“Tax Avoidance: How Income Tax Rates Affect the Labor Migration Decisions of NBA Free Agents” (Journal of Sports Economics, 2011)
As often as we hear about NBA players and other professional athletes going bankrupt, it turns out they are not as financially unintelligent as some suspect. It turns out that surreptitiously, players take state income tax rates into account when deciding where to sign as free agents. As much as we talk about chasing rings, getting max contracts, positional fit, chemistry with coaches, big market versus small market endorsement deals, and weather, it appears there are other rational factors at play in these decisions. Economist Nolan Kopkin looked at NBA free agency from 2001 to 2008 and found that even after accounting for a host of relevant factors such as team wins, player position, or crime rate and student-teacher ratio in a particular city, increases in income tax rates during this time period equaled lower-quality free agents. This data helps explain ”The Decision.“ LeBron James’ selection of the Heat allowed him to purchase $12.34 million worth of purple gingham shirts by relocating to tax-free Miami versus the tax load that would have resulted in New York. Whether agents, players, or some other invisible hand is responsible for this remarkable effect of income tax on free agency is unknown, but perhaps we should take this information into account when formulating our opinions on next summer’s signing period.
While notable, I’m not convinced the “effect of income tax on free agency” is truly “remarkable,” although readers can decide whether I am remarking upon it or simply noting it, and whether that changes the remarkability of the effect. Maybe “unsurprising” is what I’m getting at, particularly when one considers the interests, knowledge, and skill set of agents. Or at least, the contrary result would have been surprising, noteworthy, and very possibly remarkable.
The rest of this edition of what appears to be a regular sports science feature is here.