Nums: When is $87.6 million greater than $118 million?

Short answer: After-taxes … if you’re talking no income Red state (think Texas) and a high tax Blue state (think California).

Just ask former Laker Dwight Howard as he packs to head to the Houston Rockets.

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 Here’s the skinny and some nums

 

First, the back story according to Forbes:

Seven-time NBA all-star Dwight Howard has chosen to sign with the Houston Rockets.

The Lakers lost out despite offering the star $118 million over five years.

Why did he take Houston’s much lower $87.6 million over four years

Tax advisers calculate Howard will collect more after-tax on the smaller deal.

The Lakers are in California, with a killer 13.3% top tax rate.

In Texas, there’s no state income tax.

Specifically, here are the numbers courtesy of the HomaFiles stats department:

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Note that it’s a bit of a reach to say that the Laker’s package is less than the Rockets … even on an after tax basis.

But annually, the Rocket’s deal is 7% higher after tax than the Laker’s offer.

On that basis., in Dwight Howard’s case, $87.6 is greater than $118.

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Side note: Also according to Forbes:

Professional athletes and entertainers face a dizzying array of tax laws.

Most states and countries tax them when they perform or play in their boundaries.

So, the 7% Rockets’ advantage may be overstated.

Howard will still pay California state income taxes when he plays at the Staples Center.

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Point to ponder: Will franchises in low income tax states start to rule the leagues? 

Especially, big market teams in tax-free states ….

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