Castroneves' tax trial offers lesson to his fellow drivers
Helio Castroneves faces seven counts of tax evasion and six years in prison
Castroneves' trial has prompted other drivers to reconsider their finances
Prosecutors claim Castroneves didn't pay taxes on $5 million from Penske Racing
When Danica Patrick talks about Helio Castroneves, you can imagine her sitting on the floor of her Phoenix home amid hundreds of files, contracts and tax documents. It would be the middle of the night, Patrick with a flashlight in one hand, magnifying glass in the other, mumbling gibberish as she speed-reads the forms.
Patrick's pit-in-stomach moment was not so anecdotally perfect, but it was profound and jarring for someone who earned $5 million in 2007 (according to a Forbes.com list which ranked her as the 95th highest-paid celebrity in America) and, at 26, is one of the most recognizable, marketable and bankable figures in sports. The feisty Indy Racing League driver with the Swimsuit-edition portfolio was a virtual license to print money even before she won her first race last spring. Earning it is one thing. Keeping it is another. So is making sure bills get paid, like taxes. That point becomes poignant this week with two-time Indianapolis 500-winner Castroneves going on trial in Miami on seven counts of federal tax evasion, crimes punishable by more than six years in prison.
Castroneves -- whose business manager is his sister, Kati -- claimed in January that complex contract language so confused him that he did not understand at times what he was signing. Defense attorney Roy Black said in opening arguments on Tuesday that Castroneves is ignorant of United States tax laws, and his defense seems to partly hinge on how a jury factors ignorance of personal affairs when considering the guilt of the charismatic Brazilian who gained multi-national fame as a Dancing with the Stars champion.
"I feel strongly and positively about it, especially when I started educating myself in this matter," Castroneves said in January. "I'm reading stuff with the type of language, I have no idea what it is. Even if it was in Portuguese, it would still be confusing to me"
Castroneves, 33, is hardly alone in being bedeviled by the details. Weeks before the start of the NASCAR season, Sprint Cup driver Elliott Sadler admitted he was unsure of the contents of his contract with Richard Petty Motorsports even as the team attempted to depose him from the No. 19 Dodge and replace him with A.J. Allmendinger. Sadler eventually retained his job by threatening possible legal action.
Patrick is determined not to be snared. It was a revelation late in coming.
"Number one, it's sad when you have to revert to the contract all the time because it should just be... you all just should be upstanding with each other," Patrick said, "but anyway, I was reading my contract this winter -- I'll be super honest -- I didn't know much about my finances. I didn't know about how much was coming in, where it was going, when it was coming and going. I would ask 'Could I afford this?' 'Can I get this money here?' '[Do] I want to do this?' Remember those commercials where knowledge is power? I really believe that now. The more I know, the less that I can be taken advantage of. So I learned about all my finances and stuff."
Entertainers in general and athletes in particular have long been the prey of the unscrupulous. Insurance schemes, bogus investments, and high margins siphon the riches earned by those unwilling or unable to defend themselves by becoming savvy with regard to their finances. Retired Sprint Cup champion Bobby Allison, 71, reportedly went bankrupt, and former drivers such as Sam Ard reached old age bereft of their health and earnings. But Castroneves' alleged financial missteps threaten to end his career in its prime or send him to prison.
Black said on Tuesday that Castroneves never attempted to skirt U.S. income tax, but intended to pay the tax on about $5 million in income in question after a decade-old deal was completed.
"All his taxes were properly done. They were properly paid," Black said.
Prosecutor Matt Axelrod claimed Castroneves, with the help of his sister and sports attorney Alan Miller -- who listed Sprint Cup driver Kyle Busch as a client until 2007 -- used a Panamanian corporation to evade taxes since 1999.
"When it came time to pay taxes on the millions of dollars that he made, he turned his back. He didn't pay," Axelrod said.
Prosecutors claim Miller helped Castroneves avoid paying taxes on $5 million from his initial contract with Penske Racing in 1999 by having it diverted under a deferred royalty deal to a Dutch company. Axelrod claims Miller asked for the revision to the contract when he learned Penske would withhold 30 percent of the $5 million in taxes.
Castroneves was to receive the money this May. The defense attorney said Castroneves would pay taxes upon receipt, while prosecutors say taxes were already owed, even though he'd not received the money.
"It was the only way they could achieve their goal of having Helio Castroneves illegally get his money tax-free," Axelrod said.
Castroneves' bind is a lesson to young drivers like Patrick, but it's one many veterans had to learn as they grew up in the sport.
Sprint Cup driver Tony Stewart, who oversees a portfolio that includes 16 business entities including, for the first time this year, a two-car Sprint Cup team, employs a squadron of managers to run his enterprises and utilizes Motorsports Management Inc. to coordinate his finances.
"When it comes to major decisions involving Tony's career, whether racing or business-related, autonomous decisions are seldom made," said Brett Frood, his former chief operating officer who now an executive vice president at Stewart-Haas Racing. "Diligence is performed and ideas are always bouncing around between Tony and his executive management team, with valuable feedback from (MMI) and his company."
Sprint Cup driver Jeff Gordon tasked his stepfather, John Bickford, with setting up and maintaining his business interests when he became instantly wealthy in his early 20s.
Since Gordon was 16 and working his way through sprint car ranks, Bickford and Gordon's mother, Carol, allocated half of his earnings for taxes, 45 percent for budget and allowed him to keep the rest. As Gordon's earning-power and holdings mushroomed as a four-time Sprint Cup champion, the Bickfords stepped away and hired Charlotte-based accounting firm Greer & Walker to handle tax services, investments and planning.
"That eliminates the question 'is the family handling the money correctly?'," Bickford said. "The bottom line is, we're not handling the money. We're out there trying to generate the money, but we're not handling it."
It's a crucial fact for Gordon, Bickford said, given that drivers are "constantly barraged with deals."
Bickford said in 2007 he rebuffed an approach by Stanford Financial Group. The Securities and Exchange Commission last month charged founder Allen Stanford and three of his companies with creating a fraudulent $8 billion certificate of deposit program. It remains unclear when or if large investors -- among them professional athletes -- will recover their investments..
"I mean, they looked impressive," Bickford said. "Here they come with (PGA golfer/company spokesman) Vijay Singh and all that, but I turned it over to the financial guys and I told Jeff I think we should just pass. ... Old gut wisdom."
Bickford said he often receives calls from parents of aspiring NACAR drivers. Many do not realize the complexities motorsports in particular brings to tax accounting. Example: Drivers are required to pay income taxes in each state in which they race. As independent contractors they are supposed to fund their own workman's compensation and insurance, and Bickford said, "sometimes they buy the airplane a little too early, don't set anything aside."
"If you use the tax man who did your neighbor's taxes and saved them some money, then you're likely at risk," Bickford said.
For her part, Patrick called Castroneves' situation "unfortunate" and described him as a "really nice guy" who "would do anything for you if you really needed it." If Castroneves is exonerated after what is expected to be a six-week trial, he should do something for an IRL that needs star power of his degree: get wiser about his finances and protect himself. He should do what Patrick is doing.
"Trust me, I am still a little lost, because it is not my forte, but I just started learning about different spreadsheets and things, the breakdown of where all my money goes and how much we spend here and there and so on," Patrick said. "Now I look at it and I'm like, "We spent how much on what? What's this? What's this category?" I think it's a really good healthy step into a mature direction for me, as a person. I should know."