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Success in the NFL: What taxes have to do with it

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For teams in the National Football League, doing what it takes to make the playoffs -- and ultimately the Super Bowl -- is the prime directive. But now comes word that something totally off-field can also help or hinder a team's chances of success. 

NFL teams that play in lower income-tax states have a greater chance of making the playoffs than their counterparts in higher-tax states, according to a paper presented at a recent American Accounting Association conference.

The study written by Matthias Petutschnig of the Vienna University of Economics and Business argues that teams subject to higher personal income taxes are at a disadvantage when it comes to attracting top players. They're more likely to go to organizations where they won't have to pay as much of their salaries to the government.

"NFL players are paid very well and therefore have strong incentives to consider the tax implications of the teams they choose to play for," the paper said. "So, when negotiating with high-tax teams, players might ask for higher gross income to recapture the cost of paying higher personal income taxes. And the impact of such decisions, the research finds, is substantial."

According to the paper, teams from California -- which had the highest income tax rate during the 23-year period from 1994 to 2016 examined in the study -- won 2.7 fewer games per year than teams in states such and Florida and Texas, which don't levy any personal income taxes. The average state tax rate on teams that failed to make the playoffs in 2016, the last year the study covered, was 5.93 percent, about 30 percent higher than teams that made the post-season.

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The battle between high- and low-tax states may actually worsen, thanks to the tax reform passed by Congress last year at the urging of President Donald Trump. The new tax law places a $10,000 limit on the amount of state and local taxes that individuals can deduct from their federal income. Attorneys General from high-tax states New Jersey, New York, Maryland and Connecticut filed suit in July challenging the constitutionality of the cap.

Unlike other pro sports, the NFL's 32 teams operate under a salary cap the league set at $177.2 million for the current season, and they're penalized if they go over the limit. That works out to an average of about $3.3 million per player for a 53-player team.

"Players' location attachment is small," the study noted. "In general, professional athletes are aware of and react to tax rate differentials whether by migrating to low-tax locations or by negotiating the higher tax cost into their salary packages."

Petuschnig argues that his findings are applicable to the corporate world, in which some have discussed regulating the enormous gap between the pay of senior executives and rank-and-file employees by using a so-called mandatory upper boundary that's similar to the NFL's salary cap.  

"Top managers are usually highly mobile and can get jobs everywhere, particularly with English increasingly serving as the world's business language," Petuschnig said in a press release. "Yet, the link between able managers and company success is much weaker than the link between player performance and team success in the NFL; thus, even if we see an emigration of some top executives from regulated areas, we probably would not see a negative effect on firm performance -- not, at least, in the short run."

Meantime, with the NFL's 2018-19 season now officially underway, bettors might want to add a new variable to their strategies for picking the next Super Bowl winner: whether the team is from a high- or low-tax state.

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