In November, I described a scenario in the upcoming NHL/NHLPA collective-bargaining process whereby the NHLPA might have to consider demanding a halt to expansion as a tactic to pursue its stated goal of player salary growth. Player salaries have been a staple of NHL-related conversations since they became publicly available in 1990, following many decades of secrecy. In the twenty years since the application of a salary cap for the 2005-06 NHL season, these discussions have become increasingly contentious and complex. The narrative du jour centers on how teams may be advantaged/disadvantaged in negotiating player contracts based upon the taxation variations across national and state lines. Some excellent articles have been written on the topic, but they all seem to be lacking some important context.
To gain that context, we must step back and understand that the income tax issue is merely one of several financial considerations a player (and his agent) must factor into any contract decision. Within the tax realm, while income tax is likely the biggest driver of cost, it is not the only one, as NHL players will have to pay sales, property and excise taxes just like the rest of us. In fact, due to their higher-than-average earnings (NHL minimum salary is well above the threshold for the highest tax bracket in both the U.S. and Canada), NHL players very likely buy more (sales/excise taxes) and own more (real estate and personal property taxes). In both the U.S. and Canada, income taxes make up slightly less than half of total taxation revenue, so focusing solely on income tax differences only tells part of the story.
There is indeed a fairly meaningful disparity across the 32-team league in terms of income tax burden (the best analysis was presented by W. Graeme Roustan of the Hockey News with Mark Feigenbaum of KPMG). One important delimitation of their analysis was applying the automatic standard deduction to all returns, and thus not including the “federal offset” that allows a portion of your incurred state taxes to be deducted from your overall tax burden (up to 35%). This is an understandable delimit for their purposes, but it is highly likely that most NHLers itemize, and including the offset would have lessened the gap between the high and low tax states considerably. In looking at the tax burden beyond income tax (e.g., sales/excise/property), the “high tax” states are still relatively higher (e.g., New York, California, etc.). However, the so-called “no tax” states are not so far behind, as they offset their low or zero income tax with these other tax sources. The highest sales tax (9.56%) of all NHL states is in Tennessee (sorry, Preds), with Texas (8.2%), North Carolina (7%) and Florida (6.95%) right there with them. Without getting too far into the weeds, it is safe to say that when considering the overall “contract value vs. bottom line” debate in the NHL, it is much more complex than is being portrayed, and even that is without factoring in the creativity that a quality accountant may bring to the situation.
An important distinction of the NHL when contrasted with the other major professional leagues in dealing with taxation is that it has a larger percentage of Canadian franchises (seven, 22%) and players (394, roughly 42%, per Quanthockey). Therefore, a full conversation of this issue must include the difference in currency value between Canada and the U.S. While the value of a dollar can fluctuate (sometimes wildly), the NHL does not worry as much as an individual player might due to the way it hedges currency at the league level. However, when all players in Canadian cities get paid in U.S. dollars, the difference in purchasing power should be more of a talking point than it is.
Interestingly, the top federal income tax bracket in Canada (33%) is less than the top bracket in the U.S. (37%). However, the high provincial income tax rates combine with high sales taxes (both federal and provincial) to put the Canadian franchises atop the list of disadvantaged NHL teams. It has been more than a decade since the Canadian dollar was (briefly) even with the U.S. dollar, and for the past five years it has fluctuated somewhere from being worth 70-80 cents on the U.S. dollar. Putting a conservative 25%-30% premium in purchasing power on top of every contract that a Canadian NHL franchise can offer should more than negate any tax disadvantage they may face. More than most of us, NHL players will purchase homes, cottages, cars, boats and other high-end items where that extra value would surely come in handy. While this may not be a factor for some American players (270, roughly 29%), Canadian players looking to set up for retirement in the Kawarthas, Gulf Islands or Eastern townships might consider a Canadian franchise a more favorable destination once all the detailed financial considerations have been made. From this perspective, perhaps the most disadvantaged may not be the Canadian franchises after all, but rather the U.S. based high-tax franchises such as those in New York (Islanders, Rangers, Sabres) or California (Ducks, Kings, Sharks).
They say that the only sure things in life are death and taxes. As the NHL salary cap projects to rise steeply while the NHL/NHLPA negotiate the new CBA, it’s fair to say that this conversation is sure to continue as well. One final thought … if an NHLer finds this little essay helpful, this might be a nice time to remind him that, unlike the U.S., there is no gift tax in Canada!
Aubrey Kent, Ph.D., is a Marvin Wachman Senior Research Fellow, and co-founder of the Sport Industry Research Center at Temple University in Philadelphia.
