November 3, 2020

Blues Captain Leaves for Sin City: How State Income Taxes Played a Role in Alex Pietrangelo’s Departure

On January 3, 2019, no one could have predicted that the then St. Louis Blues captain, Alex Pietrangelo, would be hoisting the Stanley Cup at the end of the 2019 season. In early January 2019, the Blues were in last place in the NHL, but the team turned their season around with the help of the song “Gloria”. A little over a year later, Blues fans could not imagine Alex Pietrangelo wearing anything but a Blue Note as he headed towards unrestricted free agency. But in October 2020, the former Blues captain inked a seven-year, $61.6 million contract with the Vegas Golden Knights.

NHL Salary Cap Takes a Hit

It is presumed that one of the major sticking points in the Blues negotiation with Pietrangelo was the amount of signing bonuses included in any potential contract. The ongoing pandemic has limited the cash flow of many businesses throughout the world, and the NHL is not immune to that reality. Before the pandemic hit, the NHL salary cap was anticipated to increase substantially for the upcoming season, but the league decided to keep the salary cap flat for the foreseeable future. The flat salary cap put the Blues in a bind when it came to fitting Pietrangelo in under the salary cap for the upcoming season, which further complicated negotiations. In his deal with Vegas, he will receive $35 million of signing bonuses throughout the life of the seven-year contract, which likely has major tax benefits for the former Blue.

State Income Tax Comes into Play

Nevada is one of nine states that does not have any state income tax. Athletes’ are generally subject to a “jock tax” in states and cities in which they work.  The athletes’ salaries are commonly apportioned to various states and cities using the “duty days” method. This jock tax is levied by states and cities on athletes who play or practice while in town. Assuming Pietrangelo becomes a Nevada resident rather than remaining a Missouri resident, the structure of his contract provides major tax benefits. This means that half of Pietrangelo’s games will be allocated to Nevada, a no income tax state. In addition, signing bonuses are exempt from the Duty Day calculation provided certain criteria are met. Instead, signing bonuses are allocated to an athlete’s resident state. In this case, all of the $35 million in signing bonuses will be allocated to Nevada and not be subject to state income taxes. If he had remained a Missouri resident and signed a similar contact with the Blues, Pietrangelo’s signing bonus would result in Missouri state income taxes of roughly $1.9 million.

For professional athletes, tax compliance and planning can be an issue when it comes to filing in the proper tax authorities. The Anders Sports, Arts and Entertainment Group has the knowledge to help athletes with tax compliance and planning. Contact an Anders advisor below to learn more.

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June 30, 2020

MLS and MLS4TheLou Push Forward Amongst Pandemic

The outbreak of COVID-19 has been an unprecedented, worldwide event that has affected every aspect of our lives, including sports. Like everyone else, Major League Soccer was not immune from the outbreak. The league barely kicked off their 25th season before sports came screeching to a halt across the globe.

MLS is Back

It has been a little over three months since MLS suspended operations, but the league is ready to get back on the field in Florida. From July 8th to August 11th, the “MLS is Back” tournament will be played in Orlando with all 26 clubs participating. The tournament will feature a World Cup format with a group stage followed by knockout rounds. After the tournament is completed, the league is hopeful it will be able to play out the rest of the season and crown an MLS Cup champion before the end of the year.

Tax Benefits of Playing in Florida

From a tax perspective, players will be playing in a no income tax state during the tournament. This could provide players with large state income tax savings compared to their normal home states that they are accustomed to. For example, MLS star Carlos Vela, plays for LAFC and pays one of the highest state income tax rates in the country for the club’s home games in California. Although players had to take reduced salaries in the updated Collective Bargaining Agreement to get MLS back on to the field, playing in Florida offers some mitigation of financial loss by not paying any state income tax for the games played there.

Updates on MLS4TheLou

On the St. Louis home front, the MLS4TheLou ownership group continues to push forward to be ready for the club’s inaugural season in 2022. The ownership group continues to progress on their 22,500-seat state-of-the-art soccer specific stadium in Downtown West, as part of their vision for the first soccer district of its kind in the US. The district will also feature a training facility and team headquarters across Market Street. Since stadium construction is still in an early phase, construction has continued because social distancing practices can still be safely maintained.

The ownership group was expected to announce the team’s name, crest, and identity in the Spring, but the potential announcement has been pushed back indefinitely due to the ongoing pandemic. The branding unveil is still expected to occur before the end of 2020. The group has other priorities to take care of including appointing front office executives and building out the roster for kickoff in a few years.

The Anders Sports, Arts & Entertainment Group will continue to monitor the ongoing developments for both the return of MLS and the MLS4TheLou ownership group’s continuous expansion team progress.

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December 30, 2019

NCAA Passes Initial Steps for Student Athletes to Benefit from their Likeness

California passed legislation to allow college athletes to be compensated for their likeness. Under this new legislation, schools would not compensate student athletes, but athletes would be allowed to profit off their likeness via third party businesses. This law would not go into effect until 2023. In response to this recently passed legislation, the NCAA’s Board of Governors unanimously voted to allow student athletes the opportunity to profit off their name, image and likeness (NIL), but with a catch.

The Collegiate Model

The actions by the Board of Governors do not allow athletes to immediately benefit from their NIL. Instead, the board has directed each of the NCAA’s three divisions to begin creating a structure for student athletes to make money off their name, image and likeness. Each division has until January 2021 to create a framework on how to govern student athletes. In the official wording, the NCAA added an unclear condition — any benefit would have to be “consistent with the collegiate model.” Many questions will need to be addressed before student athletes see any benefit from their likeness.

Profiting off of Popularity

The road for student athletes to officially benefit from their NIL will certainly be a messy one. If implemented, student athletes will not be paid by their universities, but they will be able to strike deals with businesses to profit off their marketability. Revenue sources would come from autographs, video games, and endorsement deals from shoe and clothing companies. This would provide many student athletes, who will not play professionally, the opportunity to cash in on their peak profitability during their collegiate years. Undoubtedly, the NCAA will want to have oversight of how and when athletes are compensated.

If the NCAA ultimately devises a framework for student athletes to benefit off their likeness in the future, the Anders Sports, Arts & Entertainment Group will have the knowledge to help student athletes with a variety of areas including tax compliance and planning. Contact an Anders advisor to learn more.

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June 4, 2019

How the Rise of Overseas Contracts Could Impact the MLB

The past few years, off-seasons in particular, have been met with frustration and anger from MLB players and the Major League Baseball Players Association over the free agent market and the compensation structure/control currently in place. Yes, the Bryce Harper’s and Manny Machado’s of the world will certainly get their money. But, those are two of the best players in the game, so it’s not necessarily fair to use them as examples.

Free Agency Delay

Generally, it takes six years of major-league service time before a player reaches free agency.  Historically, there hasn’t been as big an issue with it since many players in their late 20s or early 30s were still cashing in large contracts with long-term security. With bad contracts burning many teams over the years, they are less willing to pay that large contract over a long period of time for someone that may have already reached their prime, or even on the way out of their prime. The problem is players cannot always cash in on their true value for the first six years because they are controlled by the team/league rules, to a certain extent.

More Money Overseas

It was recently announced that nineteen-year-old pitcher, Carter Stewart, has agreed to a six-year contract with a professional baseball team in Japan worth more than $7 million. Stewart was the 8th overall pick in the 2018 draft by the Atlanta Braves, but did not sign after the two sides could not agree on a signing bonus amount. While his signing bonus could have been in the $2 million range, his next six years would be considerably less, barring a rapid rise to the major leagues.

By signing a professional contract in Japan, Stewart, represented by mega-agent Scott Boras, can guarantee himself significantly more money than he could have with a major league organization during that time frame. Under current MLB rules, Stewart also can enter MLB free agency at the conclusion of his six-year stint overseas. More and more players are signing professional contracts overseas to not only make more money now, but also in hopes of reaching MLB free agency sooner than they may have with a major league organization.

The increase in number of players, especially higher profile players, going overseas to play should cause concern for the MLB. And the fact that a first round MLB draft pick has done so may have enough long-term ramifications that Major League Baseball has to address the issue and make changes, sooner than later.

For professional baseball players looking for tax planning and compliance, whether in the MLB or overseas, the Anders Sports, Arts & Entertainment Group has the knowledge and experience to help. Contact an Anders advisor to learn more.

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May 22, 2019

Banking on the Blues: How the St. Louis Economy Could Benefit from the Stanley Cup Finals

The St. Louis Blues are in the midst of a historic run toward Lord Stanley’s Cup. This is especially exciting for St. Louisans as the Blues were in dead last in the NHL as 2018 turned to 2019 with talk of personnel changes. Luckily, due to a few different factors, the Blues turned the season around and became a favorite for the Cup.

Economic Impact on St. Louis

The turnaround is fantastic for Blues players, the organization and the Cup-thirsty fan base – but the economic impact on the St. Louis region may be the biggest winner of all.

Many estimates of a run through the Stanley Cup finals start with lofty numbers of a $50 million dollar impact on the region. This number stems from projected revenue from tickets, merchandise, hotel, restaurant and bar sales, among others, during the finals. Given the drought Blues fans have waited through and the amazing path to get here, it’s possible the impact could be even higher.

Hopefully, we see the Cup hoisted by the Blues and a long overdue parade down Market Street celebrating a team, a Cup, an economic boon and a region’s professional sports return to prominence.

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April 4, 2019

The Newest Athletes: eSports Gamers and Video Game Streamers

Most kids spend countless hours playing video games in their free time, but for some this hobby could potentially turn into a career. eSports and video game streaming have become a multibillion-dollar industry, drawing sponsorships from companies like Procter and Gamble and can be viewed on ESPN. This exploding world of video games is the future of sports whether society is ready to accept it as a sport or not.

Basics of eSports

eSports are very similar to traditional sports in America with eSports athletes competing either alone or on a team. The NBA and MLS have formed leagues that compete in the most popular video games in their sports genre. The NFL and NHL are currently testing the waters and are considering creating their own eSports leagues as well. Other combat and war games, strategy games, and role-playing games draw in hundreds of millions of dollars and viewers.

Popularity of Video Game Streaming

Video game streaming, which is defined as playing video games live with a camera showing the actual player and a screen showing the game play, is in itself a billion-dollar industry. The largest company in this field is Twitch, a site that was acquired by Amazon in 2014 for $970 million dollars. Twitch charges its customers $4.99 a month to be able to watch video games, stream themselves playing video games, and interact with others who are playing. Viewership for certain players can reach close to a million viewers for a single live session. Earlier this year, professional video game player Ninja teamed up with rappers Drake and Travis Scott, as well as NFL wide receiver Juju Smith-Schuster to stream the four of them playing the extremely popular game Fortnite. This event, which took place in the middle of the week with little to no publicity, drew close to one million viewers. Events like this can draw millions in advertising and sponsorships as well as launch careers. Ninja, the aforementioned video game player, was relatively unknown in the video game world before 2018 and by September 2018 he was the first video game player ever to be featured on the cover of ESPN The Magazine.

A Growing Sports Genre

The world of eSports is not just open to professionals. Almost every major NCAA conference already either has established an eSports league or is currently in the process of doing so. This means in the not so near future kids will be able to earn eSports scholarships to colleges and universities the way that athletes can now.

The explosion in popularity of eSports is shaking up the world of professional and collegiate sports. Many household name companies are jumping on board so they do not miss their chance to get in on the ground floor. Billionaires, such as Robert Kraft have made multimillion-dollar investments in eSports leagues. Kids will soon be able to earn college scholarships for playing video games. These are all things to keep in mind the next time you tell your son or daughter to turn off their game systems and go to bed.

The Anders Sports, Arts & Entertainment Group helps eSports athletes navigate the complicated financial landscape of the up and coming sport. Contact an Anders advisor to learn more.

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March 28, 2019

Tax Reform for Individuals: Changes in Deducting Gambling Losses

Professional gamblers and hobby gamblers are now on the same playing field in the eyes of the IRS. Under the Tax Cuts and Jobs Act (TCJA), changes were made to how expenses and losses are deducted against gambling winnings. Previously under the old law, allowable losses and expenses were different for professional gamblers and those who gamble as a hobby. Below we cover how they were handled under the previous law, what has changed, and how gamblers will be impacted from a tax perspective.

Previous Law

Under prior law, individuals who gambled as a hobby and not as a trade or business could deduct gambling losses only to the extent of gambling winnings. Nongambling expenses, such as travel to and from a casino, were not deductible against gambling winnings.

Individuals who gambled as a trade or business, considered professional gamblers, could also deduct gambling losses only to the extent of gambling winnings. The difference was that nongambling expenses, such as travel to and from a casino, were deductible as an ordinary business income expense, creating the potential for a loss.

New Law

The new law treats professional gamblers and hobby gamblers the same from a tax perspective. Gambling losses are still deductible only to the extent of gambling winnings, but gambling expenses, such as travel to and from a casino, are deductible only to the extent of gambling winnings for both types of gamblers.

Impact on Individuals

While the changes seem minor, they have the potential to offset a substantial amount of income for individual taxpayers. If a taxpayer still has gambling income after offsetting those winnings with gambling losses, they can continue to offset any of that income with expenses incurred in relation to those winnings. Before the TCJA, those who gamble professionally could generate a loss by including these expenses as an ordinary business expense, but now these individuals are on the same playing field as those who gamble as a hobby and are unable to generate a loss. These changes are in effect until December 31, 2025.

Contact an Anders advisor with questions on how these changes will affect you. Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business.

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March 13, 2019

Spring Training 2019: New Tax Law Swings Away at Top Earning Players

MLB Spring Training is in full swing, and one of the most buzzed about topics down in Florida this year was Bryce Harper signing the biggest MLB contract in history. With a 13-year contract of $330 million, you can only imagine how taxes will come into play. While players aren’t paid for spring training beyond per diem stipends, some major tax implications are put on them during the season, especially following tax reform.

Big Changes for Income Tax Returns

Most professional athletes are W-2 employees. Under tax reform, the 2% miscellaneous itemized deduction was eliminated.  Therefore, athletes can no longer deduct employee business expenses, which for some athletes means big changes in their itemized deductions.  This change coupled with $10,000 cap on state and local income tax and real estate taxes has changed the landscape for professional athletes’ income tax returns.

For Bryce Harper, he will save tens of millions in taxes by signing with the Phillies over a California team because of Philadelphia’s low flat tax rate. Whether this was a factor in his decision or not, it will certainly help offset some of the incentives lost because of tax reform.

Paying the Price for Agent Fees

Some typical employee business expenses that are no longer deductible are agent fees, spring training or training camp lodging expenses, clubhouse dues, travel expenses and off-season training. If Bryce Harper paid Scott Boras the typical agent fee on $330 million, which would calculate out to be $9,900,000 if he pays 3%, Bryce would see a huge difference on his tax return if agent fees were still deductible. The typical agent fee is 3-5% – big numbers even on smaller contracts.

Should the MLB, or any professional sport, consider having the club pay the agent fee as part of the contract and reduce the salary to the athlete? This would be a win-win, the club would get a deduction for the payment to the agent and the salary paid to the player would be less, they end up whole and the player receives the lower salary, therefore, paying less tax. This would achieve the same, or better, results as they would have under the old tax law when they received a tax deduction for 2% miscellaneous itemized deduction for the agent fee.

Despite big changes to the tax law, there are ways for athletes to minimize their tax liability with proper planning. Contact an Anders advisor to discuss your specific tax situation, or learn more about the Anders Sports, Arts & Entertainment Group.

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March 7, 2019

How Much NHL Players Really Make

Professional athletes get paid very well for doing a job they love to do.  While athletes make a lot of money compared to the typical individual, athletes’ take-home pay is not nearly as high as advertised. The information we hear and see most often is that this player signed for $1 million or that player signed for $5 million. But how much of that goes into their pocket? Below we uncover common fees that impact most NHL players.

Jock and Income Taxes

As some may know, athletes have federal, state and, in some cases, city taxes withheld from their pay. Athletes are subject to what’s called “jock tax” to be paid in each state, and some cities, in which they play. Along with paying taxes wherever they play, most of these athletes will find themselves in the highest income tax brackets due to their compensation levels. Depending on a number of factors, such as state of residency and team schedules, athletes can be paying roughly 45-50% in income taxes on a rather frequent basis – and may even be north of 55% in certain situations.

Agent Fees

While not withheld from a player’s paycheck, agent fees are another somewhat significant expense for each player. Agent fees generally range anywhere from 3-5% of a player’s salary, which takes another chunk out of their take home pay.

Escrow

The four major sports leagues each have their own collective bargaining agreement (“CBA”) that governs much of the league rules and finances. The National Hockey League is one of the leagues where teams withhold a portion of player earnings in escrow to ensure a 50/50 revenue split between owners and players. The amount/percent teams withhold in escrow is determined at the beginning of each season and is adjusted after each quarter of the season, if needed.

As of the second quarter of the 2018-2019 NHL season, the escrow withholding rate is 13.5% of a player’s compensation. While escrow funds are not directly deducted from bonus payments, the escrow withholding rate is set to include all the player’s compensation – salary, signing bonuses, and estimated performance bonuses. After the end of each season and financial figures are ultimately determined to ensure the appropriate revenue split, a portion of the amounts held in escrow may be refunded to the player. In the recent past, refunds have generally been less than 4% of the amounts withheld, and are not refunded until about a year or so after that season ends.

Down to the Numbers

Using federal/state/city income taxes of 50%, escrow withholding rate of 13.5%, and agent fees of 4%, a player making $2 million in a season would see that dwindle down to $795,800 – a number that almost anyone would still be content with. A player’s NHL salary may seem high, and it is, but the take-home pay is not nearly as much as it sounds after withholdings and agent fees. We work with athletes to help them make better financial decisions during and after their careers. Learn more about the Anders Sports, Arts & Entertainment Group.

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March 4, 2019

Managing a Professional Sports Team Like a Business

Coming off the All-Star break, the second half of the hockey season is in full swing and fans are anxiously wondering if their team will make it to the playoffs. At this point in the season, the playoffs are still in view for most teams, so determining the right strategy for the second half is key. They must make decisions about who should play on what lines? Are there any players they need to bring up? Do they need to make any strategic trades to help their team? Do they need to make changes in coaches? The list of questions could be endless.

Over the years, one item has been clear for each team: A coach could make or break a team’s playoff hopes. A successful coach is one that can inspire his players, who can keep everyone on track with the team strategy, and to pick-up the team when times get tough.

In order for a business to be successful, they need this “coach” figure as well. This person must know the business in and out and be the person who can make management decisions that are very difficult to make. Just like in hockey, not every decision may be the right decision, but making the best decision based on the current information you have and the resources that are available to you is key in a successful business.

Another key ingredient for a successful hockey team is being able to be agile and responsive. You never know in hockey how players are going to interact with each other on the ice or whether someone is going to get hurt. If something does happen, the team must be able to adapt to having new lines and new players while still maintaining the overall team strategy.

Once again, this is the same with a business. You never know when employees are going to make career changes, when the next stock market crash is going to be, or what the next unfortunate event is. What you do know is that there are going to be times when things happen, and having a plan in place where you can be agile and responsive to these unfortunate events could be one of the best strategies your company can have.

For hockey teams to be successful, they also build a support team around them that they can reach out to. There is not one person that knows everything in hockey; it is a collaboration of coaches, owners, scouts, agents, and various other internal or external resources that make a successful team.

Businesses need this same type of support team as well. They need to have a network of people they can reach out to, to ask questions and to get advice whenever they need it. To discuss how Anders can be a part of your advisory team, contact an Anders advisor or learn more about the Anders Sports, Arts & Entertainment Group.

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