An analysis on taxation in sport ahead of the expected debut of one of the most high profile player transfers in history.
Real Madrid recently completed the transfer of James Rodriguez from AS Monaco for US$108M (€84M, £63M), the fourth highest transfer fee paid for a player in the history of soccer. The move is a result of the young Colombian’s breakout performance at this summer’s World Cup, supplemented by consistently impressive form over the past few years in Europe. Playing at Real Madrid is a childhood dream come true for James; financially speaking, however, he’s most likely leaving money on the table.
This assumption is based on tax regulations in the Principality of Monaco, and as the transfer to Madrid is official, it will remain strictly that, an assumption. Nevertheless, it is a curious one: a rising star leaves his team for arguably the biggest club in the world, where he’s in a position to gain less money.
Purchased by Russian billionaire Dmitry Rybolovlev in 2011, AS Monaco has assembled an ascending side with fine talents, but the club is of a different stratosphere than that of Real Madrid. One advantage Monaco boasts, however, is taxation based. The Principality of Monaco imposes no personal income tax, while soccer players in Spain face a tax rate of up to 52%; herein lays James’ issue.
James is reportedly set to earn €7M after taxes under his newly agreed contract at Real Madrid, a 17% increase from the €6M he reportedly earned at Monaco. However, James’ contract was agreed to last year upon his arrival to the Monegasque club, prior to his stellar performance this summer in Brazil.
As the leading goal-scorer of the tournament, he would have had significant leverage for contract negotiations seeking a pay bump. This is further bolstered by James’ representation, super-agent Jorge Mendes, as well as a relatively dry transfer market. The former is the premier agent in the soccer world representing some of the game’s best, including Cristiano Ronaldo and Radamel Falcao; the latter leaves Monaco in a bind scrambling for a James replacement before domestic league action commences. All things considered, it’s a reasonable assumption that James would have received a healthy salary bump had he stayed at Monaco, greater than or equal to what he is reported to earn at Real Madrid, net of taxes.
A similar story is true of James’ endorsement based income and opportunities. A t Real Madrid, he’ll be subject to significantly enhanced international exposure attributable to the club’s global following and devotion. The young Colombian currently holds endorsement deals with both Adidas and Nestlé; he also will see healthy increases in this aspect of his income. Again, he’ll owe half of that to tax officials in Spain.
Playing for AS Monaco would not have been the same as playing for Real Madrid – but in terms of endorsements, thanks to his stellar performance in Brazil, combined with the club’s return to the Champions League this year, his net- endorsement earnings might have been better had he stayed put. By participating in the Champions League competition, Monaco will gain increased exposure to markets around the world, which would have placed James in a comparable position in terms of international presence. The club also just signed an agreement with Nike to outfit the team through 2019, while compiling an experienced, international front office set to transform the team into a global brand. In gross compensation, he will undoubtedly earn more in Spain, but in terms of what he can actually keep, he would be a richer man in Monaco.
All in all, James is leaving Monaco for Madrid to pursue a childhood dream. It makes for a heartwarming story, and regardless of tax regulations, James will be a very rich man at the conclusion of the season.
James Rodriguez hopes to debut for his new club on Tuesday, August 12, as Real Madrid takes on Sevilla in the UEFA Super Cup at Cardiff Stadium in Wales (New York – 2:45PM ; London 7:45 PM).