How Much Do NBA Players Really Earn?
The NBA world was completely shaken up when the news broke that James Harden, a Houston Rockets mainstay, was being traded to the Brooklyn Nets. Most NBA fans debated the merits of the trade for the individual teams, though very few realized the monetary impact the trade had on Harden himself. Due to the relocation, Harden will be living in New York City, which unlike Texas, has a very high tax rate. It is estimated that, due to the trade, Harden will lose an estimated $13.5 million in taxes more over the next few seasons playing in New York. Therefore, Harden’s takeaway from his contract has gone from just over $80.5 million in three seasons to under $67 million out of his $133 million contract. To put it in perspective, Harden went from taking home 60.52% of his contract to 50.3%, or over a 10% drop, just from getting traded.
After seeing just how different Harden’s net gain was based on the different cities he plays in, the fundamental question follows: How much money do NBA players really make?
Firstly, focus needs to be shifted to what reductions players would have to pay from their salaries. The most simple reductions are federal, state and city taxes. Just about every NBA player falls into the highest federal tax bracket, paying approximately 37% of their salaries to the government. However, local taxes differ greatly based on the state and city in which the player’s team is based, as some states have no income tax, while California, the state with the highest income tax, may require its citizens to pay up to 12.3%, in addition to federal taxes. The same holds true for cities; some cities, like Houston, have no income tax, while other cities can force players to give up another chunk of their salary.
James Harden is a case in point. When Harden previously played in Texas, he played in a state that has no state income tax. However, when he was traded to the Nets, he would most likely fall under the highest state tax bracket of 8.82%. Furthermore, when Harden played in Houston, he did not have to pay any city income tax, but due to his trade, Harden will have to pay NYC’s taxes, which will fall under the highest tax bracket of 3.867%. Harden must pay almost 12.7% more of his contract due to his trade to the Brooklyn Nets than he did with the Rockets.
A similar type of income tax that is almost exclusively used with athletes is the jock tax. The jock taxis used for people who spend time working across multiple states; they will be taxed differently based on where they play. When playing in states like Texas that have no income tax, there is no jock tax collected. Therefore, in this case, playing in a home city that has state taxes is beneficial, as there are more places that, when visited, have no income tax, resulting in a lower overall jock tax. It is still much more economical to play in a home city that has no income tax, though, according to figures on Bloomberg, players pay on average 3% of their salaries to the jock tax, which can be shrunk by 1% or so if a player plays in a home city with a state tax.
Another reduction that needs to be accounted for regarding players’ salaries is agent fees. Generally, NBA players pay about 3% of their salaries to their agents, as the National Basketball Player’s Association (NBPA) does not allow agents to take more than 4%.
The last reduction made to NBA player salaries is towards their 401k accounts. The highest contribution anyone can make towards their 401k is $19,500, and I would assume that no player would have any trouble giving up that amount, especially since the NBA matches that amount up to 140%.
Now that the exact quantity of reductions has been explored, it is important to consider what the average NBA player actually makes.
In the 2020-21 NBA season, the average player makes $7.916 million. If 37% ($2.93 million) is taken away for federal income taxes, 3% ($237,000) for both jock tax and agent fees and $19,500 for 401k contributions, the amount left is $4.4925 million, or 56.43% of the starting salary. This is what the average player will have to pay if they played in Houston, where there are no city or state taxes. However, if this average player plays in a market with state and city income taxes, such as Los Angeles, the take-home number for the average player could be a lot less.
As we can see, while many NBA players want to play with certain players or specific teams, choosing to do so can cost them millions of dollars. Now, that only leaves us with the question: Should NBA players choose to play based on where they will earn the highest percentage of their salary?
Photo Credit: Pixabay
Photo Caption: Salaries may not be as high as they seem.