With the pre-free agency panic in full swing, most Sixers fans are holding onto the fact that the Sixers can offer Jimmy Butler far more money than any other team. This, as a simple fact, is true. The Sixers can offer Butler a 5-year $190 million max contract while other teams around the league can offer a 4-year $141 million contract. That difference of $49 million spread over five years is significant on the surface; Butler would stand to make just about $10 million a year more over a five-year deal with Philly than any other team. However, things are never that simple.
Good Ol’ Uncle Sam
What many people tend to ignore when looking at differences in contracts is the amount paid out in taxes. And while this simple, yet painful truth is often ignored, it is far from insignificant. This is even more true in the case of Jimmy Butler as the Houston Rockets are the most talked about team for him to join outside of the Sixers. Why is this so important? The answer is easy; Texas has no state or local income tax compared to around 7% for Philadelphia, PA. That 7% is a large number when you take into consideration a salary of $38 million ($2,656,200 in state and local taxes). A very basic breakdown of a full 5-year deal ($38 mil AAV) with the Sixers and a 4-year deal ($35.25 mil AAV) with the Rockets has a surprising tax ramification. Butler would take home (salary minus taxes) $20,516,200 with Philadelphia while he would take home $21,494,450 with Houston. He would actually make more annually with the Rockets than he would with the Sixers. It’s still not that simple though.
Further complicating tax matters for athletes is what’s referred to as the “Jock Tax.” This tax, in its basic meaning, states that athletes pay taxes in the state and city in which the game takes place. Therefore, away games for NBA players are taxed at the away city’s rates. Going off last year’s schedules (as the next season is not out yet) and assuming each team would be the 1-seed in their conference with Butler and face a 24-game postseason schedule, the take home values become more clear. In Philadelphia, Butler would take home roughly $20,672,426 (54.03% of his salary) while in Houston he would take home $20,426,721 (57.52%). The Jock Tax leveled the field back to the Sixers’ favor! This mainly is attributed to the fact that even though Texas has 0% income tax, the Western Conference teams face more California teams and their 13.05% taxes.
The 5th Year
Over the five years of his $190 million contract with the Sixers, Butler would take home $103,362,132. In the four years with the Rockets, he would take home $81,706,884, a difference of $21,655,248. Over the span of four years, Butler would average $245,705 more per year with the Sixers. That is quite different than the pre-tax difference of $2.75 million. We’re left with the 5th year the Sixers can (and will?) offer. This 5th year is a massive payout for Butler and will most likely be a massive burden on whoever’s cap sheet Butler is on. However, accounting for taxes, if Butler was to make slightly less than that $38 million AAV with the Sixers and sign a 1-year deal of $37.66 mil with the Rockets. His take home would be exactly the same. Now that is a massive and unlikely assumption. But the assumption that Butler will make $0 after his 4-year deal is up is even more unlikely.
So What’s the Real Difference?
As noted above, the real difference is not the $49 million difference between the 5-year $190 million max with the Sixers and the 4-year $141 million max with another team. It is, in fact, closer to $21,655,248. We also need to assume Butler won’t retire after his 4-year deal and he’d get another contract. Butler will be entering his 5th season at an age of 34. If we assume that he will still be a top-100 player in the NBA his average salary would be $20,700,473. After taxes, Butler would take home an additional $11.9 million. Adding that to the $81.7 million he made with the 4-year max, his 5-year earnings would be $93,613,253. That brings the difference between the 5-year max with the 76ers of $103.4 million and the 5-year earning with the Rockets of $93.6 million to a net difference of $9,748,879.
As you can see, Jimmy Butler would not be leaving $49 million on the table. The true value would be closer to $9.7 million. That is still a lot of money and also assumes Butler would get a sizable contract after his four years are done. Even if we were to say that Butler retires after the fourth season, the difference would be $21.7 million, not $50 million.
The purpose of this article is not to say Jimmy Butler should leave or stay. It is solely to shed a little more light on the true value he would be giving up by taking another team’s 4-year max versus the 5-year one the Sixers can offer. The simple comparison is that Butler would leave $21.7 million on the table. The more likely scenario is closer to around $10 million.