In the NHL, you’ll get richer playing for Nashville Predators than the Canadiens.
Players don’t decide where they will play simply due to a tax regime, but it is a factor
It could be the easy way out. If the Toronto Maple Leafs or Ottawa Senators fail to sign a new player when the National Hockey League free agency period starts Sunday, perhaps they can lay the blame on the New Democratic Party.
The NDP, after all, demanded a new surtax on the wealthy as part of an agreement to prop up Ontario’s Liberal government. That new tax, 2% slapped on income of more than $500,000, has catapulted Ontario near the top of the highest-taxed jurisdictions of the 30 NHL markets.
To help kick off the NHL free agency period that starts Canada Day, the Financial Post asked KPMG LLP to analyze hockey markets across North America to see how they compare on a tax basis. The firm studied what tax rates in various jurisdictions would mean to a player earning $2-million, $4-million or $7-million per year.
Everybody wants to hold the Stanley Cup and be the most valuable player on the winning team but taxes are definitely in the mix in making a decision — what one player agent called “a little dessert.”
And while you may expect U.S. cities to garner the top spots — especially in no-tax states such as Florida, Texas and Tennessee — Canada’s oil patch has plenty to offer from a tax perspective since Edmonton and Calgary compete favourably.
“Right now, all the rates in the U.S. are projected to go up in 2013. It’s a political football,” said Jim Yager, a partner with the international executive service.
As part of the study, KPMG had to make some assumptions for comparative purposes and not take into account some specific tax breaks such as mortgage deductibility in the U.S. Other issues, such as the fact a Nashville Predator would face tax on investment income, also had to be left out.
But, overall, it’s clear taxes could make a big difference. For example, a top player, earning about $7-million, would be left with about $4.28-million in either of Alberta’s NHL cities but only $3.69-million in Ottawa or Toronto — almost a $600,000-a-year difference.
“They just raised the tax rate in Ontario,” said Mr. Yager. “It’s going to have an even bigger impact next year.”
You may believe if you make that much money, it doesn’t really make a difference. But certified financial planner Ted Rechtshaffen says plenty of his clients think about jurisdiction when it comes to financial planning.
“I always get this question. If you are making $2.3-million after tax and you could be making $2.4million in another market, how much do you really care? The answer is they absolutely care,” said Mr. Rechtshaffen.
One of the most famous recent cases, in which it was widely suggested taxes might have played a part, was the decision by basketball superstars LeBron James, Dwayne Wade and Chris Bosh to play for the Miami Heat, the team that just won the National Basketball Association championship. Some have estimated Mr. James, who has lucrative endorsement deals, might net an extra US$25million over the course of his contract because his home state is a no-tax jurisdiction — unlike somewhere like New York.
But NHL agent Mark Gandler, who has represented clients including Alexi Yashin, the beneficiary of one of the richest contracts in NHL history, says there are factors other than taxes at play.
“You are talking about a 5.5% difference,” said Mr. Gandler. “When you are talking about $10-million a year, half a million doesn’t sound that great. It’s not something that would see you go after a particular team.”
But he said if you like that team and there is no taxation, it’s an “added bonus.”
“There’s no question about it, but that was a little dessert for them,” Mr. Gandler said of the three NBA stars in Miami. “But the steak was Miami, South Beach, the lifestyle and hanging out together.”
He says clients look at playing time, their role on the team, management, coaching and the city and lifestyle before they consider the taxation question.
Not that the teams don’t try to make taxation an issue. “They use it every second [in no-tax U.S. States]. Those teams like to make it seem like you are making twice as much,” says Mr. Gandler.
While there have been stories about players going to the Kontinental Hockey League in Russia to avoid tax, the agent said there actually is a smallish 13% tax. But in many cases, the owner pays it.
“It comes down to who is paying the tax. It’s called the incidence,” he said, adding that it’s part of any bargaining.
Over the lifetime of a contract, that money adds up, said Patrick Laforge, president and chief operating officer of the Edmonton Oilers. “It’s not a deciding factor, but it is one,” he said. “If you are a long-term player in our organization, like Ryan Smith or Shawn Horcoff, and, so far, you’ve earned X amount in your career, you have put a lot more in your pocket than your friends in other markets.”
Mr. Laforge said the low tax rate has another impact that is valuable to his team — more net income for fans and companies who support the name.
“You can’t pay the players if you don’t have fans. We have two NHL hockey clubs within 180 miles and a population of only 3.6 million,” said Mr. Laforge. “It is a luxury afforded to us because of the oil and gas industry, which generates huge employment and economic advantage to this relatively small-populated province. It produces individual and corporate wealth at a very high level. Even in this small market thousands can afford to attend games.”