Dollars vs. Euros
I'm revising this a little from its earlier form, thanks to the very good information that Spencer found and included in his comment below.
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After watching a dozen NBA players opt to sign with European teams this summer - - including Americans Josh Childress, Earl Boykins and Jannero Pargo - - it's been interesting to see how basketball has been impacted by the world's currency market.
With a strong euro and weak dollar, it only makes sense for players to explore Europe as option. It appears that Childress (and others) will be paid in dollars, which could prove more costly for their new European teams than it appeared only a month ago.
Take Childress, for example. His contract with the Greek club Olympiacos was reported as a three-year deal worth $20 million after taxes. That averages out to $6.7 million dollars a season or about 4.24 million euros, according to exchange rate July 23.
On the day Childress signed his headline-making deal, 1 dollar was worth 0.6366 euros, according to www.x-rates.com. As of Wednesday, the dollar had strengthened such that it now is worth 0.6810 euros.
That might not seem like much, unless you're the Olympiacos owner who has to pay Childress in dollars. It will now take 4.54 million euros to cover that $6.7 million that Childress is owed this season and 13.6 million euros over the life of the contract.
In barely a month, the cost of Childress has increased by nearly 300,000 euros for this season and 900,000 euros for three years. All thanks to the exchange rate, which has made American players more expensive.
There's also reason to believe that the dollar will continue to strengthen against the euro. The New York Times had a front-page story Sunday about the world's economic woes, with Germany, France, Italy, Spain and Great Britain all experiencing either recession or flat growth.
That story included these two paragraphs, which I'm sure would catch the eye of any NBA player mulling a move to Europe:
The dollar has been strengthening against many currencies in recent weeks - not because of a newfound belief in American prospects, economists say, but because investors are edging out of markets that are weakening, like Britain and other parts of Europe, sending down the pound and the euro.
"It's the rest of the world going down, not the United States going up," said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.
We'll see whether the trend continues with next summer's free-agent class. In the meantime, after you're done checking box scores this season, it's probably worth flipping over to the business section to see just where the dollar and euro stand.
--Ross Siler
* * *
After watching a dozen NBA players opt to sign with European teams this summer - - including Americans Josh Childress, Earl Boykins and Jannero Pargo - - it's been interesting to see how basketball has been impacted by the world's currency market.
With a strong euro and weak dollar, it only makes sense for players to explore Europe as option. It appears that Childress (and others) will be paid in dollars, which could prove more costly for their new European teams than it appeared only a month ago.
Take Childress, for example. His contract with the Greek club Olympiacos was reported as a three-year deal worth $20 million after taxes. That averages out to $6.7 million dollars a season or about 4.24 million euros, according to exchange rate July 23.
On the day Childress signed his headline-making deal, 1 dollar was worth 0.6366 euros, according to www.x-rates.com. As of Wednesday, the dollar had strengthened such that it now is worth 0.6810 euros.
That might not seem like much, unless you're the Olympiacos owner who has to pay Childress in dollars. It will now take 4.54 million euros to cover that $6.7 million that Childress is owed this season and 13.6 million euros over the life of the contract.
In barely a month, the cost of Childress has increased by nearly 300,000 euros for this season and 900,000 euros for three years. All thanks to the exchange rate, which has made American players more expensive.
There's also reason to believe that the dollar will continue to strengthen against the euro. The New York Times had a front-page story Sunday about the world's economic woes, with Germany, France, Italy, Spain and Great Britain all experiencing either recession or flat growth.
That story included these two paragraphs, which I'm sure would catch the eye of any NBA player mulling a move to Europe:
The dollar has been strengthening against many currencies in recent weeks - not because of a newfound belief in American prospects, economists say, but because investors are edging out of markets that are weakening, like Britain and other parts of Europe, sending down the pound and the euro.
"It's the rest of the world going down, not the United States going up," said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.
We'll see whether the trend continues with next summer's free-agent class. In the meantime, after you're done checking box scores this season, it's probably worth flipping over to the business section to see just where the dollar and euro stand.
--Ross Siler
11:06 AM
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1 Comments:
Ross, I think Childress' deal is set up to pay him a set amount in US dollars.
SLAM Magazine ran an interview with Lon Babby and Jim Tanner, Childress' agents. Here's what they said about the deal:
http://slamonline.com/online/2008/07/links-dollars-and-sense/
SLAM: Jim, I remember on the conference call you mentioned that Josh’s contract is in Dollars, not Euros. How does that work for someone who’s a financial neophyte here.
TANNER: His contract is in Dollars and that’s just one element of the negotiation, and that’s where we ended up in terms of how the compensation would be paid.
BABBY: And it gives Josh a frame of reference, too. We know what the Dollar means here. If you were to do it in Euros then you’re asking the player to kind of do his due diligence on the exchange rate, and if he stays the full three years you don’t know what the exchange rate will look like. There are enough things to complicate the deal for Josh Childress that he didn’t also have to then become an economics major to figure out the exchange rate between the Euro and the Dollar.
SLAM: One thing we’ve talked a lot about is contracts in Europe being tax-free, or the team pays the tax. How does that work?
TANNER: The way it works is that the team pays the tax in that jurisdiction, and then at the end of the year they issue a certificate to the player that he can then apply against US taxes. Depending on where he’s playing overseas, that would dictate how much tax is paid on his behalf, and then depending on where his state of residence is in the US, that dictates how much of an offset that overseas tax would make against his US taxes. A player is still responsible for his domestic taxes, both federal and state, but he gets to offset those taxes against what’s been paid for him overseas.
BABBY: When you look at the number, you’ve got to remember the number is net. It’s not net of all taxes but it’s net of Greek taxes, which is significant benefit to the player.
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