When it Comes to Contracts, Remember Nothing But Net
A million dollars is not a million dollars. Wait, what? No, you read it correctly! A million dollars is not a million dollars. If I signed you to a million dollar contract you would not actually get a million dollars when it’s all said and done. Matter of fact, unless you won the jackpot in Canada or only got paid in cash, which is not the case for any athlete or individual that works for a corporation, this statement would hold true.
What I’m trying to get at is, because of concepts like deductions and expenses, what you gross isn't what you NET. If you sign a contract... say 2 years for 1 million dollars, you won’t end up with 1 million dollars over those 2 years. You would probably end up with about 600-700,000 dollars total depending on where you live. Keep in mind this is without including such things like living expenses, car payments, or insurance.
Net income may not seem like a big issue, but for someone who has a career that can be taken away at a moment's notice, you have to squeeze every dollar you can get.
How much you are getting paid isn’t necessarily how much you are taking home. When you factor in federal tax, state tax, social security tax, and union payments, an athlete's paycheck ends up taking quite the hit. Keep in mind agent fees, which usually are anywhere between 3-6% of your salary, also take away from what you make at the end of the year. This is why net income is so important for athletes to realize when negotiating contracts and understanding how they get paid. Net income is the real contract figure you need to pay attention to, instead of the numbers you signed for.
That is why when you hear athletes talking or negotiating transfers, especially overseas soccer players, they usually talk in terms of how much they are going to NET. How much they would be making after taxes. That plays a big role for players on where and who they will play for. Sometimes that makes all the difference into a player signing for a club or not just ask King Zlatan or most of the superstars plying their trade in China and Turkey. Net income may not seem like a big issue but with someone that has a career that can be taken away at a moment's notice, you have to squeeze every dollar you can get.
Athletes, especially rookies and the ones early in their career, need to understand how much they are really making when signing their contracts with not only their teams, but endorsements as well. This is one of the biggest misconceptions in Sports Business today. Players sign their contracts and immediately think they are set for life. Already planning on how to spend their “millions” of dollars, they fail to even decipher the correct amount of money they gross per paycheck or year. I haven’t even touched on the stipulations most of the contracts in sports have with guaranteed vs. non-guaranteed years, option years, performance based, and marketing incentive deals just to name a few. For certain players, if any of the criteria in a contract isn’t met, their contract can become null and void.
When you think Nothing But Net, you not only are putting more value on yourself as a player financially but indirectly thinking of the potential money that you will lose when dealing with the various hits that you will take when you get your paycheck. I don't intend to discourage or scare you into thinking you're not making money. My goal is to inform you on the concept of net income and hopefully have a better understanding of how much money you earn compared to how much you walk away with.
Bonus: Agent fees are tax deductible for athletes and some club teams pay for agent fees if you’re big time. Some clubs will even include a stipend just so they take care of your taxes for you too. Barcelona players, take notice!!!