Why drush sql-sync fails with mysqldump unknown variable error?
This does look like an issue with mysql, not Drush.  Run your Drush command again with the -s flag (simulate); 

drush sql-sync @stag @local -s


Drush will then print out the shell commands that it would execute, without doing anything.  You can copy the mysqldump command into your shell, and experiment with the options until the dump works.