When the Tampa Bay Lightning made moves at the NHL draft to clear salary cap space, general manager Julien BriseBois hoped a variety of factors would entice players to sign as free agents.
One, of course, was the organization’s penchant for winning and the talent already on the roster. Another, he pointed out, was the “favorable taxation situation.”
It has become difficult to deny the impact of favorable tax situations around the league in recent years. Four of the past five Stanley Cup champions are based in places with no state income tax, and that benefit continues to draw free agents who know they will take home more money there than elsewhere around North America.
“There is a distinct advantage for those teams that are in states with no tax — always,” said Alan Pogroszewski, who has studied and worked with players on tax matters for more than a decade. “There will always be an advantage.”
It is not necessarily the deciding factor for a player, but it certainly doesn’t hurt. The $69 million contract Sam Reinhart got to re-sign with the reigning champion Florida Panthers is worth more there than it would have been had he signed for the same terms in many other markets.
Averaging out Reinhart’s salary to $8.625 million annually, he owes $3.15 million in taxes in Florida. 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 calculator provided publicly by Cardinal Point Athlete Advisors.
Over the length of the contract that could save him up to $12 million.
“That’s part of the reality,” San Jose Sharks general manager Mike Grier said. “I think it is an advantage for those teams: They can obviously pay guys a little bit less, and guys are happy to go there. So not to their fault or anything, those teams take advantage of the situation as they should.”
And they do. Nashville, Florida, Tampa Bay, Dallas, Vegas and Seattle — the six teams in the 32-team NHL in states with no income tax — combined to spend nearly a quarter of the $1 billion-plus in salaries committed Monday when free agency opened.
Winger Jake Guentzel, who played his first seven-plus seasons with Pittsburgh before being traded to Carolina in March, just signed a seven-year deal worth $63 million with the Lightning. Their winning culture was part of the draw, along with the lack of winter weather, but tax experts will point out that he’s coming out ahead financially, too.
“I guess that’s always a good thing if you can make more money,” Guentzel said. “There’s just the positives about Tampa, and there just seems to be so many of them: living the lifestyle, the atmosphere in the rink is unbelievable and if that’s part of it, too, that’s great. There’s just a lot of things behind the scenes that you’re really excited for.”
Pogroszewski, the founder, president and CEO of AFP Consulting LLC, which specializes in the tax preparation and consulting for pro athletes, said he and his colleagues have debated for years how much of a factor financial matters such as these should play in free agent decisions.
He points out there are things players can do to even the playing field — retirement compensation arrangements in Canada being one of them and establishing residency in a no- or low-tax state is another. Grier said players and agents are all aware of tax differences by state, acknowledging “that definitely figures into everything.”
Veteran defenseman Chris Tanev’s situation featured a different variable. After finishing last season with the Dallas Stars, moving there and becoming a U.S. resident would have triggered Canada’s departure tax on capital gains, while remaining a resident of Ontario would have mitigated the tax advantage of working in Texas.
“That plays a role into it,” said Tanev, who played his first 14 years in Canada with Vancouver and Calgary and is now heading to Toronto after half a season with Dallas. “And family reasons. Just coming to a good team is obviously a big part of that. I didn’t want to leave Dallas and go to a team that wasn’t trying to win, and that was a huge reason why this happened.”
Some good teams do not have big-time tax benefits, 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 league finances, with player salaries paid in U.S currency. Teams north of the border have said they can some $400,000 each time the Canadian dollar drops a penny in value, putting a strain on their ability to compete for or retain high-priced talent.
The vast majority of the league simply has to deal with paying players while considering state or provincial tax implications.
“If you can get New York state to go tax-free, I’m in,” Buffalo’s Kevyn Adams joked, before explaining his philosophy. “You try to focus your attention on building an organization the right way, where people recognize that and say, `That’s the culture, that’s the place that I want to play.’ … If there’s players that flat out just don’t want to be in cold weather or don’t want to be in a state that has higher taxes, then they are probably not for us anyway.”