Canadian Cities Prove Best & Worst for NHL Jock Tax

On July 1st when Tom Gilbert left the Florida Panthers to sign with the Montreal Canadiens he went from one of the lowest taxed organization in the NHL to the highest.

This past summer, 138 NHL free agents changed teams.  While each of the player’s salary were registered in gross dollars, teams and players need to be aware of how each NHL team’s unique tax situation affects the actual after tax value of the contract.  Therefore each contract offer should be judged by the net value of the contract, as opposed to the gross amount offered.

This season, a player in the NHL will potentially play and be taxed in up to 26 different jurisdictions within the United States and Canada.  While all athletes incur federal tax liability on their earnings, their exposure to state, provincial and local income tax will be dictated by a team’s home and road schedule and therefore each team with their own distinct tax liability.

The Jock Tax Index (JTI)

The Jock Tax Index (JTI) quantifies and correlates each NHL team’s unique tax situation to determine a player’s comparative after tax value depending on the team and city in which they play.

The JTI provides teams and players the ability to quantify offers made from multiple teams and determine the true value of each proposal.  It ranks each of the 32 NHL teams according to the federal, state, and city income tax liability based on their game schedule.

Using the guidelines outlined in my article “When is a CPA as important as your ERA?,” published in the Spring 2009 issue of Marquette Sports Law Review, the JTI assumes each individual will earn the 2014 league average ($2,400,000), file as “single,” and not miss any games. The only deductions assumed taken on Schedule A of the federal return (“itemized deductions”) are state income taxes paid during the year, and itemized deductions are phased out for large income taxpayers.  It should also be noted that all individuals were considered residents of the state or province in which they played and filed as residents of the United States.

In analyzing the different tax liabilities between teams there are a few observations that can be made:    First, the average net income retained after tax of the NHL is 54.78% which is similar to other major league sports (The NFL retains the highest at 57.6% and Major League Baseball is the lowest at 53.99%).

Second, the NHL’s JTI variation of 11.78% in the NHL’s net income retained when comparing the highest to lowest is 70% greater than either baseball (MLB 6.92%) or football (NFL 7%).

Finally, although it may be perceived that players who play in Canada are taxed higher than those who play in the United States, the interesting fact is that this is only partially correct.  Canada’s two franchises based in Canada’s Alberta province have the lowest tax liability of any team in the NHL.   A member of the Edmonton Oilers can expect to retain the greatest percentage of their income, keeping 61.26%, while one playing in Calgary retains 60.88%.  In contrast, those hockey players playing in the province of Quebec and Ontario are among the highest taxed.  A member of the Montreal Canadiens, based in Quebec, can expect to retain only 49.39% of their income after tax for a JTI of 11.87, while one playing in Toronto or Ottawa will retain 51.98% of their income with a JTI of 8.9

Although the Canadian teams playing in Alberta, Quebec and Ontario represent the extremes, each of the 30 team in the NHL has their own distinct tax consequences that are represented by their own specific JTI rating.  In reviewing the NHL’s JTI the following ten teams have the highest JTI and therefore the player’s playing on these teams have the lowest total value from their income.


Team

JTI

Montreal Canadiens

11.49

Anaheim Mighty Ducks

9.84

San Jose Sharks

9.83

Los Angeles Kings

9.82

Ottawa Senators

8.90

Toronto Maple Leafs

8.90

Minnesota Wild

8.25

New York Rangers

7.74

Washington Capitals

7.73

Buffalo Sabres

7.71

Two good examples of how the JTI can compare the true value of a contract offer is in reviewing two signings from this past off-season.

Tom Gilbert

On July 1st the Montreal Canadiens signed former Florida Panther Defenseman Tom Gilbert to a two year $5.6 million contract, but the question that the JTI answers is at what premium did they need to pay?

The JTI shows that the Canadiens needed to pay a premium of nearly a million dollars above what the Panthers could have offered in order for Gilbert to retain the same after tax value.

Team

Gross Salary

AAV

Difference ($)

Difference (%)

Canadiens

$5,600,000.00

$2,800,000.00

Panthers

$4,698,130.13

$2,349,065.07

$901,869.87

19.20%

Gilbert’s after tax value on his Montreal Canadiens two-year $5.6 contract is $2,787,471.73.  In order for Gilbert to receive the same value from the Panthers, they could have offered him $901,869.87 less and the two deals would have had the same after tax value.

Anton Stralman

Stralman, was another July 1st signing who left the Rangers and signed with the Tampa Bay Lightning.  Unlike the Gilbert signing where the Canadiens needed a premium to sign Gilbert, Tampa Bay’s JTI of 2.128 allowed them to offer a discount in order for them to match the net value of the Rangers.

Team

Gross Salary

AAV

Difference ($)

Difference (%)

New York Rangers

$24,859,713.73

$4,971,942.75

Tampa Bay Lightning

$22,500,000.00

$4,500,000.00

$2,359,713.73

10.49%

In order for the Rangers to match Tampa’s after tax value of $13,304,920 they would have needed to offer Stralman $471,942.75 more each year over the length of his five year deal.

Summary

Stralman and Gilbert are only two of the 138 free agents that changed teams this summer, but they provide excellent examples of how the JTI can be used in evaluating the true value from multiple offers. The JTI provides agents and athletes the ability to take jurisdictions with different tax liability and make a comparative analysis prior to signing.  Should you be interested in learning more about the JTI please don’t hesitate to contact our office and we’ll show you how it can help you in analyzing your next negotiations.

ALAN POGROSZEWSKI is an Assistant Professor of Sports Studies at St. John Fisher College and the President of his own tax consulting business whose clientele include professional athletes performing services on three separate continents. Prior to accepting his position at St. John Fisher College, Mr. Pogroszewski was the Vice President of Business Operations for Sports Consulting Group, a firm that specializes in the representation of professional hockey players. Mr. Pogroszewski received his M.B.A. from Rochester Institute of Technology in 1996 and his M.S. in Taxation from St. John Fisher in 2003.

©2015, Alan Pogroszewski. All Rights Reserved.

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