By Teresa Ambord
Multimillion-dollar contracts are nothing unusual in major league baseball, and neither is trading, especially for the Miami Marlins. Now that MLB Commissioner Bud Selig has approved the deal, five Marlins are soon to become Toronto Blue Jays. The problem for the players is that their remaining contracts will be paid out subject to much higher taxes.
The Toronto-bound players are All-Star shortstop Jose Reyes, pitchers Mark Buehrle and Josh Johnson, catcher John Buck, and outfielder Emilio Bonifacio. Combined, they have nearly $167 million remaining on their contracts, most of which is attributable to Reyes.
Sports & Entertainment Group Manager Robert Raiola (at the New Jersey accounting and advisory firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC
) ran the numbers and concluded that Reyes alone will pay millions extra in tax. Reyes' remaining contract is $96 million. In Miami, where there are no state taxes, he would net about $58.8 million over the life of the contract. But in Toronto, with higher Canadian rates plus a hefty new Ontario tax slated to kick in soon, his net would be $54 million. Still not a bad salary, but it's a loss of $4.8 million. That's got to hurt.
Foresight Is Everything in Baseball Contract
Years ago, while negotiating a Marlins contract for Carlos Delgado, his agent, David Sloane, saw the writing on the wall. In an effort to protect Delgado from the fate that Reyes and the other four players are now facing, Sloane negotiated a unique provision for his client.
"When the Marlins refused to include a no-trade clause, that raised a red flag for me," he told reporters. "I set out to try to find a way to give my client a bit of security in a deal that lacked it."
The result: Sloane got the Marlins owner to agree that if Delgado was traded to a state that had income tax, "he would be made whole and net out the same amount that he would have if he had remained in Florida."
Eleven months after signing, Delgado was traded to the New York Mets. Sloane estimates his fancy footwork at the negotiating table saved his client $2,269,500 in taxes over the life of the contract.
The five players altogether will pay $8.4 million in additional taxes. To come up with these estimates, Raiola used the following assumptions:
- Current residency in Florida by all five players while playing for the Marlins.
- Payment of 5 percent agent fees.
- The fact that 43 percent of the players' salaries would be subject to Canadian taxes, subtracting for away games and spring training.
- Application of a combined tax rate for Canada and Ontario of 49.53 percent on income earned in Canada.
- Application of 40.5 percent US tax on income earned in the United States.
Also factored in were the availability of a partial foreign tax credit that the players can claim on their US returns and the "jock taxes" sports figures must pay when they play in certain states.
The combined total of salaries that the Marlins are taking off their books with this trade is $166.75 million (through 2018), but the net relief is more like $154 million. This doesn't take into account the additional cash the Marlins paid to Toronto as part of the deal. In the trade, Miami gained infielders Yunel Escobar and Adeiny Hechavarria; pitchers Henderson Alvarez, Anthony DeSclafani, and Justin Nicolino; catcher Jeff Mathis; and outfielder Jake Marisnick.
Public Opinion in Miami
Miami residents aren't focused on the tax dilemma the individual traders face, especially since the Marlins-turned-Blue Jays are still multimillionaires. But the public isn't happy with the owners of the Marlins, who have taken a lot of criticism for trading away their veteran players, close on the heels of moving into a new ballpark that was mostly funded with taxpayer dollars.
Ysbel Medina, a local business owner who moved his business after learning about the new stadium, told Fox News Latino that he feels he was misled. "If I would have known that the owner was going to do what he did, I probably wouldn't have opened up the business," he said, adding that the team would be better off with an owner who cared more about the team and winning than about using the team to get rich.