Eric Staal’s quest for his second Stanley Cup comes at a cost of $68,809 to him.
Introduction
This past Monday’s NHL trade deadline and the days prior to it provided us with multiple players exchanging teams. Whether it was a contender adding the last piece of the puzzle or a prospect being sent back in exchange, all trades and the players involved will face varying tax implications. Every team has a unique tax situation and as such, no player ends up with a complete financial wash.
Some players. though most-likely willing, are paying more tax for a post-season run, while others will find themselves paying a premium for an early vacation. In the worst case scenario, some players have been traded out of Stanley Cup contention and handed a higher tax burden.
Tax Implications of Trades
Each player’s remaining salary for this season was found by multiplying his total salary by the percent of the season remaining (approximately 20%). Any salary owed in following seasons was then added to find a total pre-tax salary.
The Jock Tax Index (JTI) was then used to determine the tax liability a player faces on their remaining salary with their new team. Their additional take home or additional tax burden was then found.
The Impact of Retained Salary
One of the new clauses in the most recent NHL collective bargaining agreement allows teams to retain salary in a trade (commonly noted by media as cap hit). This clause was added to better facilitate trades, as it provides teams with some salary cap flexibility. Many of the trades that took place involved just this.
For example, we will look at Eric Staal who was traded from the Carolina Hurricanes to the New York Rangers. Staal is owed $1,699,749 of his $8,250,000 contract for the balance of the season. In Carolina’s trade with the New York Rangers, Carolina agreed to retain 50% of Eric Staal’s cap hit ($4,125,000), which doubles as them agreeing to pay 50% of Staal’s salary for the remainder of the season.
Therefore, Staal will receive payments from both the Hurricanes and the Rangers for the remainder of the season but all income will be taxed in the same manner as his Ranger teammates for the balance of his time spent with the Rangers.
Winners of the Trade Deadline
Everyone has a different opinion of the winners and losers of every trade no matter when it occurs. Our winners were strictly determined by who is going to have a greater after tax take home income after their trade.
Below is a chart of the financial winners of the trade deadline. Some of these players were moved to playoff contenders while others experienced a fall down the standings.
Losers of the Trade Deadline
The chart below shows which players will lose the greatest amount of income to taxes after their trade. The biggest loser of the past week, Brooks Laich, went from Stanley Cup favorite Washington, to the lottery favorite Toronto and loses $79,109 in the process. However, outside of him, there is a clear cost for the players to move up the standings or looking to “get a fresh start.” Eric Staal, for example, is losing $68,809 to get a chance for his second Stanley Cup.
The Alberta Effect
Using the Jock Tax Index, the Edmonton Oilers and Calgary Flames offer the best tax situation in the NHL and that is on full display in these trades. The Alberta teams have an even better tax situation than teams that play in U.S. states with no income tax.
Teddy Purcell offers a good example of this effect. For the rest of the season he will be making $927,136. Despite being traded from the Edmonton Oilers to the Florida Panthers, the second most favorable Jock Tax Index (JTI) team in the United States (Tampa is number one) and fourth most favorable JTI team overall, he will lose an additional $23,160 to taxes, amounting to 2% of his remaining salary.
Conclusion
Even though players have limited control over their trade destination, many of those moved this past week will be unrestricted free agents this summer, allowing them the opportunity to choose their desired future destination. Therefore, they and their representatives should remember to take income taxes into consideration. Despite only being paid approximately 20% of their remaining salary, many of the deadline “losers” will pay over $10,000 in additional income taxes.