million.
Agents and players would want deferred payments in their contracts, anyway, even if management didn't insist. Clinton's plan would increase the top individual tax rate from 31 percent to 36 percent, plus a 10 percent surcharge for those who make more than $250,000 - which is about anybody who earns a living sweating in pro sports. Adding the 10 percent surcharge to the 36 percent rate brings the real tax rate to about 39.6 percent.
So a million-dollar athlete (married, two kids) will be a $619,686 athlete if Clinton's plan becomes law. If he plays in California, for example, which has its its own income tax, he will be a $554,699 athlete.
The bottom line: Clinton would cost him $77,575 more than he's paying now.
How are the young and rich withstanding the blow?
"If (the tax money) goes for a good cause, I think it's all right," said Golden State center Victor Alexander, who is earning $942,000 this season. "If it's going to be spent right, on the people who need it - like the poor, health care, stuff like that - I agree with all that stuff."
Teammate Tim Hardaway agreed.
"A lot of people are going to lose (money), but they were going to lose anyway, whoever had (been elected)," said Hardaway, who is earning $690,000 this year but will make more than $3 million next year. "So I think it's a good idea because the economy is really messed up, especially out here in California."
San Francisco Forty Niners linebacker Keith DeLong said he isn't happy about turning over his pay to the government, but he can't argue with Clinton's reasoning.
"With the deficit, we have to do something or the future of our country is going to be nothing," DeLong said.
Said San Jose Sharks captain Doug Wilson, who earns about $650,000, "If it's the best thing for the country, then it has to be done. Athletes salary-wise do very well and should pay their fair share."
Deferred payments allow athletes to pay taxes on a lower salary now, thus saving money, and then pay taxes on the rest of the money when they are retired and in a lower tax bracket.
Deferred payments or no, some athletes are not taking the new tax proposal in stride. Sports attorney Leigh Steinberg has been fielding phone calls from clients since Clinton laid out his plan Wednesday night. "None of them are very happy," Steinberg said. "All tax questions balance the common good versus private welfare. The only question is at what level does high taxation start to destroy initiative?"
Warriors guard Sarunas Marciulionis is a Lithuanian who is subject to U.S. taxes. "This is going to be (higher taxes) plus state taxes, too, right?" he said. "Maybe it's the right time to go play in Italy! Nah, I guess not. The NBA is the best place to play basketball for the money, and that's what I play for."
Said Sharks forward Perry Berezan, "Personally, I don't believe in taxing. Obviously, we're not economic majors, but it seems the more the government has, the more it spends."
Another part of Clinton's proposal is to reduce from 80 percent to 50 percent the amount of entertainment expenses a business can deduct. Companies that buy luxury boxes or that buy blocks of seats will be affected.
"It will be injurious to anybody in the entertainment business if (business-related) tickets are not fully deductible," Warriors president Dan Finnane said.
Said 49ers president Carmen Policy, "If Clinton's plan removes disposable income from a person's pocket, it will have an effect. I'm hoping in the list of (luxury) priorities, the 49ers come to the top of the list and other forms of entertainment suffer before the 49ers."
As for Clinton's plan to increase the top corporate tax rate from 34 percent to 36 percent, Policy said it should not have much of an effect on the 49ers because of the team's comparatively small profit margin.
"I don't think Clinton could hit the 49ers because we'd have to make a profit first," Policy said.
Nobody is sure of anything right now. Clinton's proposals must first be approved by Congress. But if most of the new tax plan takes effect, it could do for professional sports what the economy, the commissioners and the fans couldn't: make team owners pull the reins on spending.
"The real effect in the world of sports is what it does for the owners," Steinberg said. "Owners will be paying appreciably more taxes and making less money."