Impact of Tax Rate on Team Success Since the Lockout

[treple13]

There's been a lot of talk this offseason about tax. Certain teams have an unfair advantage due to having lower taxes than other who have high taxes. Tampa Bay tends to be the main team people are complaining about, although others like Dallas, Nashville get lumped in as well.

So I wanted to really explore this idea. Do teams with low tax rates have more success? And do teams with high tax rates have less? The hypothesis people seem to be making is that teams with low tax have an unfair advantage so they must be winning more.

So what I did was take the six lowest and six highest tax teams since the 2005 lockout and analyzed them. (The salary cap is what makes the tax complaint, since teams can “spend different amounts”).

The one difficult thing in looking into this is that tax rates change. What the tax rates are now are not what they were 5 years ago and not what they were 10 years ago. My assumption is that it's better to get the tax rates from a few years back if I want to measure this than current ones (since you'd have had at least some time to see future results). My source for the number came from this taxpayer article from 2014. This analysis obviously won’t tell you everything since the rate in years prior and since have changed, but it should give us some idea.

(In case you are wondering why there are six, it is because there's a huge gap between the six lowest and the next seventh)

The low tax group is Tampa, Florida, Nashville, Dallas, Calgary and Edmonton.

The high tax group is LA, Anaheim, San Jose, New York Rangers, Minnesota and Montreal.

And what did I find?

Well one group averaged 96 points per season, had 58 playoff appearances, 52 series wins, 17 division titles, 5 Finals appearances and 4 Stanley Cups.

The other group averaged 89 points per season, had 32 playoff appearances, 24 series wins, 7 division titles, 3 Finals appearances and 0 Stanley Cups.

The odd thing here is that the high tax teams (the first group) have performed SIGNIFICANTLY better than the low tax teams over the last 12 seasons. And NONE of the low tax teams won a Stanley Cup during that time.

So what’s going on here? I certainly wouldn’t say that it’s advantageous to a team to play in a high-tax area, but it’s pretty clear that tax advantage isn’t much of an indicator of what a team’s success will be. Something else is a better explanation for team success.

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[Legionnaire]

Hard to tell yet but interesting post.

 

[solidmotion]

i mean, tax rates should only matter in terms of attracting free agents, right? in a salary-cap league where marquee players hardly ever make it to free agency it would be very surprising if tax rates correlated with success. i guess one could study the effects of tax rates on attracting free agents but i would be very surprised even at that if it had much of an effect. so many other, more important things at play.

 

[treple13]

i mean, tax rates should only matter in terms of attracting free agents, right? in a salary-cap league where marquee players hardly ever make it to free agency it would be very surprising if tax rates correlated with success. i guess one could study the effects of tax rates on attracting free agents but i would be very surprised even at that if it had much of an effect. so many other, more important things at play.

I think that's generally the point that should be made here. It's possible that over time if free agency became an important part of building a contender, that we'd see lower tax teams having an unfair advantage, but it doesn't appear to be that way today.

 

[Hivemind]

Reminder that players pay road team taxes 41 games out of the year:
Jock tax - Wikipedia

 

[DJJones]

You're comparing Calgary and Edmonton on the tail end of their cycle to California during a decade of dominance.

Tax rates aren't even in the top 20 reasons why those things happened.

 

[DudeWhereIsMakar]

I feel like there should be a rule on teams with low taxes, such as Florida, Tampa, Nashville, Vegas, and Dallas. If Houston got a team, they'd be up there too.

How do I say this, like those teams can give low money and they'll likely sign there over an NHL team located where the taxes are high. Like the cap be flexed in terms of the taxes in each city so players can all be paid fairly as per their respective teams.

 

[SnuggaRUDE]

Maybe compare those teams' tax bills? Where they all spending to the cap every year?

 

[idspispopd]

Your conclusion and analysis backs up that taxes are a total non-factor. But then nobody has provided any data that taxes are a factor, so it does not make sense that this conversation has gotten this far.

Some people are absolutely obsessed with taxes, and try to position everything as related to taxes. In the same way people get obsessed about other things and try to view the whole world through that lens. But reality rarely lines up to personal biases.

This is why I have learned to ignore anyone pushing a viewpoint unless they have good data sourced (multiple independent sources, double blind, testing methodology published for review) to prove that their viewpoint is worth paying attention to. There is too much happening to spend time entertaining positions that people have not bothered to the research for and present properly. It is not my job to find the data to support their viewpoint, and common sense is not a real thing or substitute for data.

 

[Hockey4Lyfe]

I feel like there should be a rule on teams with low taxes, such as Florida, Tampa, Nashville, Vegas, and Dallas. If Houston got a team, they'd be up there too.

How do I say this, like those teams can give low money and they'll likely sign there over an NHL team located where the taxes are high. Like the cap be flexed in terms of the taxes in each city so players can all be paid fairly as per their respective teams.

When is the last time any of these teams have won anything though?

Just because they are catching a small break in taxes doesn’t make them the best teams.

 

[Avelanche]

I don’t think it matters. When I worked in a different state that I lived in I still paid taxes to it. Players technically get paid by the game right, which is why they lose money for suspensions. So they probably have an accountant doing the income taxes for every state they play in.

 

[stampedingviking]

There's been a lot of talk this offseason about tax. Certain teams have an unfair advantage due to having lower taxes than other who have high taxes. Tampa Bay tends to be the main team people are complaining about, although others like Dallas, Nashville get lumped in as well.

So I wanted to really explore this idea. Do teams with low tax rates have more success? And do teams with high tax rates have less? The hypothesis people seem to be making is that teams with low tax have an unfair advantage so they must be winning more.

So what I did was take the six lowest and six highest tax teams since the 2005 lockout and analyzed them. (The salary cap is what makes the tax complaint, since teams can “spend different amounts”).

The one difficult thing in looking into this is that tax rates change. What the tax rates are now are not what they were 5 years ago and not what they were 10 years ago. My assumption is that it's better to get the tax rates from a few years back if I want to measure this than current ones (since you'd have had at least some time to see future results). My source for the number came from this taxpayer article from 2014. This analysis obviously won’t tell you everything since the rate in years prior and since have changed, but it should give us some idea.

(In case you are wondering why there are six, it is because there's a huge gap between the six lowest and the next seventh)

The low tax group is Tampa, Florida, Nashville, Dallas, Calgary and Edmonton.

The high tax group is LA, Anaheim, San Jose, New York Rangers, Minnesota and Montreal.

And what did I find?

Well one group averaged 96 points per season, had 58 playoff appearances, 52 series wins, 17 division titles, 5 Finals appearances and 4 Stanley Cups.

The other group averaged 89 points per season, had 32 playoff appearances, 24 series wins, 7 division titles, 3 Finals appearances and 0 Stanley Cups.

The odd thing here is that the high tax teams (the first group) have performed SIGNIFICANTLY better than the low tax teams over the last 12 seasons. And NONE of the low tax teams won a Stanley Cup during that time.

So what’s going on here? I certainly wouldn’t say that it’s advantageous to a team to play in a high-tax area, but it’s pretty clear that tax advantage isn’t much of an indicator of what a team’s success will be. Something else is a better explanation for team success.

Good management?

 

[Frank Drebin]

Up to 2014 Edmonton had the lowest income tax rate in the entire league, capped at 39%. Means nothing.

 

[tsujimoto74]

And, again, I'll say the historic impact of state and local taxes (SALT) on teams is grossly overestimated. Until tax years that haven't happened yet, state income taxes were 100% deductible on federal returns. Players who paid more to their states also paid less to the fed fisc. 2018 forward gets interesting because of the $10,000 limit on SALT deductions, but that law's only existed since last February, and we haven't seen it in action, or how the states that will impact most will respond to it.

 

[IceNeophyte]

Reminder that players pay road team taxes 41 games out of the year:
Jock tax - Wikipedia

Not exactly 41. Play in non-taxes states isn't taxed, but your point is generally valid.

 

[TOGuy14]

i mean, tax rates should only matter in terms of attracting free agents, right? in a salary-cap league where marquee players hardly ever make it to free agency it would be very surprising if tax rates correlated with success. i guess one could study the effects of tax rates on attracting free agents but i would be very surprised even at that if it had much of an effect. so many other, more important things at play.

Tampa and Nashville have signed their players for FAR below market rates recently.

Whether that is because of the franchise or the tax rate is unknown but it has seemed to work for them so far

 

[LeHab]

Here is a study on pro sports and taxation impact:

State income tax rates differ across locations, potentially giving low-tax professional sports teams a competitive advantage. I investigate the effect of income tax rates on professional team performance between 1977 and 2016 using data from professional baseball, basketball, football, and hockey in the United States. Regressing income tax rates on winning percentage, I find little evidence of income tax effects prior to the mid 1990s, but since then a ten percent increase in income taxes is associated with a four percent decline in winning percentage. The income tax rate effect varies by league, with the largest effect in professional basketball, where a no income tax state team wins on average 6.5 to 8 more games each year than a team in a ten percent income tax state. Placebo tests using college team performance find no evidence of an income tax effect

https://www.ssc.wisc.edu/~hembre/wp-content/uploads/2017/09/TaxesTeamPerformance.pdf

Interesting to use college sport as placebo. There are other similar studies if you google around.

 

[treple13]

Here is a study on pro sports and taxation impact:



https://www.ssc.wisc.edu/~hembre/wp-content/uploads/2017/09/TaxesTeamPerformance.pdf

Interesting to use college sport as placebo. There are other similar studies if you google around.

Interesting read, although the presentation of the numbers given shows a pretty clear bias on the part of the author (I'll admit my analysis isn't unbiased as well). MLB shows the opposite of what the author intends, so isn't highlighted. NHL is claimed to become more affected since the mid 90's, but the graph is showing what my analysis shows, that it is becoming less of a factor.

I can see why it matters a lot more in the NBA and especially the NFL, but there's nothing here that really shows any proveable evidence applicable to the NHL.

 

[Legionnaire11]

There are way too many other factora at play to be able to link income tax to team success or lack of success.

The only way to get an accurate measure of tax impact would be through a player poll asking free agents if income tax was a factor in where they signed and for how much they signed for, and then hoping they answer honestly.

Then you would still have to prove that those contracts provided some kind of advantage to the on-ice product.

 

[GodPucker]

Taxes are just a bonus IMO. I don't think a guy in his prime would go to a very bad team to make some extra money overall. Some would.

There are so many factors. These guys are all regular human beings like us. In relationships, single, married, divorced, kids, etc. A lot to think about. Family men would probably sacrifice going to a better climate or worse team for taxes if their family liked the destination, etc.

Its's one of many factors. Seriously, in the end, if these guys are smart with their money and/or have good financial advisors, etc, they can more than make up any losses from tax.

Depending on where they live and the economy, if a guy invests his money properly, his NHl salary should be his play money in the end.

 

[SI90]

Wouldn’t the islanders be in the same tax group with the Rangers?

 

[Mickey Marner]

The average person on HF has never owed the govt on a tax return and has little to no financial knowledge. These guys are millionaires with financial advisors and agents. They know how to skirt paying taxes. This whole tax fetish is just ignoramuses making a mountain out of a molehill.

 

[Bounces R Way]

Something else is a better explanation for team success.

Usually how good the team is, which can be said to be a result of how well it's run. These guys are going to get taxed a whole lot of money no matter where they play. If a UFA's decision really comes down to where he's going to be taxed the least, he either hasn't really gotten his priorities straight, or the two options are incredibly similar. Yes there is an inherent advantage to being in the lower taxed locations, but that's no different than Phoenix having a nicer climate than Ottawa, New York being a bigger market than Raleigh, or being more likely to be murdered in St Louis rather than Vancouver. The salary cap works to present at least an ideal of equity, but like most ideals involving equality and fairness, it's always going to be an imperfect concept.

 

[wintersej]

If taxes were all that mattered, the American South would dominate the financial, technology and sports sectors. Turns out, tax rates are a relatively minor concern.

 

[Jyrki Lumme]

Maybe higher taxes translate to higher quality of living, therefore more ideal places to live and work