Is Pablo Sandoval Leaving San Francisco Because of Taxes?

Is Pablo Sandoval Leaving San Francisco Because of Taxes?

MLB

Is Pablo Sandoval Leaving San Francisco Because of Taxes?

World Series - San Francisco Giants v Kansas City Royals - Game Seven

Pablo Sandoval agreed to terms with the Red Sox for somewhere in the neighborhood of five years, $100 million. He reportedly received a similar offer from the Giants (and Padres). Why would he leave a situation where he’d spent seven seasons, was beloved, and had tremendous postseason success? Was it perceived disrespect, or did it boil down to taxes?

Ray Ratto spoke to Kurt Badenhausen of Forbes, who sure seems to think so:

For the sake of discussion, let us assume that Sandoval resides in a tax-free state. When this is the case, a player looking at identical contract offers between teams would need to consider both the team’s location and the team’s schedule. If Sandoval lives in a tax-free state, he will save about $747,000 in state taxes per year by signing with Boston. This adds up to $3.735 million over the five year contract.

But what if Sandoval decides to live in the town where his team plays next year? If he signs with San Francisco, he will pay roughly $2.71 million per year in total state and local (road games) taxes. If he signs with Boston, he will pay about $1.19 million in state and local taxes. That is a difference of $1.52 million per year or $7.6 million over the life of the contract.”

The variances arise from the difference in California’s state income taxes, which are progressive and top out at 13.3%, versus those of Massachusetts, which are flat at 5.2%. There are also cost-of-living differences — Nerdwallet’s calculator says housing costs 75% more in San Francisco than it does in Boston. Nevertheless, most reasonable people would agree that $7.6 million is a significant enough figure to factor into this type of decision without devolving into a diatribe about spoiled ballplayers.

As sports contract values continue to grow higher and higher, state tax incongruities will increasingly factor into players’ choices. This will inevitably affect competitive balance. For example, we often talk about the selflessness of the Spurs’ stars taking less money, but it’s less of a comparative sacrifice for them to do that in Texas where there is no state income tax than if they played for the Lakers, where they’d have faced rates that ostensibly led Pablo Sandoval out of town. (This analogy obviously does not come close to fully explaining the Duncan vs. Kobe narrative.)

It will be interesting to see if leagues step in and draw up new regulations designed to support franchises that find themselves in adverse tax situations. On one hand, it’s not as though owners were ignorant of these economics when they decided to purchase their teams, but present salary cap or luxury tax situations effectively handicap franchises from competing on a level playing field. Again, this issue could become progressively pronounced as time marches on.

Related: How Have Companies With Stadium Naming Rights Done in the Stock Market?

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