The astronomical figures associated with NBA player contracts often grab headlines, painting a picture of immense wealth. However, the reality of what these athletes actually take home is far more complex, subject to a myriad of deductions that significantly reduce the initial sum. Understanding this intricate financial landscape is crucial to comprehending the true earnings of professional basketball players, even for stars like Shai Gilgeous-Alexander, who recently inked a staggering $285 million extension with the Oklahoma City Thunder.
It is a common misconception that players receive the base number stated on their contracts. In truth, various financial mechanisms and tax obligations are at play, ensuring that the net income is a fraction of the gross agreement. While some contracts might include performance incentives that need to be met, players of Gilgeous-Alexander’s caliber typically have fully guaranteed deals, yet they are still subject to significant reductions.
A primary factor in diminishing a player’s take-home pay is federal income tax. Given their elevated income brackets, NBA players face substantial taxation from the United States government. For instance, out of an annual earning of $71.25 million from his new deal, Shai Gilgeous-Alexander is projected to pay approximately $26.4 million in federal taxes alone.
Beyond federal obligations, state income tax further reduces earnings, with rates varying significantly across different U.S. states. While some states have no income tax, players in states like Oklahoma, where Shai Gilgeous-Alexander plays, incur additional deductions. Annually, he is expected to contribute around $3.4 million to Oklahoma’s state income tax.
Another significant deduction stipulated by the NBA’s collective bargaining agreement is escrow, which typically accounts for about 10% of a player’s contract. This mechanism ensures an equitable 50/50 revenue split between team owners and the athletes. The positive aspect of escrow is that players often recover most, if not all, of this withheld amount over time, usually within four years.
Agent fees, while common for most players, are a deduction Shai Gilgeous-Alexander fortunately avoids, as he represents himself. However, other mandatory contributions, such as Medicaid pay-in, still apply. For Gilgeous-Alexander, this amounts to an additional $5.4 million deducted from his annual earnings, further illustrating the various financial layers at play.
When all these deductions are accounted for—federal and state taxes, escrow, and other mandatory payments—the initially impressive annual sum of $71.25 million for Shai Gilgeous-Alexander dwindles considerably. The actual amount that lands in his bank account is closer to $24.7 million, starkly revealing the vast difference between the contractual gross and the player’s true net earnings. This demonstrates why the listed contract value is often a facade, prompting players to negotiate for the highest possible figures.
This comprehensive understanding of NBA player salaries underscores the importance of securing substantial contracts, as a significant portion is always allocated to taxes and other mandatory deductions. For elite athletes like Gilgeous-Alexander, lucrative endorsement deals and brand partnerships become crucial supplementary income streams, helping to bridge the gap and ensure a robust financial portfolio despite the considerable cuts from their playing salaries.
