The Return of the King: A King’s Ransom
The NBA’s prodigal son LeBron James is going home, announcing on Friday that he is taking his talents back to Cleveland.
The Cavaliers have signed on James with a 2-year deal worth $42.2 million; the going rate for the best player in basketball.
James, a four-time league MVP, has spent the last four seasons in Miami. In those four years, James and the Heat have played in four NBA championships, giving the King his first two rings. With the new contract, there is no doubt that Cavilers’ owner Dan Gilbert paid a king’s ransom to bring LeBron back home.
Four years ago, LeBron made ‘The Decision’ to leave his home state of Ohio for the warmer weather in South Beach to the dismay of Caviler fans. Hometown-hero turned villain is making his triumphant return as LeBron’s “relationship with Northeast Ohio is bigger than basketball.”
Surprisingly, James has never been the highest paid player on his team, but that doesn’t mean the King has ever been strapped for cash since entering the league as the first overall pick in the 2003 NBA draft. According to Forbes, LeBron has amassed over $450 million during his NBA career. The Star’s new contract will keep him in Cleveland through 2016 and will pay him handsomely for his basketball prowess. Last year, ATR calculated the highest paid athletes for 2013 after-taxes. LeBron was the second highest-paid, with earnings of $37,885,150 and federal income tax liability of a whopping $18,659,850.
When considering the tax implications of LeBron’s contract, it is important to note if James selects the tax-friendly state of Florida as his residency, or if he claims his 30,000 sq. ft. mansion in Akron as his home. Assuming that LeBron is an Ohio resident, below are his estimated tax liabilities on his new contract:
Est. Federal Tax Burden
Est. State Tax Burden
Est. City Tax Burden
Total Tax Liability
The Federal Income Tax Burden listed above is comprised of the 39.6 percent tax bracket and 3.8 percent Medicare Tax. For illustrative purposes, the marginal combined tax rate of 56.1 percent (which includes Federal, State, Medicare, and Local tax rates) is applied only to his contract salary and does not take into account his bonuses, endorsement, and other sources of viable income.
Over the life of the contract, LeBron will lose over half of his earnings to federal, state, and local taxes. At twenty-nine years-old, LeBron is entering the prime of his career in his quest to bring a championship to Cleveland. In the meantime, Uncle Sam is happy to collect on the King’s earnings.
Photo Credit: Keith Allison