Pujols, Baseball, Taxes and Economics

12/11/2011

Before his blockbuster signing, it appeared Albert Pujols had three choices.  First, he could have remained a Cardinal and stayed with the town that loved him.  Second, he could have signed with the Flordia Marlins, although they apparently were not willing to give him a no-trade clause.  Third, he could sign with the California Angels.

Pujols chose Option 3.  He got his no-trade clause.  Maybe he even felt like he got back at the Cardinals for not showing him the money earlier.  But what he didn't get for signing with the Angels was a tax break.

By agreeing to play in California, Pujols will be subject to a state income tax of 10.3%.  Missouri only has a 6% tax.  Flordia does not have a state income tax.  Therefore, purely from a tax perspective, Pujols made the worst possible choice (although I bet his agent got a percentage of the overall contract value for negotiating the deal as opposed to its after tax value).

If what I read was true, the Angels signed Pujols for $254 million.  The Marlins offered somewhere around $210 million and the Cardinals final bid was in the ballpark of $220 million.

Assuming each team gave Pujols a 10 year deal and the same amount was paid to him evenly over the 10 year period (an assumption on my part), his pre-federal income tax for the Angels would be around $22.8 million compared to $20.7 million for the Cardinals and $21 million for the Marlins.

So on an annual basis, the Angels will be paying Pujols about $2.1 million more then the Cardinals offer and $1.8 million more then the Marlins.  And this doesn't even take into account California's increased cost of living.

It also doesn't take into account that taxes may be on the verge of rising in California.  A referendum on the ballot in next year's election would create three new tax brackets. California residents making more than $1 million annually would have to pay an 11.3% rate and Pujols would qualify as a person making over $1 million.  If approved, the law would be retroactive for 2012. That would drop Mr. Pujols' take-home pay to around $22.5 million a year if he becomes a California resident.

Just to be fair, this anaylsis doesn't take into account off the field income.  Maybe Pujols will have more endorsment deals in California, but the more he makes the more taxes he will pay.  And there's no guarantee to endorsements.  In St. Louis (with the exeception of Kevin Slaten), we loved Pujols like a child.  Even if he doesn't perform to the Pujols standard, we will still love him. 

In the end, it seems the Cardinal offer and Angels offer was economically just a couple million a year apart.  A lot of money for most of us.  But what is it worth to go down as the greatest Cardinal ever?  I guess Albert just answered it.