When the Tampa Bay Lightning took action at NHL draft To free up space in the salary cap, general manager Julien BriseBois hoped various factors would entice players to sign as free agents.
One of them, of course, was the organization’s penchant for winning and the talent already on the roster. Another factor, he pointed out, was the “favorable tax situation.”
It has become difficult to deny the impact of favorable tax situations in the league in recent years. Four of the last five Stanley Cup Champions are based in locations with no income tax and which benefit continues to attract free agents who know that they will bring in more money there than elsewhere in North America.
“There’s a clear advantage for teams that are in tax-free states, always,” said Alan Pogroszewski, who has studied and worked with players on tax issues for more than a decade. “There will always be an upside.”
This isn’t necessarily the deciding factor for a player, but it certainly doesn’t hurt. THE $69 million contract Sam Reinhart must re-sign with the Reigning champion Florida Panthers is worth more there than he would have had he signed on the same terms in many other markets.
With an average salary of $8.625 million per year, Reinhart owes $3.15 million in Florida taxes. He would pay $1.1 million more in California, $1.5 million more in New York and $1.4 million more in Toronto, according to a publicly provided calculator by Cardinal Point athlete advisors.
Over the life of the contract, that could save him up to $12 million.
“It’s part of reality,” San Jose Sharks general manager Mike Grier said. “I think it’s an advantage for these teams: They can obviously pay the guys a little less, and the guys are happy to go. So it’s not their fault or anything, these teams are taking advantage of the situation as they should.”
And they do. Nashville, Fla., Tampa Bay, Dallas, Vegas and Seattle — the six teams in the 32-team NHL located in states without income taxes — together spent nearly a quarter of the $1 billion in salaries incurred Monday when free agency opened.
Winger Jake Guentzel, who played more than seven seasons with Pittsburgh before being traded to Carolina in March, just signed a seven-year contract worth $63 million with the Lightning. Their winning crop was part of the draw, as was the lack of winter conditions, but tax experts will point out that he also gets away with it financially.
“I guess it’s always a good thing if you can make more money,” Guentzel said. “There are only positives about Tampa, and there seem to be so many: living the lifestyle, the atmosphere in the rink is amazing and if that’s part of it too, it’s awesome. There’s just a lot of things behind the scenes that really excite you.”
Pogroszewski, founder, president and CEO of AFP Consulting LLC, which specializes in tax preparation and consulting for professional athletes, said he and his colleagues have debated for years what role such financial issues should play in free agent decisions.
Pogroszewski said the Rangers or New York Islanders would have to offer a contract in excess of $88 million to get the same amount as Reinhart’s $69 million contract with the Panthers.
He points out that there are things players can do to level the playing field: retirement arrangements in Canada are one and establishing residency in a low- or no-tax state is another. Grier said players and agents are all aware of state tax differences, acknowledging that “it definitely figures into everything.”
Veteran defenseman Chris Tanev’s situation presented a different variable. After finishing last season with the Dallas Stars, moving there and becoming a U.S. resident would have triggered Canada’s capital gains departure tax, while remaining an Ontario resident would have mitigated the tax benefit of working in Texas.
“It plays a role,” said Tanev, who played his first 14 years in Canada with Vancouver and Calgary and is now headed to Toronto after half a season with Dallas. “And family reasons. Just joining a good team is obviously a big part of it. I didn’t want to leave Dallas and join a team that wasn’t trying to win, and that was one of the main reasons why that happened.”
Some good teams do not benefit from significant tax advantages, such as The Oilers who went to the Cup final and pushed the Panthers to a Game 7. The Canadian dollar also plays a major role in the league’s finances, with player salaries paid in American currency.
The vast majority of the league simply has to take care of paying players while considering state or provincial tax implications.
“If you can get New York state tax free, I’m in,” joked Kevyn Adams of Buffalo, before explaining his philosophy. “You try to focus your attention on building an organization the right way, where people recognize that and say, ‘This is the culture, this is the place I want to play.’ “…If there are players who just don’t want to live in cold weather or don’t want to be in a state with higher taxes, then they probably aren’t for us anyway.”
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AP Hockey Writer John Wawrow contributed to this report.
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