Manny Pacquiao’s decision to take his talents to China caught everyone off guard. For the last decade, he’s been one of a handful of stars keeping boxing mildly relevant in the American market, and despite his recent woes, that was unlikely to change any time soon.
Consider this: coming off a loss to Timothy Bradley, the Filipino star’s PPV buys total actually grew for the fourth Juan Manuel Marquez fight. That means audiences weren’t simply showing up to see him dominate – they were showing up to see a good fight.
After his sixth round knockout loss to Marquez, though, Pacquiao and his team came out and announced they would no longer fight in the United States. They cited a marginal increase in tax rate as the reason for this, but refused to offer much more insight than that.
Recently, Paul Magno of Yahoo! Sports pointed out that Pacquiao’s decision to fight overseas from here on out wasn’t as cut and dry as it appeared.
The augment in taxes, from last year's 35% to the current rate, is a 4.6% increase, but hardly a deal killer given the many options Pacquiao has to cut costs and also considering the uncertainty of what will happen by taking his show to China.
It’s true. When you look at it as a mere 4.6 percent increase, the tradeoff of fighting overseas doesn’t appear particularly justified.
Tony Nitti of Forbes offered this point on Pacquiao’s big move:
That threat has now come to fruition, with Pacquiao choosing to take his talents to China, where he is hugely popular and, more importantly, the top marginal tax rate is only 12 percent. Because Pacquiao is neither a U.S. resident nor a citizen, he will not pay U.S. tax on any money earned from the fight, allowing him to pocket an extra 28 percent of the purse.
In simple terms, if Pacquiao rakes in $25 million from the Rios fight, holding the match in China will allow him to walk away with $22 million, while a Vegas bout would have left him with only $15 million.
Seven million is a lot of money, however, as noted by Magno:
On paper and without any investigation, a move to Macau, where the top tax rate is 12%, would bring him an extra $6.9 million from a proposed $25 million purse. But this is assuming all things will be equal in terms of sales and revenue-- a huge assumption.
Obviously it’s impossible to say with certainty what Pacquiao’s true motivation for leaving the U.S. is. But based on the numbers and the PPV gamble he’s going to be taking in his next bout, it’s hard to see a less-than-five-percent win in the tax rate be reason enough for this massive, massive change.