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Monday, July 22, 2013
Lefty's Open triumph a very 'taxing' victory


Phil Mickelson will be taking the Claret Jug back to the States after winning the 142nd Open Championship on Sunday, but he'll be leaving a sizeable chunk of his $1.4 million in winnings in the United Kingdom. What the U.K. doesn't claim in taxes will be further depleted when he heads back to his home in California, another high-tax locale.

Sean Packard, tax director at athlete wealth management firm OFS, estimates the total tax rate on Mickelson's earnings at the Open Championship are a whopping 60.6 percent. He projects the U.K. will take the largest portion at $628,900. The state of California will take another 13.3 percent, or $192,300. Add in the U.S. self-employment tax (2.9 percent) and Obamacare tax (0.9 percent), and Mickelson will take home an estimated $569,707 of his Open Championship winnings.

In addition, Mickelson will be taxed on the approximately $721,650 he earned for winning the Scottish Open a week ago. Packard estimates the total taxes paid on his winnings for both U.K. tournaments at $954,000, not taking into consideration any expenses that may be deductible. Packard estimates Mickelson will take home just 30 percent of his total earnings from Scotland after giving 10 percent to his caddy Jim "Bones" Mackay and paying his agent's cut and travel expenses.

It must be a frustrating situation for Mickelson, who only six months ago said he might need to make "drastic changes," which many interpreted as meaning he either planned to move from California or cut back on his tournament schedule.

"There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and, you know, it doesn't work for me right now," Mickelson said back in January.

Mickelson's tax burden in the U.K. goes beyond simply his winnings in the two tournaments. Athletes who compete in the U.K. are also taxed on their global endorsement income. The amount is determined by dividing the number of days the athlete spends training and competing in the U.K. annually by the total number of days he trained and competed around the world. That percentage is then multiplied by the athlete's total global endorsement income to determine the amount subject to taxation.

Forbes reports that for the period of June 1, 2012 to June 1, 2013, Mickelson earned $44 million in endorsements, more than 90 percent of his total earnings of $48.7 million.

The Open Championship is Mickelson's first major victory since the 2010 Masters, and it leaves him just one title away from a career Grand Slam, a feat accomplished by only five other golfers. That elusive victory was almost his this year at the U.S. Open as he entered the final round in the lead. Combine that with his bringing home the Claret Jug, and there's reason to believe Mickelson's endorsement income could increase this year, thereby increasing his tax burden in the U.K.

For the last period Forbes covered, Mickelson ranked behind only Roger Federer and Tiger Woods for endorsement income, both of whom earned an estimated $65 million each.

Bob Dorfman, an executive vice president at Baker Street Advertising, says, "I'd estimate that the British Open win, given its amazing quality -- and Phil's crowd-pleasing demeanor and likability throughout -- could bump him up to at least $50 million a year in deals.

"The global nature of the event also helps his marketability with international marketers," said Dorfman.

Doug Shabelman, president of Burns Entertainment & Sports Marketing, says Mickelson's endorsement income could grow in a couple of different ways.

"He might have one more opportunity out there, and it would be in the seven-figure range per year for multiple years with limited service days," said Shabelman, explaining that Mickelson values his time with his family and already has a fairly full stable of endorsements.

"What could happen," said Shabelman, "is one or two of his sponsors whose deals might be coming up could potentially be convinced to now re-up with him."

Regardless of whether his endorsement money grows, the U.K. will want its piece of the endorsement pie at the end of the year to go along with the nearly $1 million Mickelson racked up in taxes on his winnings.