NHL Entry Draft Consolation Prize

Introduction

This year’s NHL Draft will be held in Chicago at the United Center with Nico Hischier, Nolan Patrick and Gabriel Vilardi vying for the honor to be selected first overall.  Although there may be no way to measure the value in being selected first overall, the consolation prize for not being selected first or even second may be of significant value.

Entry Level Compensation

Under the current Collective Bargaining Agreement, players drafted will be limited by the Entry Level Compensation Limits.  Therefore, the compensation that the top three picks will receive is limited to $925,000 per season.

Although all three may receive the same compensation, the unique tax consequences of the three teams at the top of the draft are unique and cause the actual net value of their compensation to vary.

Tax Liability

While all athletes incur federal tax liability on their earnings, their exposure to state and local taxes will be dictated by a team’s home and road schedule.  Next season, Hischier, Patrick and Vilardi will potentially play in 22 US jurisdictions while also playing in four additional Canadian provinces.  Therefore, by analyzing each team’s home and away schedule a player’s unique tax liability can be determined.

With the New Jersey Devils holding the first selection in the NHL Draft, the net value after tax of a 3-year maximum entry-level contract is $1,481,302 which is $13,635 less than the net of this year’s second selection which will play in Philadelphia and $151,826 less than the third overall selection who will be selected by Dallas.

NHL Draft

Summary

Although the most highly regarded prospect will be selected first overall in tonight’s NHL Draft, the prospect who falls to third overall will receive a consolation prize of $151,826 which may prove to be more valuable.

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