Ever since he was a kid in Brooklyn, N.Y., Robert Raiola realized something fundamental about the U.S. “America,” he says, “is fixated with money and athletes.”
His own love of sports has led Raiola to become a clutch player in his own right — as an influential expert for the tax and accounting needs of high-net-worth athletes and others in the sports business.
Known to many as the “Sports Tax Man,” Raiola, director of the Sports & Entertainment Group at accounting firm PKF O’Connor Davies, and a regular contributor to Sports Illustrated magazine, also manages the finances of many coaches, sports broadcasters, professional sports executives, and team owners and investors.
Yet the fast-paced, highly focused world of professional sports isn’t always the most receptive to sound financial strategies and tax planning, Raiola says. Any sports-sector financial adviser or tax planner needs to make sure that young athletes heading into their first professional season understand the value of financial advice. This also is true for experienced athletes, especially players coming out of their initial contracts who often need tax guidance when choosing their next destination.
“What players and good agents are starting to realize is that what may be the best gross deal might not be the best net deal,” Raiola says.
NFL free agency is a good example. Each year, the NFL typically has a group of players whose initial contracts have expired go through free agency for the first time. No matter how big a top player’s new deal might be, the gross number doesn’t account for taxes.
For instance, Raiola points to one relatively recent NFL free-agent signing. “A couple years ago the big number was $60 million of guaranteed money.” The “big number” Raiola refers to is the $60 million deal given to defensive superstar Ndamukong Suh, who signed in 2015 for that amount with the Miami Dolphins after playing five seasons with the Detroit Lions. In a Sports Illustrated column, Raiola pointed out that the gross-versus-net argument played a huge factor in where Suh ultimately decided to play.
Says Raiola: “For Suh and the Dolphins, $60 million turned into approximately $36 million after taxes. And if the Lions wanted to try to retain (Suh), I figured out that they would have to pay him approximately $65 million to net to $36 million.”
In short, the X-factor may have been Florida’s lack of a state income tax. Meanwhile, playing in Michigan, which has a relatively low state tax rate, at 4.25%, (plus local taxes) would have equaled a less-profitable deal overall.
“It was rumored that the (Oakland) Raiders were interested, but they would have had to pay approximately $70.1 million to make the same deal to Suh,” Raiola said. “Fortunately for the Raiders, they’ll be in Las Vegas soon,” Raiola adds. “Nevada has no state tax for players to worry about.”
In fact, Raiola adds, pro teams in no-tax states, such as the Texas Rangers, Seattle Seahawks, and Dallas Cowboys “flaunt that, and put it in their pitch book,” when trying to appeal to highly coveted free-agent athletes.
In addition to giving players and their agents guidance on taxation and how to minimize it, Raiola’s team at PKF O’Connor Davies also assists with personal financial planning, including how best to save, invest, and grow financial assets at the beginning of their careers and over the long run.
Says Raiola: “I try to stress to all clients … that you’re going to wake up one day and find that you’re not going to make that kind of money anymore. And that it’s not just what you make, it’s what you save, and ultimately what you keep.”
Tax tips from Robert Raiola, the ‘Sports Tax Man’:
1. It’s not what you make, it’s what you keep: The overall number that usually makes the news headlines isn’t actually what athletes pull in. The gross number, always the larger number, doesn’t account for taxes.
2. You pay where you play (or work): The “jock tax” stipulates that anyone who earns income outside of their home state is potentially subject to additional state and local taxes. If you earn money in multiple states — including wages, winnings, speaking fees, etc. — confer with your tax advisor.
3. Leverage reciprocity to minimize tax: Some neighboring states have reciprocal agreements. Let’s say you just won the Super Bowl in Minnesota but you have North Dakota residency (ahem, Carson Wentz). Your $112,000 bonus could be taxed at North Dakota’s 2.9% rate instead of Minnesota’s 9.85%.
4. Consult a tax advisor: Whether you specialize in stealing bases, winning Olympic medals, or tackling quarterbacks, you can benefit from professional advice from men and women who specialize in tax, and wealth preservation.
Andy Frye writes about sports for Rolling Stone. Follow him on Twitter at @MySportsComplex .