The Influence of Taxes in Landing/Retaining Players

[Down by the River]

Article from TSN on taxes faced by players on different teams from different areas. Although the article itself is more factual, I think it does stimulate some thoughts on the current CBA.

When it comes to keeping their own players and attracting new ones, the Montreal Canadiens have history on their side. They have a rafter full of retired jerseys and Stanley Cup banners testify to the team's pedigree.

But the Canadiens, like some other NHL teams north of the border, face a troublesome obstacle when it comes to negotiating with players: Revenue Canada. Many players on NHL teams in Quebec and Ontario pay the highest combined federal and provincial/state income tax rate in the NHL, a TSN study has found.

Canadiens defencemen Andrei Markov and P.K. Subban will each make $7 million on paper this year. But after handing over 49.7 per cent of their check to the taxman, they'll each bring home just $3.5 million.

Welcome to the modern NHL, where, as salaries skyrocket, the amount the players owe to the government is rising in kind.

As those tax bills spike, players are surrounding themselves with teams of agents and accountants and are becoming savvier than ever when it comes to tax issues.

Many players today are versed with the states that charge a so-called jock tax - a tax imposed on opposing athletes when they visit to play a game. The tax began in 1991 when California levied a tax on the earnings of Chicago Bulls players who traveled to Los Angeles to play against the Lakers in the NBA Finals. Illinois retaliated, introducing its own tax on out-of-state players, a tax that became known as 'Michael Jordan's Revenge.'

By 2014, the only U.S. states with major pro teams without a jock tax were Florida, Texas and Washington state. Washington, D.C., also doesn't have a jock tax.

Several NHL agents say that free agent players these days are also briefed in detail about jurisdictions with the lowest tax rates; how signing bonuses can help U.S. players reduce tax exposure when playing for a Canadian team and how players on U.S.-based teams can use their agent fee - typically four per cent - as a tax write-off, unlike those who are residents of Canada.

European players who play for Canada's seven NHL teams are typically advised that they can take advantage of so-called Retirement Compensation Agreements, or RCAs.

Those players can contribute a portion of their salaries to the RCAs and when they retire, play a flat 20 per cent tax rate to Revenue Canada on the collective amount saved. Allan Walsh, a prominent NHL agent whose clients include Montreal's newsest addition Jiri Sekac, says the RCAs can save European players in Canada as much as 15 per cent in tax every season. "Players are on top of tax issues like never before," he explained. "There is still a certain amount of riff-raff around some players - entourages and hangers on - but much less than you used to see. The quality of representation has gone up."

Nashville's Shea Weber, the best-paid player in the NHL this season with $14 million in compensation, paid an estimated $5.5 million in tax. He plays his home games in Tennessee, one of three U.S. states - along with Texas and Florida - that don't have income tax.

Weber simply pays 39.6 per cent of U.S. federal tax on his income, according to the TSN study which examined the compensation of the NHL's Top 50 paid players and was compiled by Robert Raiola, a senior manager with New York accounting firm O'Connor Davies whose clients include NHL players (Daren Raoux, a cross-border tax expert based in Calgary, also worked on the survey).

Montreal Canadiens players are especially hard hit by the taxman. Subban and Markov, along with goalie Carey Price, hand over a bigger percentage of their compensation than any other players in the league. Toronto Maple Leafs captain Dion Phaneuf and Ottawa Senators captain Erik Karlsson are the only other players in study who pay more than 49 per cent tax, although Karlsson's tax burden would be lower if he uses an RCA.

For Montreal, it's a familiar story.

In 2006, former Canadiens defenceman-turned-player agent Gilles Lupien told The National Post that Montreal was a great place to play hockey, but that its high taxes worry some players. His client Martin Lapointe for instance, had $25 million offers from Montreal and Boston in 2001 when he became a free agent. Lapointe (now the Director of Player Development for the Canadiens) opted for Boston, avoiding high taxes and the intense Montreal media.

The TSN survey also revealed some savvy ways Canadian teams can jig contract structures to attract top talent. Consider Toronto's Phil Kessel.

Kessel makes $10 million this season. But $4.5 million of that is in the form of a signing bonus. While much of Kessel's $5.5 million salary this season is taxed at the top Canadian rate of 49.6 per cent, his signing bonus is taxed at 15 per cent by Revenue Canada because he's a non-resident for tax purposes (The 15 per cent is the rate Canada and the U.S. agreed to on their cross-border tax treaty).

Kessel also pays federal tax in the U.S. on his income, but since he lives in Florida during the off-season, doesn't have to worry about state tax. "If Kessel got his entire $10 million straight up, he'd be destroyed - he'd lose half his salary," Raiola explained. "When you have U.S. players, the smart agents try to load up at least one third of their salaries as a signing bonus. That's about the limit of what they can do because Revenue Canada doesn't like them doing more than that."

When Bobby Ryan, a U.S. citizen, signed a recent contract extension with Ottawa, for instance, his agent Don Meehan told TSN he ensured that $2 million of his compensation each year was payable in the form of a signing bonus. "Players are really different one from another," Meehan said. "Some of them have a sharper pencil, if you will, and zero in on those considerations (taxes).

"When Zach Parise decided to go to Minnesota, we spent three full days in our office going through all these issues. Some players may be media shy, not interested in playing in an intense market. As far as tax goes, all the players are aware of the issues. Some dismiss it and say they make so much money they push it to the side."

The TSN survey showed that while New York Rangers goalie Henrik Lundvquist is the third-highest paid NHL player with $11 million, he also is levied a special city tax on top of New York state tax because he lives in Manhattan. Lundvquist loses 48 per cent of his pay to tax and will take home $5.8 million this season.

Not every U.S. team play home games in cities that are a tax friendly as Dallas, Nashville, Tampa Bay and Miami. NHL players who play for teams in California pay tax of as much as 52.9 per cent.

http://www.tsn.ca/talent/westhead-why-montreal-is-the-worst-nhl-city-when-it-s-tax-time-1.106798

Would the CBA ever be changed to have a dynamic salary cap where the cap was based on after-tax hits rather than a flat rate across the league? Too many variables IMO, but would be interesting if done and would ultimately give an advantage to CDN teams.

What was surprising to me, though, was that the Sedins don't pay all that much tax (relatively speaking). They pay about 3,100,000 in taxes, which is 300,000 less than Markov and Subban. All four players have the same salary (7mil). Erik Karlsson makes 500k less than the Sedins but pays the same amount of tax.

[apollo]

Interesting read thanks for sharing! I know this would never happen but imagine how stacked our teams would get.

Bc government should remove the taxes for canucks, lions and whitecaps PLAYERS. (not sure if there is even a cap in soccer... If not then disregard whitecaps)

Instead of taxing the players, tax the team an extra 20%. This way the athletes save 49% and the team loses 20 percent. But that 20 percent would turn around in profit eventually from the success each team would have. This would definitely make both the lions and canucks much stronger since they'll have almost twice the cap space as all other franchises.

The owners wouldn't mind paying at extra 20 percent because if they do actually get twice the cap as other competitors then they'll definitely be Stanley or grey cup contenders almost every year.

And yes I do understand the tax payers lose 29 percent in all of this. But this will eventually generate far more tax dollars generated than the 29 percent of the players salary that the city loses.

Canucks cap is what? 65 million. City would lose 29 percent of the which is 18.85 million but that's a tiny price to pay for increased tax revenue from playoff runs , restaurants being packed, more seats sold... Etc. No brainer.

For example: we could sign the twins for 4 million rather than 7 . Since they would only collect 48 percent of the 7 million in a city like LA . They would make the full 4 with 4 caphit instead of 3.36 in LA when they sing for 7

Can I be mayor please?

[Miss Korea Bob.Loblaw]

Interesting read thanks for sharing! I know this would never happen but imagine how stacked our teams would get.

Bc government should remove the taxes for canucks, lions and whitecaps PLAYERS. (not sure if there is even a cap in soccer... If not then disregard whitecaps)

Instead of taxing the players, tax the team an extra 20%. This way the athletes save 49% and the team loses 20 percent. But that 20 percent would turn around in profit eventually from the success each team would have. This would definitely make both the lions and canucks much stronger since they'll have almost twice the cap space as all other franchises.

The owners wouldn't mind paying at extra 20 percent because if they do actually get twice the cap as other competitors then they'll definitely be Stanley or grey cup contenders almost every year.

And yes I do understand the tax payers lose 29 percent in all of this. But this will eventually generate far more tax dollars generated than the 29 percent of the players salary that the city loses.

Canucks cap is what? 65 million. City would lose 29 percent of the which is 18.85 million but that's a tiny price to pay for increased tax revenue from playoff runs , restaurants being packed, more seats sold... Etc. No brainer.

For example: we could sign the twins for 4 million rather than 7 . Since they would only collect 48 percent of the 7 million in a city like LA . They would make the full 4 with 4 caphit instead of 3.36 in LA when they sing for 7

Can I be mayor please?

You're insane and you'd be a terrible mayor/premier. The BC teams are doing perfectly fine as they are, and make huge money for the city and the province. Altogether the athletes probably produce over $30,000,000 in taxes a year. You are telling me that you will gamble that much public money in the hopes that these privately owned franchises will do well in the postseason? You would stake the whole BC economy on postseason sports consumerism? You would be one of the most corrupt politicians in Canadian history.

[Hugor Hill]

I believe the RCA's are available for all pro-athletes in Canada not just Europeans?

http://en.wikipedia.org/wiki/Retirement_Compensation_Arrangements_(Canada)

The players' tax payments are not as bad as the article makes it if they have prudent financial guidance from accountants, etc.

[Down by the River]

I believe the RCA's are available for all pro-athletes in Canada not just Europeans?

http://en.wikipedia.org/wiki/Retirement_Compensation_Arrangements_(Canada)

The players' tax payments are not as bad as the article makes it if they have prudent financial guidance from accountants, etc.

Yeah, I'm pretty sure the Sedins' donation to Children's Hospital didn't come without any tax relief (not trying to take anything away from the generosity of their donation).

[The Bookie]

I wonder how clear cut the one-third agreement w/ Revenue Canada is, like, if one of these players gets audited somewhere down the line, could that be tax evasion? How are they justifying the bonus portion?

[apollo]

You're insane and you'd be a terrible mayor/premier. The BC teams are doing perfectly fine as they are, and make huge money for the city and the province. Altogether the athletes probably produce over $30,000,000 in taxes a year. You are telling me that you will gamble that much public money in the hopes that these privately owned franchises will do well in the postseason? You would stake the whole BC economy on postseason sports consumerism? You would be one of the most corrupt politicians in Canadian history.

All together 30 mill? Like I said let's say the canucks salaries are 65 million. 49 percent of that is taxed and I'm suggesting the owner pays an extra 20 so it only hits the tax payers 29 percent. Which would put the city short 18.85 million that the athletes are saving.

So there's an 18.85 hit for the canucks. I won't get into the lions since the numbers are a lot less but hear me out

In 2p11

The BCRFA recorded each Vancouver canuck game was worth 1 million in businesses to local restaurant and bars. Increasing to 2 million in later rounds.

Source :

http://www.cbc.ca/m/touch/news/story/1.2612167

7 games vs hawks 7 million

6 games vs preds 6 million

Now let's up the antee to 2 million for "later rounds"

5 games vs sharks 10 million

7 games vs bruins 14 million

That's 37 million dollars in revenue that surely wouldn't have been there.

Out of that 37 million dollars you can bet your house that at least HALF was generated from alcohol that is taxed astronomically.

This isn't included all the away fans coming in and flooding the bc economy with out of province /country money and it isn't including hotels, merchandise, etc etc.

The tax payers would not be paying for this at all. If anything it would generate revenue for the province AND raise it's reputation.

Let's assume the canucks plays had 0% taxation and aquaman had to pay an extra 20% (2 extra playoff games would pay for his expense without a doubt)

The current cap is at 66 million. If players who signed for Vancouver had a 0 percent tax rate

1. They would be more likely to sign here and take 4 million from Vancouver rather than 7 from LA

2. It would create more cap space than any other team and way more talent which would guarantee long playoff runs each year.

If we're at 66 we would be at let's say 40... That leaves an extra 29 million to pad this roster. Which you would not even need to use all.

Vancouver would immediately become the biggest threat in the nhl. At a small 18 million dollar cost to tax payers which would pay for itself and then some. How do u not understand that?

[TheXFactor]

"If Kessel got his entire $10 million straight up, he'd be destroyed - he'd lose half his salary,"

I must be the only person laughing at this statement. The context makes it sound like $5 million isn't enough to survive with. If only peasants like me could earn even 1/5 of this on an annual basis.

Interesting read thanks for sharing! I know this would never happen but imagine how stacked our teams would get.

Bc government should remove the taxes for canucks, lions and whitecaps PLAYERS. (not sure if there is even a cap in soccer... If not then disregard whitecaps)

Instead of taxing the players, tax the team an extra 20%. This way the athletes save 49% and the team loses 20 percent. But that 20 percent would turn around in profit eventually from the success each team would have. This would definitely make both the lions and canucks much stronger since they'll have almost twice the cap space as all other franchises.

The owners wouldn't mind paying at extra 20 percent because if they do actually get twice the cap as other competitors then they'll definitely be Stanley or grey cup contenders almost every year.

And yes I do understand the tax payers lose 29 percent in all of this. But this will eventually generate far more tax dollars generated than the 29 percent of the players salary that the city loses.

Canucks cap is what? 65 million. City would lose 29 percent of the which is 18.85 million but that's a tiny price to pay for increased tax revenue from playoff runs , restaurants being packed, more seats sold... Etc. No brainer.


For example: we could sign the twins for 4 million rather than 7 . Since they would only collect 48 percent of the 7 million in a city like LA . They would make the full 4 with 4 caphit instead of 3.36 in LA when they sing for 7

Can I be mayor please?

Reading this honestly made me cringe. Your suggestion is way, way, way too risky.

[terrible.dee]

Yeah, I'm pretty sure the Sedins' donation to Children's Hospital didn't come without any tax relief (not trying to take anything away from the generosity of their donation).

Yeah, I brought it up at the time and felt like a bit of a debby downer,

But that donation definitely affected their taxes, to their benefit

[apollo]

"If Kessel got his entire $10 million straight up, he'd be destroyed - he'd lose half his salary,"

I must be the only person laughing at this statement. The context makes it sound like $5 million isn't enough to survive with. If only peasants like me could earn even 1/5 of this on an annual basis.

Reading this honestly made me cringe. Your suggestion is way, way, way too risky.

I know it's risky... But don't you think the team could get at least one round further if it signed the best 3 free agents each year?

1. They would make more money here.

2. We would have abundant cap space

3. Players would be on a cup contender

4. Why not live in Vancouver and play hockey?

Tax payers pay for arenas which turn profit for the city in the long run. My theory would guarantee this as well.

[apollo]

Yeah, I brought it up at the time and felt like a bit of a debby downer,

But that donation definitely affected their taxes, to their benefit

I thought that too immediately. But that being said, what did they donate? Around 1.5 million? I can't recall the number exactly.

But it's not like the government taxes them that same exact amount less. It's not as much of a saving as you would think. At the end of the day, they gave it out of their own pocket. They may have saved 200 to 300 thousand in taxes, but still gave over a million from their own pockets.

[TheXFactor]

I know it's risky... But don't you think the team could get at least one round further if it signed the best 3 free agents each year?

1. They would make more money here.

2. We would have abundant cap space

3. Players would be on a cup contender

4. Why not live in Vancouver and play hockey?

Tax payers pay for arenas which turn profit for the city in the long run. My theory would guarantee this as well.

In theory yes your right. But what if the team went on a long bad streak? How many "fans" would stop supporting a non-playoff team? What are the chances the team would be willing to pay the extra 20% tax?

I understand where your coming from and it totally makes sense. What I doubt are the chances of it actually happening.

[Down by the River]

I thought that too immediately. But that being said, what did they donate? Around 1.5 million? I can't recall the number exactly.

But it's not like the government taxes them that same exact amount less. It's not as much of a saving as you would think. At the end of the day, they gave it out of their own pocket. They may have saved 200 to 300 thousand in taxes, but still gave over a million from their own pockets.

Plus, its better to see that money go directly to the hospital as opposed to their tax dollars getting filtered through the hands of government chumps.

[apollo]

In theory yes your right. But what if the team went on a long bad streak? How many "fans" would stop supporting a non-playoff team? What are the chances the team would be willing to pay the extra 20% tax?

I understand where your coming from and it totally makes sense. What I doubt are the chances of it actually happening.

That's where The risk comes in. But assuming we spend 50 million a year and aquaman plus 20 percent so extra 10 million for him, that means our cap is actually almost 100 Million worth of players when other teams have a 69 million cap.

If you have 50 to 70 million worth of players making half the cap hit then your team would be 100 - 140 million worth of actual players. With that advantage, you shouldn't go on losing streak. It would be an all Star team

[stawns]

Interesting read thanks for sharing! I know this would never happen but imagine how stacked our teams would get.

Bc government should remove the taxes for canucks, lions and whitecaps PLAYERS. (not sure if there is even a cap in soccer... If not then disregard whitecaps)

Instead of taxing the players, tax the team an extra 20%. This way the athletes save 49% and the team loses 20 percent. But that 20 percent would turn around in profit eventually from the success each team would have. This would definitely make both the lions and canucks much stronger since they'll have almost twice the cap space as all other franchises.

The owners wouldn't mind paying at extra 20 percent because if they do actually get twice the cap as other competitors then they'll definitely be Stanley or grey cup contenders almost every year.

And yes I do understand the tax payers lose 29 percent in all of this. But this will eventually generate far more tax dollars generated than the 29 percent of the players salary that the city loses.

Canucks cap is what? 65 million. City would lose 29 percent of the which is 18.85 million but that's a tiny price to pay for increased tax revenue from playoff runs , restaurants being packed, more seats sold... Etc. No brainer.

For example: we could sign the twins for 4 million rather than 7 . Since they would only collect 48 percent of the 7 million in a city like LA . They would make the full 4 with 4 caphit instead of 3.36 in LA when they sing for 7

Can I be mayor please?

why should I pay taxes on my meager salary, while professional athletes pay none on their ridiculously high salaries?

[Hugor Hill]

That's where The risk comes in. But assuming we spend 50 million a year and aquaman plus 20 percent so extra 10 million for him, that means our cap is actually almost 100 Million worth of players when other teams have a 69 million cap.

If you have 50 to 70 million worth of players making half the cap hit then your team would be 100 - 140 million worth of actual players. With that advantage, you shouldn't go on losing streak. It would be an all Star team

Players don't pay as much tax as the article makes it out to be. It doesn't work that way.

Also, pride has a lot to do with it. If Crosby is making $9M Ovechkin would want as much, just because he wants to make as much as someone who he sees as his equal (for argument's sake). If Washington is the only team (again for argument's sake) willing to offer that much, then he'll stay there even if tax is a bit higher.

Would Vrbata come here for $2.5M even if he doesn't have to pay taxes? I doubtt it.

[terrible.dee]

I thought that too immediately. But that being said, what did they donate? Around 1.5 million? I can't recall the number exactly.

But it's not like the government taxes them that same exact amount less. It's not as much of a saving as you would think. At the end of the day, they gave it out of their own pocket. They may have saved 200 to 300 thousand in taxes, but still gave over a million from their own pockets.

I think it was something like that too,

I think it was 1.5 mil each.

I doubt they are stuupid enough to bring on the bad press that would come if it was all tax relief,

I think they probably saved a mil on taxes and then kicked in 500 thou out of their own pockets.

[apollo]

why should I pay taxes on my meager salary, while professional athletes pay none on their ridiculously high salaries?

Read all my posts in the thread. I clearly stated a source that shows what revenue each playoff game generates just for restaurants and bars. It would generate more tax dollars if my theory was implied.

[JeremyCuddles]

I think it was something like that too,

I think it was 1.5 mil each.

I doubt they are stuupid enough to bring on the bad press that would come if it was all tax relief,

I think they probably saved a mil on taxes and then kicked in 500 thou out of their own pockets.

I thought it was 750k each. Might be wrong though.

[Dazzle]

Yeah, I'm pretty sure the Sedins' donation to Children's Hospital didn't come without any tax relief (not trying to take anything away from the generosity of their donation).

Part of the donation incentive IS the tax avoidance. Many people prefer to donate money to a cause or a charity where there's a hope that the money wouldn't get squandered so liberally by the Government. Of course, charities aren't always all that accountable and secondly, some governments are not necessarily wasteful spenders.