How much are taxes affecting James Shields' payday with the Pads?
In explaining his decision to sign with the Padres, right-hander James Shields said Wednesday, "I had to think of my family being close to home."
So, Shields acted in the best interests of his wife and two daughters, even though the finances of his four-year, $75 million deal are not optimal due to the high state income tax rate in California.
State tax rates often are a factor in players' contract decisions, but Shields and his family live in San Diego County. He said he also was swayed by the "win-now mentality" of Padres ownership, adding, "Not just now but for the next four or five years."
Under other circumstances, though, Shields might have preferred the Cubs, who made him a reported three-year, $60 million offer, or the Marlins, who also were involved in the bidding.
The top state tax rate in California is 13.3 percent. The top rate in Illinois recently dropped from 5 percent to 3.75 percent. Florida does not charge state tax, but players from all states pay "Jock Tax" on some road games.
Robert Raiola, a CPA with New York firm O'Connor Davies who specializes in helping athletes and entertainers, calculated what offers for Shields would have meant after taxes in the three different states.
For the sake of the discussion, we'll assume that the Cubs indeed offered $60 million for three years and that the Marlins offered $80 million for four, even though there is no indication that the Fish made such a proposal.
Raiola calculated agent fees as 5 percent of total salary. He assumed that Shields would reside in the state in which he played. And he also accounted for the Jock Tax that athletes pay on the road.
In his deal with the Padres, Shields' final net wages after taxes will be approximately $38.97 million.
In his reported offer from the Cubs, the number would have been reasonably close to that -- approximately $34.52 million.
And in our hypothetical offer from the Marlins, it would have been considerably higher -- approximately $46.57 million.
Think about that: The Padres offered Shields $15 million more than the Cubs, but the difference after taxes amounted to less than $4.5 million.
The hypothetical offer from the Marlins, meanwhile, was $5 million more than Shields got from the Padres, but after taxes worth $7.6 million more.
No one should feel badly for Shields: He will live quite comfortably under his new contract. And, money aside, he will enjoy perhaps the greatest benefit of all.