What are The Financial Incentives of Making the NBA Finals and Winning?

The business of professional sports is always an interesting topic for the media. Recently, Money, Inc. posted a story about how much the players on the Kansas City Chiefs each earned for winning the Super Bowl. The total value for each player on the team who won the AFC West, two playoff games and the Super Bowl was approximately $221,000, which turned out to be a nice chunk of change for the guys making the league minimum of $459,000 per year. One would think the NFL would set the bar when it comes to all things financial, however what we've come to find is that isn't true when it comes to winning a championship.

Players never talk about their championship bonus. Why? First, their annual salaries make playoff and championship bonuses look like pocket change. Second, for these athletes the idea of hosting their league's respective title trophy means more than the common fan realizes. We often criticize players for holdouts, free agent signings, etc., but you never hear a player brag about the money they bank when they win a playoff game. The players' desire to be a champion is the heartbeat of sports.

The NBA Playoff "Pot"

Enough romanticizing. Professional sports are about money. Players receive big contracts and bonuses. Among those bonuses are financial incentives for winning playoff games and the title. The NBA does it a little different than most leagues in that each season a "player's pool" is created to be split amount the playoff teams and champions. For example, in 2018 the pot was worth approximately $20 million. The breakdown of the pot is as follows courtesy of Hoops Rumors:

• All playoff teams in the first round received $298,485 each
• Teams participating in the Conference Semi-Finals received $355,159 each
• The four teams in the Conference Finals received $586,898 each
• The losing team in the NBA Finals received $2,346,947
• The NBA Champion will receive $3,541,896

NBA rosters are 15 players deep and all playoff bonuses are divided equally, which would mean each player received approximately $240,000 in total when they win it all. The pot increased to $22 million in 2019. The pot does not increase every season, but has grown steadily since 2016 when it was only $15 million. The projection for 2020 could be as high as $25 million, which would put players bonuses for winning the title close to $300,000.

Lucrative Title

As we mentioned above, Super Bowl winners banked a modest $124,000 per player when they won in 2020. The number ended up totaling over $220,000 when all playoff bonuses were added together, which still is significantly smaller than the NBA player prize pool. There are a couple factors to consider when looking at these numbers. It's easy to get distracted by the size and buzz around a Super Bowl, which would make you scratch your head as to why the NBA bonuses are so much higher. First, you have to consider the total dollar amount. An NFL team has 52 players on the roster vs. an NBA team which carries 15 players on their roster. The total dollar amount for the NFL Super Bowl winning team is $6.4 million. The total dollar amount for the NBA as mentioned above is around $3.6 million. That's a significant difference and helps explain why NBA players make more - they benefit from having less guys to share the pie. In fact, as we all know - NBA teams carry the fewest players of any major professional sports roster and that is the main driver as why the NBA title is worth the largest bonus out of them all. Secondly, a smaller factor to consider is the dynamic of the title. The Super Bowl is one massive event. The NBA Finals is a best of seven series. Each generates plenty of revenue, but the Super Bowl is practically a national holiday.

Uncle Sam's Input

The 2019 NBA Championship featured the Golden State Warriors vs. the Toronto Raptors. For those of you keeping score at home that's a 37% federal tax rate and a 13.3% California State tax rate for the Warriors. Canada isn't much better - up north players can be subject to a 53% total tax rate between country and province. Makes you wonder why every free agent doesn't try and sign with a Florida-based team. The system gets even more complicated because players get taxed by the state they play in, which are conveniently called "jock taxes". All that being said, the Raptors face tax liability in the state of Milwaukee, Pennsylvania and California for their playoff bonuses, while the Warriors have to worry about Oregon, Texas and their home state of California. The complexity of being a professional athlete when it comes to tax liability is why we have accountants. That being said, we can all understand why players may not be as excited if their respective championship was being held in California or Canada.

The NBA finals generates revenue. ABC alone made over $230 million in ad revenue from the finals last year between the Raptors and Warriors. Obviously, the longer the series goes the more money the league and it's affiliates can make. The NBA players may make more when it comes to playoff bonuses, however the NFL still reigns supreme when it comes to revenue for the big game. In comparison, for one day Fox hauled in over $600 million in ad revenue. The NBA's "playoff pot" is still formidable and NBA players salaries are still some of the highest in the world. These numbers can be misleading when there are only 15 mouths to feed per team vs. the other major professional sports in the USA. However, what we've learned is that if your dream is to play in the NBA - try and avoid playing for a California or Canada-based team.