Sunday, December 04, 2005

Did Konerko Take Less Money?

There are several reports out there that Paul Konerko took less money than he was offered elsewhere to stay with the White Sox. Such reports, of course, tend to make Konerko look very good to Sox fans, who are inspired by his loyalty to the team. Among other things, Paulie said things like:

"It's a simple as where your heart is," Konerko said. "That's what brought me

And his agent said things like this:

Agents operate in a "show me the money" world, and Konerko's was under
instructions to get him the best possible deal. But Craig Landis also understood
a softer side to Konerko's nature, the one that was concerned that if he left
Chicago, as the agent put it, "Kids there would be disappointed."

It's a very good story - a guy shows loyalty towards a team and a city, showing that athletes aren't all about money. Randy Kindred of the must-read Bloomington Pantagraph calls Konerko's decision "refreshing."

I'm not one to get in the way of a very good story. After all, Bloomington really needs a Pantagraph - what else would kids at ISU use for any number of frugal purposes? But Paul Konerko did not take less money to stay in Chicago. In fact, he'll make more money in Chicago over the next five years than he would have made in either Los Angeles or Baltimore.

The common story - from the Associated Press and ESPN - is that the Angels offered "something more" than $60 million over 5 years and that the Baltimore Orioles offered $65 million over 5 years. In both cases, it seems like Konerko chose Chicago over two more lucrative offers.

But contract offers must be reviewed in a greater context. So while the Orioles offer was $1 million more per year, the question is whether, all things considered, Konerko would actually keep more money per year.

There a number of factors to consider (and I thank Doug Gribben on the White Sox mailing list for pointing out one additional factor after I drafted this post): (1) agent's fees; (2) state taxes; and (3) endorsement opportunities.

First, I will start with agent fees. Although I don't know what Craig Landis' specific fee is, I'll assume that it's the same 5% fee that Scott Boras charges. That means the $1 million more offered by Baltimore is only worth $950,000 to Konerko. I'll assume that the Angels offered $12.5 million per year ($62.5 million total). Under that assumption, after agent fees, the Angels offer was worth $475,000 more to Konerko.

Even more important to consider than agent fees is state taxes. Happily for Illinois residents, Illinois is a relatively low-tax state. Illinois has a flat tax of 3% on income. On the other hand, California has a very high income tax rate - it's 9.3% on essentially all of what Konerko's income would be. Maryland also has a relatively high tax rate. Maryland residents pay 4.75% of their income in tax to the state government and additional 1.5%-3% to local governments. Assuming that Konerko would live in the lowest tax area around Baltimore - Anne Arundel county - he'd pay a total of 7.31% of his salary in income taxes.

So what would the various offers look like after taxes and agent's fees? You'll be a bit surprised to see:

Team Offer Agent 5% Fed. Tax State Tax Take Home
Orioles $13,000,000 $650,000 $4,550,000 $950,300 $6,849,700
Angels $12,500,000 $625,000 $4,375,000 $1,162,500 $6,337,500
White Sox $12,000,000 $600,000 $4,200,000 $360,000 $6,840,000

So the Orioles' offer of $1 million more per year really is worth only about $10,000 more per season. That difference is eaten up by the cost of 4 round-trip first class tickets between Konerko's Arizona home and the Orioles' Fort Lauderdale spring training facility. And the Angels' offer of $500,000 more was, in reality, the equivalent of $500,000 less for Konerko. Given the difference in state taxes, the Angels would have had to offer $1.5 million more than the White Sox (i.e., $13.5 million per year) to allow Konerko to have the same take-home at the end of the day.

[Ok, I know there are complications to the state tax laws known as jock taxes. In effect, athletes pay taxes in every state where they play. But this is at best a wash for the Angels and Orioles - the Angels play 93 games in California (81 at home, at least 9 in Oakland, and 3 against the Dodgers in LA). At the same time, the Orioles play in the AL East, which has high-tax jurisdictions such as New York and Massachusetts.]

So Konerko's best financial offer was from the Orioles at a paltry $10,000 more per year. Given the fact that the Orioles play in the same division as the Red Sox and Yankees, and have finished no better than 3rd in the last 8 years, Konerko would not be likely to even get a second-place team's share of the playoff pool with the Orioles. The per player to finish second place in your division (and not make the playoffs) came out to about $9,000 per player this year. That $10,000 more and the flights to Florida look even worse now.

That analysis does not even take into consideration the endorsement potential Konerko has in the various cities. The Sun-Times had an interesting article about Konerko's potential for endorsements in Chicago - experts agreed that only his free-agency would tend to put a damper on his endorsements. He's a World Series Hero in Chicago; he is not in either Los Angeles (a city of a lot of celebrities) or Baltimore. Even if he was a big fish in Baltimore, Baltimore is a much smaller market than Chicago, and the opportunities would not be as lucrative.

In the end, I do not think that it could be said that Paul Konerko will make less money in Chicago next year than he could have made elsewhere. In fact, I think he will make more.

This is not to say that Konerko is being disingenuous when he said his heart is in Chicago. In fact I think his heart is in Chicago and with the team he finally brought a World Championship. I'm one of Konerko's biggest fans - I've got a Paulie bobblehead on my shelf and next year I will be sporting a #14 jersey at Sox games. But as much as Paulie is an absolute deity in my book for hitting that grand slam in Game 2, he is not a saint for taking less money to stay with the White Sox.

Comments-[ comments.]
No, he is not a saint, but neither is he a sinner!
Post a Comment

This page is powered by Blogger. Isn't yours?