Taxing Tuesday: A Bobby Bonilla Hangover

The state always wants their cut... especially when the state is California

This is not exactly about Bobby Bonilla, but somewhat related.

As I mentioned at the end of yesterday’s podcast, there were other motivations going on with Shotei Ohtani’s deal with the LA Dodgers last year. One of which was not only MLB’s “luxury tax”, but also the very real tax policy of California.

And California politicians are pissed:

Front Office Sports: States Want Tax Reform As Ohtani’s Deal Deferrals Stir Controversy

Ohtani’s unprecedented $680 million in deferrals in his record-setting $700 million contract, to be paid out between 2034 and ’43, have inspired a legislative bill calling on the U.S. Congress to establish a “reasonable cap on deferred compensation,” in turn allowing individual states to capture more tax revenue. The California Center for Jobs and the Economy has calculated that Ohtani could save up to $98 million in state taxes by moving to another state or out of the country, and some in the Golden State want at least a meaningful portion of that money.

“It is disturbing that Shohei Ohtani and other individuals can perform a hidden ball trick using an obscure tax loophole to avoid hundreds of millions of dollars, and it’s a concerning precedent,” said California state Sen. Josh Becker, author of the legislation. “The current system exacerbates the unequal distribution of taxes.”

Soon after Ohtani signed his Dodgers contract, California controller Malia Cohen called on the IRS for help. The proposed state legislation seeks to take the matter a meaningful step further, though the bill text at present only speaks to California “urging” Congress to take action on this issue. The legislation, also sponsored by Cohen, has cleared the state senate committee on revenue and taxation, and Tuesday was passed by the full senate. 

I’m going to state this very slowly for the politicians, since they seem to have an issue with the concept:

The more you increase tax rates on incomes beyond certain levels, as opposed to something simple and equitable like, ohhhh a level percentage for EVERYBODY, then you are incentivizing people to do crazy deferred income deals like this.

Even high-income people don’t actually have to spend a lot of money each year beyond what most people do, so if you provide them with reasons to structure how to take their income… THEY WILL. They have options. They will take them.

California has a problem

California, specifically, has a revenue problem, right now.

Here are two podcast episodes from Public Money Pod, that addresses this issue.

First, State Treasurer Fiona Ma:

Second, a credit analyst, Jennifer Johnston, on California’s situation:

Both episodes are excellent.

The podcast guests are professionals who didn’t say, so much, that California needs to be less dependent on those volatile, high-income folks for their revenue sources. Maybe Jennifer Johnston would say that, but she’s an analyst and not a politician. Fiona Ma, the politician, is not going to say that.

But California needs to cut its habit.

New York has something of this problem, and Connecticut definitely does.

I will tell any state and local finance folks: never set up your revenues to depend on the richest folks, who are the most mobile and, unfortunately, with the most volatile incomes.

It doesn’t matter if it’s an income tax or wealth tax.

The main trouble is setting something up that will primarily drive corruption and/or legal tax avoidance industries (like ones I am very familiar with.)

Oh, and while I have people’s attention: this also cuts Gavin Newsom’s potential bid to step in for Biden right now.

Step back little American Psycho hair.

A few more tax items

As a reminder, Bobby Bonilla’s agent was Dennis Gilbert. He actually worked in life insurance and annuities, which may have given him the deferred annuity idea for Bonilla.

But I want to highlight this particular item in a piece from yesterday:

Sportico: BOBBY BONILLA DAY ARRIVES ON HEELS OF HISTORIC OHTANI DEFERRAL

Gilbert built a life insurance and financial advisory business before he co-founded the Beverly Hills Sports Council agency with Rick Thurman to represent MLB players for their contracts. They represented stars George Brett, Jose Canseco, Barry Bonds, Mike Piazza, Curt Schilling, Rickey Henderson and Trevor Hoffman. Gilbert sold his stake in BHSC in 1999 but continued to work with players on insurance and estate planning. He now also serves as commissioner of Perfect Game, which hosts youth baseball and softball tournaments and showcase events.

….

For athletes, deferrals have potential tax benefits if the income is paid out after their careers when they can live in a state with a lower tax rate or no state income taxes at all. The Ohtani case brought attention to this loophole with California, home to the county’s highest marginal state tax rate of 14.4% for those earning more than $1 million. State legislators want Congress to close this loophole.

Bonilla and Griffey both live in Florida, which does not have a state income tax.

The Mets are not the only MLB team still cutting Bonilla a check. He also still receives a deferred salary from his tenure with the Baltimore Orioles worth $500,000 each year between 2004 and 2028.

Gilbert credits longtime sports business journalist Darren Rovell for calling attention to Bonilla’s annual payout and coining July 1 as Bobby Bonilla Day. Steve Cohen, who bought the Mets from the Wilpons in 2020, has said multiple times that he wants to celebrate the day at Citi Field at some point with an oversized check for Bonilla. The Mets have no plans for the day this year, according to a spokesperson.

Gilbert is still in the insurance business and works with athletes to preserve their wealth. “Athletes develop a lifestyle, and expenses generally stay the same, but income does not go up, it goes down,” Gilbert said. “It’s not what you make, but what you keep. That’s it.”

Gilbert is an intelligent man. Eyes on the prize.

Cohen should have tried to use Bobby Bonilla Day as a marketing ploy.

Ryan Reynolds used Bobby Bonilla Day for a Mint Mobile ad:

Ryan Reynolds absolutely knows how to market.

Does the Mets?