European money a big draw for tax reasons?

By Jason Wojciechowski on July 20, 2008 at 5:41 PM

Marc Stein mentions that there's major European interest in Jorge Garbajosa, including from his hometown team and from the Russian team that just signed Carlos Delfino. He also quotes someone referring to Delfino's 3 million Euro deal being something like a $9 million deal stateside, partially because of the exchange rate, but also because the European money is coming tax-free. (It's not clear why the money is tax-free, but there it is.) According to XE.com, it would take about $4.75 million to equal to the 3 million Euros Delfino got. I don't know if Delfino loses 50% of his money in taxes -- he'll lose the max 35% to the federal government, and then, supposing he'd signed with Detroit, Michigan income tax is structured as a percentage of the federal tax paid, so Delfino would pay 3.9% of the federal tax liability. (Link.) That works out to only about 1.4% of Delfino's actual income. (And of course, he gets to deduct the amount he pays in state tax from his income for federal tax purposes.)

Of course, Delfino played last year in Toronto, so he was subject to Canadian taxes instead of American ones, and those may well be higher, but I'm not exactly prepared to go looking into that at the moment. In any case, I think equating Delfino's deal to a $9 million deal strikes me as exaggeration. It seems to me to be closer to about $7.5 million or so. (Adding a little cushion for things like Social Security, etc.)

Either way, though, the bottom line is clear: Carlos Delfino wasn't getting $7.5 million from anybody in the NBA. The same thing could end up happening with Garbajosa, since I can't imagine the Lakers or anyone else ponying up a deal that would dissuade him (money-wise, at least) from heading overseas to take, say, 1.5 or 2 million Euros. Is he really a $3.75 or $5 million player in the U.S.?

While this quandary obviously highlights the difficulty the U.S. teams face because of globalization and the various factors that have caused America's economy to be in such deep trouble, it's also interesting because of the NBA's salary cap. A cap/luxury tax obviously only works if all competitors for the relevant good are subject to it, or at least all relevant competitors. Until recently, I don't think anyone thought the European teams were relevant -- whether it's because of the money or the level of competition or otherwise, it seems like players like Carlos Delfino preferred to come to the U.S. to sit on the bench (or players like Paul Shirley preferred to stay in the U.S. to sit on the bench) than take (relatively) big money to be starters, or even stars, in Europe. But with an unlevel playing floor between European and U.S. clubs, who's to say that the Delfinos and Garbajosas won't ever even see the light of day in the NBA anymore? What if Brandon Jennings really likes Europe and decides he'd rather not take the risk of coming here for less money? (Although if he's as good as they say he is, he won't have to worry about the money because he'll get a fat three-year deal after being a first-round pick.) I don't think this would be devastating for the league. I don't think Kobe Bryant and Kevin Garnett are going to play in Russia or Spain instead of the U.S anytime soon.

But obviously the depth of talent can be affected -- the question is whether the effect will be great enough to actually be noticeable by fans watching the games. Is having a guy who's clearly talented enough to be in the NBA like Carlos Delfino defect, and thus be replaced by a lesser player (Player #451 on the list), going to cause sloppier play, worse shooting, and so forth? I don't think it's a big deal -- the numbers are just too small. Even if we're dipping all the way down to have only the 1000th best player in the world as the last man on Memphis's bench, that guy is still so good that we're just not going to notice. Especially since he's only getting five minutes of run every two weeks.

The updated free agent target list:

  • Ronny Turiaf -- four years, $17 million, Golden State
  • James Posey -- Hornets, four years, $25 million
  • DJ Mbenga -- waiting for the phone to ring, I'm sure
  • Corey Maggette -- five years, $50 million, Golden State
  • Sun Yue -- Kupchak wants to bring him over, but no word yet on a deal
  • Kurt Thomas -- Spurs are his first choice? Lakers?
  • Brent Barry -- two years, $3.9 million, Houston
  • Craig Smith -- two-year deal to return to Minnesota
  • Carl Landry -- qualifying offer extended by Houston
  • Walter Herrmann -- big European money on the table? back to Detroit?
  • Randolph Morris -- Atlanta?
  • Kwame Brown -- Bucks, Heat, Hawks apparently interested
  • Eduardo Najera -- undisclosed deal with the Nets
  • Juwan Howard -- ?
  • Robert Horry -- not retiring; Spurs or Rockets?
  • Francisco Elson -- Denver, New Jersey, Seattle, Charlotte, Lakers; Miami?
  • Theo Ratliff -- back to Detroit?
  • Adonal Foyle -- back to Orlando?
  • Quinton Ross -- with Brand gone, maybe the Clippers bring him back, but everyone is interested, including Phoenix, Orlando, New Jersey?
  • Bostjan Nachbar -- Detroit? With the Nets adding Najera and Jarvis Hayes, does that mean no room for Nachbar?
  • Dorell Wright -- qualifying offer from Miami
  • Sasha Vujacic -- qualifying offer from the Lakers
  • Patrick O'Bryant -- two years, $3 million, Celtics
  • David Harrison -- Denver?
  • Chris Andersen -- probably not Boston after signing O'Bryant; Cleveland? back to the Nuggets?
  • Primoz Brezec -- Seattle, Chicago, Miami?
  • Jorge Garbajosa -- back to Europe?
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