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Thursday, January 23, 2014

Pig's kin

I was amazed to find out in this morning's NY Post that the NFL actually has tax-exempt status, along with the NHL and the LPGA.

How can tax exempt status possibly be justified when commissioner Roger Goodell is paid $29 million a year?

It's a perfect example of how corrupt our special interest system of government is.

Coincidentally, this morning a friend just sent me this Daily Beast article about how former quarterback Vince Young has declared bankruptcy. Young was paid $34 million over six NFL seasons up until 2011.

An excerpt from the article:

According to a 2009 study, 78 percent of former NFL players file for bankruptcy or are under severe financial distress within two years of retirement.

That's a mind-boggling statistic. You have to wonder what's going through the 78 percent's heads while they're active. They must all think that they're going to never get injured, or cut, and that as soon as the world recognizes their greatness they're going to be raking in major endorsement deals. So in the meantime, why not flash some bling?

On top of that, a lot of players have poor relatives to support, and because of their lack of financial savvy, they get taken advantage of by unscrupulous agents, managers, and lawyers. 

It's a witches' brew of optimism, narcissism, generosity, innocence, and stupidity.

NFL players often represent a combination of extreme physical power and extreme lack of caution and common sense.

Lottery winners are given the option of a longer term or lump sum payout. Most opt for the immediate money, and most, like professional football players, go through their winnings fairly rapidly.

Maybe pro footballers should not be given that option. With a slower payout, fewer would get into financial trouble, and, frankly, fewer would have the opportunity to get into the kinds of trouble they tend to get into during their playing years. 

Maybe Roger Goodell could partially justify his bloated salary by instituting such a system.


Glen Filthie said...

Hi John.

I just got this one on the e-mail. It's for Canada but I suspect the same runs true for you yanks down south:

Salary of Retired Prime Minister:
$450,000.00 for life

Salary for a retired MP:
$174,000.00 for life

Salary of the House Speaker
$223,500.00 for life

Salary of a Majority/Minority
Leader: $194,400.00 for life

Average Salary of a Canadian
Soldier: $40,000 a year

Average income for pensioners:
$12,000 a year

How is it that our civilization can function like this?

John Craig said...

Glen --
The answer to your question is, it's the first four groups that pass the laws.

I agree with your feelings though, it does make me angry that those pompous politicians who never put their lives on the line make so much more than a soldier who does.

It also makes me angry that the people who pay the salaries of government workers don't do nearly as well as the government workers when it comes to pensions, and that's true not only for the top politicians, but for virtually all government workers. (Just look at how public pensions are bankrupting cities and municipalities across the US.)

As far as the disparity between the top politicians and the soldier, though, one thing that people like you and I -- as conservatives -- have to admit is that in a way it's a reflection of free enterprise (i.e., the capitalist system). There are far bigger disparities in income among private citizens than there are among government employees. A hedge fund manager can make over a billion a year, whereas a lumberjack, who actually has a dangerous job, can make 50 thousand a year. Is that "fair"? It IS free enterprise, which you and i mostly support. I can see why people object to that, too. I don't know what the answer is, though.

The only two things I've suggested to rectify that are (a), a law where no one at any given corporation can make more than thirty times what the lowest paid employee makes, which would prevent corporate ladder climbers from appointing rubber stamp boards of directors and award themselves ridiculous salaries and bonuses and options. And (b), having the graduated income tax extend beyond what is now the top level of 400,000 a year. People who earn 2 million a year should pay higher taxes than those earning just 400k, likewise for people making more than 5 million a year, and likewise for people making more than 10 million a year. (I'm not even suggesting raising taxes overall, merely distinguishing between those groups.)

Anyway, it's all worth pondering. Thanks for that chart.

Anonymous said...

While hedge fund managers do tend to make a lot of money, they usually have most of their wealth at risk in their own funds. While CEOs, like Goodell, and Jamie Dimon, have very little of their net worth invested in the firms they operate.

Our current tax structure is unfortunate, couples earning 250,000 to 500,000 usually end up paying a much higher share to the government than those earning $4 million or more, due partly to the regressive FICA taxes and the wealthy find it easier to divert large sums to trusts which escape taxation and grow tax deferred.

But I would rather see a flat tax, it seems unfair to tax some people at a higher rate than others. In fact it was unconstitutional until 1914, but the politicians passed the 16th amendment. This was the beginning of the end for America. At the time, not even the power hungry politicians tried to tax anyone earning less than $100,000 and the top rate was just 1% in 1918

I have no problem with rich people earning millions and am more outraged by the politicians seizing our income and distributing to other nations, and passing laws which restrict our freedoms. If Goodell earned $28,000 instead of $28 million it would not effect my life, nor would it put a dime in my pocket.

John Craig said...

Anon --
All good points; I'll respond one by one.

Yes, hedge fund managers usually do have they down money invested in their funds, but most of the money they make, and certainly the way they got their original stake, comes from managing others' money. Plus they get their management income taxed at the long term capital gains rate, which is a real outrage.

Yes, we need to close those loopholes.

I'm conservative for the most part (see the rest of this blog) but I honestly have no problem with a progressive tax. I agree completely that taxes overall should be lower, and the size of the government shrunk.

I have no problem with successful people making a lot of money too, in principle, but I'd disagree with both your examples. If the NFL wants to pay Goodell a lot of money, that's their business, but there's no way they should qualify as a tax exempt institution. And as long as they are tax exempt, you and I are indirectly paying part of his salary. And as far as Dimon and guys like him, they may not be ripping off the taxpayers, but they are ripping off the shareholders. Dimon "only" got 11MM last year, which actually isn't all that outrageous for a major bank CEO. But often these guys pay themselves exorbitantly -- and they do effectively pay themselves -- and that cost is borne by shareholders, who have almost no say in the matter. (Proxies are a very indirect and weak form of shareholder control.)

I agree completely that our government shouldn't be in the business of giving money away to other countries until we get rid of the deficit (at the current rate, never).

Anonymous said...

I agree, shareholders have little influence over the CEOs pay, but one can easily sell the shares, or never buy the shares of firms which over-pay the CEO

I don't know all the regulations concerning tax exempt corporations. But Goodell still will pay taxes on his income. They probably structure the NFL to not earn any profits, as all the TV money gets distributed to the individual team owners. It bothers me more that Cities and states use taxpayer funds to subsidies stadiums.
Goodell is payed by the NFL owners, so if they paid him less , then the owners would have a little extra cash on hand, with 32 teams it is less than $1 million per team. If I owned the Jets I would certainly try to reduce his salary , but maybe the owners feel he is worth it. Maybe he helps convince politicians to build billion dollar stadiums for billionaires in return for getting a Super Bowl in their state.

The New York Stock Exchange was tax exempt until a few years after Grasso was forced out around 2003, many people thought it was strange how Grasso earned 250 million working for a not for profit institution, but they paid him well because he helped the members earn Billions of dollars while getting the city to fund a proposed new building for the exchange.( thankfully this plan was never completed )

John Craig said...

Anon --
True, one can sell one's shares, but then where do you invest? Most companies are structured so that their CEOs can get away with murder, financially speaking. Even if they're only half as greedy as Jack Welch at GE and Aubrey McClendon of Chesapeake, trust me, the shareholders will suffer.

I don't know the details of how NFL money is distributed either, but if it were structured so that the league itself made no money, then they wouldn't need their status as a tax exempt corporation. And yes, most of the money flows to the owners, but if, as you suggest, Goodell gets paid handsomely to convince cities and states to fund stadiums for their teams, then you and I as taxpayers are still indirectly paying his salary.

I remember the Grasso case well. He paid himself an extra five million for having run the NYSE at the time of the 9/11 bombings. When this came out, people were outraged. But this is another example of you and I paying indirectly for his salary, especially if he was wringing other concessions from the city during this time. I'm always leery when the head of a tax-exempt, "nonprofit" institution gets paid an exorbitant amount.

I agree with most of your points in principle, it's just that when you look at the details of some of these cases, taxpayers (or shareholders) almost always suffer.

Anyway, thank you for your comments.

Anonymous said...

And , like you, it offends me that these corporations are run as tax-exempt, but it seems like it would not be difficult to run the NFL at 0 profit, so the owners still get all the money distributed to them

I assume the owners set it up as not for profit to avoid the risk of having the NFL skin some profits from the owners. Same reason the members of the NYSE kept it a not for profit corporation.

Now that the NYSE is for profit, they do charge firms more to trade on the exchange. I worked at Goldman Sachs in the electronic trading desk from 1999 to 2013. When the NYSE was not for profit, our fees were capped at $100,000 per month. After they went public the cap was removed and our fees paid to the NYSE often exceeded $900,000 per month and this is one reason their market share fell from 90% to under 40%, and we created our own dark pool to match orders. We did it to save millions of dollars per year. If they had remained non- profit we would never have diverted all this flow away from the NYSE, since it was almost free for us to trade on the NYSE as a member firm prior to 2004.

John Craig said...

Anon --
So you were part of the vampire squid!

I was at Goldman myself, from '84 to '96. It, like a lot of Wall Street firms, is a great place to study sociopathy and see how the world works.

Hope you got out of there financially independent.