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Floyd Mayweather and other professional boxers fight opponents both inside and outside the ring. In this article, OFS's Sean Packard discusses the tax battle pro-boxer Sugar Ray Robinson fought with the Internal Revenue Service, and the role income tax free states play in hosting major prize fights.
By Sean Packard
For more than eight years Sean Packard has been the Tax Director at OFS, a full-service financial services company for professional athletes, where he focuses on all aspects of tax planning and preparation for over 200 clients.
Floyd Mayweather recently punctuated his perfect 50-0 career by stopping an opponent making his professional boxing debut in the tenth round. Mayweather claims to be the greatest fighter of all time. In 2015 he boasted that he was better than both Muhammad Ali and Sugar Ray Robinson.
There is no denying Mayweather's greatness, but he never faced the obstacles Robinson faced in the ring. First off, Robinson fought 200 professional fights over his 25-year career after going 85-0 as an amateur. During an eight-year span from 1943 to 1951, Robinson went 91 consecutive fights without a loss. 50-0 over a 21-year career would be considered soft in Robinson's time.
Though Mayweather's tax problems are well known, they too are soft by Robinson's standards. On September 23, 1957 at Yankee Stadium, as Robinson was battling in the first round of his 149th fight, the IRS served the fight's promoters, ordering them to remit to the IRS all money due to Robinson for the fight to cover taxes for the previous two years and what the IRS believed he would owe for 1957, which still had over three months left.
Robinson, naturally, fought back. The case, which made its way to the Tax Court seven-and-a-half years later, 44 TC 20 (1965) , serves as a tax professional's guide to boxing.
Boxing is a unique sport in that the top fighters these days participate in one, maybe two fights a year. Throughout the year they maintain their physical fitness, but in the months leading up to a fight, they have their own training camp to ramp up their fitness, prepare their bodies for the punishment they will face in the ring and to strategize for their opponent's particular fighting style.
Robinson's case litigated a few of those training camp expenses. To train for these mega fights, boxers rent out a gym for months and spend their days there working out and sparring. Oftentimes these gyms are far from the boxer's home, so he will rent a house for himself and his staff for the training camp. This seems like an obvious deduction, but the IRS of 1957 tried, unsuccessfully, to deny Robinson that write off.
Boxers also have an entourage of people working to prepare them for fights: Managers and co-managers who handle the fighter's schedule and business operations; trainers who manage the fighter's fitness, practice routine and work on technique; multiple sparring partners who each box a couple rounds with the fighter everyday so he is constantly facing a fresh opponent even while he may be wearing down physically; nutritionists who help them make weight in the days leading up to the weigh-in without wiping out the energy he will need the next night (boxers often lose 5-8 pounds for their weigh-in before putting it all back on within 24 hours at fight time).
Additionally, fighters pay the fight promotors and sanctioning bodies—the WBC sanctioned the Mayweather-McGregor fight—hundreds of thousands of dollars to market the fight. Failing to pay sanctioning fees can cost a fighter his title, as it once did Mayweather. On fight night they pay for cut men to ease facial swelling and stop the bleeding from cuts sustained during the fight and ringside doctors who are sometimes needed to determine whether a fighter should be allowed to continue to the next round.
With major prize fights—or any fight for that matter—the people who help prepare the boxer would like one of the very expensive and hard-to-get tickets to the fight to see it in person. The fighter pays for these tickets and is entitled to a deduction for them to the extent they are for business partners and not family or the family of business partners. The IRS did not allow Robinson that deduction but the Tax Court did.
When stating his superiority over Ali and Robinson, Mayweather recognized the path both set for him as great fighters whose personas elevated the sport so he could gross $100 million for a fight. Little does he know just how wide the path Robinson set was.
Then again, Mayweather may be smarter than people think. He makes his home in Nevada, where there is no state income tax. He also fought 30 of his professional fights in tax-free states. His final 15 fights, including all of his biggest paydays were fought in Nevada. Mayweather's last fight in a state with an income tax was on November 19, 2005.
It used to be the biggest fights could be held anywhere: Atlantic City, Madison Square Garden (New York), Las Vegas or even in other countries. Mike Tyson fought 13 of his first 40 fights in Atlantic City, including four for championship belts. Evander Holyfield fought there eleven times. Floyd Mayweather? He fought four times in Atlantic City and only twice as a champion.
What Mayweather knows and the boxing world has figured out is that when big money is at stake, the fighters can pocket more money in Vegas, where they will pay no state income taxes than in New Jersey, where the tax rate is 8.97%, or New York, where it is 8.82%.
So while boxing is alive and well all over the country and the world, Las Vegas has become the undisputed king of big money fights. Its sports books and nightlife make it an obvious contender but Nevada's 0% income tax rate knocks out the other states.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
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