Impact of Tax Rate on Team Success Since the Lockout

[Critical13]

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.

Sorry but this doesn't address so many factors.

The only way I can see someone really analyzing the tax influence would be to get data on contracts signed, % of cap, perceived market value, etc. Try to figure out if higher tax markets pay more for similar players, nd by what percentage. Then you can see how much of a % disparity the top end capped out teams have due to their location.

Even if you are only looking at home games, I still think that small % in extra take home would make a difference to a player on a 10 million dollar contract.

To me, I am only really interested if taxes affect full cap teams, and we would need several years of data to rule out players who take team friendly deals, etc. I would compare a team like Winnipeg and a team like Tampa, and see if there is any difference. Maybe Vegas, Toronto, San Jose as well since they are also competitive teams near the cap with big contracts to sign.

 

[tucker3434]

Unsurprisingly, high tax cities are pretty awesome places to live. That tends to outweigh taking home a few extra bucks. Most posters here probably live in an area nicer than they absolutely need to, but some people still can’t figure out hockey players are the same way. In the grand scheme, taxes are effectively a non issue. I’m glad hockey is back so we can put it to bed for another 9 months.

 

[Spirit of 67]

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.

I've always thought this was an over rated argument.

 

[LT]

I feel like I should post this every time the tax argument comes up:

"People realize income tax is not the only kind of tax, right? If you adjust the salary cap per team for income tax, why not property tax as well? Or sales tax? Or just generic cost-of-living?

What about the endorsement potential for major cities or more famous franchises? Where’s the adjustment there?

These things are far more complex than being portrayed here. There are plenty of pro’s and con’s to most every franchise. Some franchises may lean toward one direction, but that’s the nature of business when it’s spread across nearly the entirety of two countries.

Adjusting the cap for any team-specific measure opens a giant can of worms that the owners and players will never be able to agree upon. Look at how difficult it is for them to come up with agreements in the current arrangement. And people want to add even more complexity to it just so they percieve the various franchises’ abilities to court free agents as the same?"

 

[COHawk]

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.

This has been argued over and over and over again. What happens when you're right at the cap and then that city/state's taxes go up? What happens if a player's tax-reliant cap hit gets traded to a high tax state, does his cap hit magically go down?

 

[DudeWhereIsMakar]

This has been argued over and over and over again. What happens when you're right at the cap and then that city/state's taxes go up? What happens if a player's tax-reliant cap hit gets traded to a high tax state, does his cap hit magically go down?

It would be a hard thing to fix. But this is the best solution for it.

Well some sort of rule should be made as if that were to happen, then the player WILL get the respective monies promised around the taxes. But the cap will be also flexed as per every team respective city/State/Province/Country's laws and the tax percentage would go up on the players' contracts.

The team will give the player a raise. It will be called 'A Tax Raise.' Or if the taxes were to go down, 'A Tax Deduction.'

It would be a hard way to describe how it would work in a trade. The best solution I have is these proposed ways:

1. The team they signed with has to pay the extra taxes say they were traded from Dallas, Florida, Nashville, Tampa or Vegas to a team like Los Angeles or Toronto. Sort of like retained salary.

2. The new team has to add extra salary up to the amount(s) of taxes they owe.

This was hard to explain but did my best to do so.

 

[treple13]

Sorry but this doesn't address so many factors.

The only way I can see someone really analyzing the tax influence would be to get data on contracts signed, % of cap, perceived market value, etc. Try to figure out if higher tax markets pay more for similar players, nd by what percentage. Then you can see how much of a % disparity the top end capped out teams have due to their location.

Even if you are only looking at home games, I still think that small % in extra take home would make a difference to a player on a 10 million dollar contract.

To me, I am only really interested if taxes affect full cap teams, and we would need several years of data to rule out players who take team friendly deals, etc. I would compare a team like Winnipeg and a team like Tampa, and see if there is any difference. Maybe Vegas, Toronto, San Jose as well since they are also competitive teams near the cap with big contracts to sign.

I don't disagree. Even the 156 seasons analyzed is a relatively small sample size since there's only 12 teams in the sample.

But that's part of the point. Right now with the numbers we have we can either conclude that it does not have an impact, or probably the better conclusion is to say that there's no real evidence to prove anything.

As you said, I think it will be interesting to see if moving forward, this is something that becomes an impact factor

 

[haveandare]

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.

Should matter just as much for re-signing your own players, no?

 

[LT]

It would be a hard thing to fix. But this is the best solution for it.

Well some sort of rule should be made as if that were to happen, then the player WILL get the respective monies promised around the taxes. But the cap will be also flexed as per every team respective city/State/Province/Country's laws and the tax percentage would go up on the players' contracts.

The team will give the player a raise. It will be called 'A Tax Raise.' Or if the taxes were to go down, 'A Tax Deduction.'

It would be a hard way to describe how it would work in a trade. The best solution I have is these proposed ways:

1. The team they signed with has to pay the extra taxes say they were traded from Dallas, Florida, Nashville, Tampa or Vegas to a team like Los Angeles or Toronto. Sort of like retained salary.

2. The new team has to add extra salary up to the amount(s) of taxes they owe.

This was hard to explain but did my best to do so.

Why would any owner agree to this, especially those of "lower tax" teams?

Like I said above, taxes are far more complex than simply "pay this percentage of your total income". You cannot simplify it down to that, either.

Firstly, NHL players only see a fraction of their salary to begin with. I strongly encourage everyone to read this article by Sean Avery which gives a good rundown about where that money goes: The New Avery Rule | By Sean Avery

Taxes are also paid out based on where the game is played, so only half of the games a player plays will be taxed at their home state rate. If they're not residents in that state (which I suspect a lot of journeymen aren't), it gets even more complicated.

Additionally, why is only state income tax being considered? What about the differences in federal taxes (US vs. Canada)? Or property taxes and sales taxes (both of which are often high in low or no state income tax areas)? What about cost of living, which varies wildly across the range of NHL cities?

Can you give me a logical reason to ignore all of this and only consider state income tax?

---

I'd like to see an actual breakdown of what it costs to play for each NHL team in terms of salary percentage. This, however, is a very complex study that could be approached in many ways, hence why it probably hasn't been done yet.

 

[triggrman]

Guys every state has taxes, you guys are just using state income tax. We don't have an income tax but instead higher sales, gas, property, wheel, business and liquor taxes.

The government gets their money.

 

[CupsOverCash]

Ill say this. We always had this "tax advantage" but never won or got guys signed on discounts. Now with proper management we are winning. Surprise we have players that want to be here. Guys want to get paid sure, but they want to win too.

 

[lifelonghockeyfan]

Players are incorporated so aren't paying a great amount in income tax. Unfortunately a lot of charts given just indicate rates of personal tax which is kinda meaningless in the discussion.
Not an expert on US taxes. In Canada "residence' means more than where you earned the money. Interesting that we never hear about Raptors and or Blue Jays paying higher personal taxes in Canada......because they don't. But it seems to a big topic with the tax experts on HFBoards.

 

[Buff15Sabres]

I've said this before, but the people that say state tax rate matters to UFA's are the same people that think they need to turn down a promotion that bumps them into a higher tax bracket.

In other words, they are idiots that don't understand how taxes work.

 

[Lazlo Hollyfeld]

Why would any owner agree to this, especially those of "lower tax" teams?

Like I said above, taxes are far more complex than simply "pay this percentage of your total income". You cannot simplify it down to that, either.

Firstly, NHL players only see a fraction of their salary to begin with. I strongly encourage everyone to read this article by Sean Avery which gives a good rundown about where that money goes: The New Avery Rule | By Sean Avery

Taxes are also paid out based on where the game is played, so only half of the games a player plays will be taxed at their home state rate. If they're not residents in that state (which I suspect a lot of journeymen aren't), it gets even more complicated.

Additionally, why is only state income tax being considered? What about the differences in federal taxes (US vs. Canada)? Or property taxes and sales taxes (both of which are often high in low or no state income tax areas)? What about cost of living, which varies wildly across the range of NHL cities?

Can you give me a logical reason to ignore all of this and only consider state income tax?

---

I'd like to see an actual breakdown of what it costs to play for each NHL team in terms of salary percentage. This, however, is a very complex study that could be approached in many ways, hence why it probably hasn't been done yet.

I wholeheartedly agree, except maybe for Avery's breakdown of where the money goes. It sounds like he's not even sure how it all breaks down or is maybe making it sound as bad as possible. I also wonder why he has a manager and an agent who combined take 25% of his paycheck. I'm guessing the manager is for stuff outside of his NHL contracts (endorsements, ads, etc.) so wouldn't be taking a commission on his NHL paycheck. Also I'm pretty sure those commissions are taken off your gross income. Meaning it reduces your taxable income. Especially if they're getting paid as a loan-out corporation, which I'd bet most guys are.

But not unlike some people in this thread Avery makes it sound like "you get $100. Then taxes takes almost 50% of it so now you have $50. And your agents and manager take 25% so now you have $25." That's not how it works.

He's right about per diem though (except maybe the part about it being tax free? not sure). But if a young player didn't touch his per diem and invested it in a simple index fund throughout his career he'd end up with a decent chunk of money. Though Avery neglects the power of compounding interest over a 10-year career. Even with a return of 8% the amount in 10 years would be over $180,000.

 

[aufheben]

Sorry but this doesn't address so many factors.

The only way I can see someone really analyzing the tax influence would be to get data on contracts signed, % of cap, perceived market value, etc. Try to figure out if higher tax markets pay more for similar players, nd by what percentage. Then you can see how much of a % disparity the top end capped out teams have due to their location.

Even if you are only looking at home games, I still think that small % in extra take home would make a difference to a player on a 10 million dollar contract.

To me, I am only really interested if taxes affect full cap teams, and we would need several years of data to rule out players who take team friendly deals, etc. I would compare a team like Winnipeg and a team like Tampa, and see if there is any difference. Maybe Vegas, Toronto, San Jose as well since they are also competitive teams near the cap with big contracts to sign.

This, like...exactly.

A for effort but just winning% doesn't really tell me anything. For instance New York City is an expensive place to live, but that doesn't stop players from wanted to sign [specifically] with the Rangers.

Also Lundqvist. The Rangers have won a lot of gams since 2005, and Henrik stole half of them; conservatively, lol. I mean even if they had trouble signing free agents, they'd still be winning some games.

 

[Kale Hulls]

Can you make this thread into a spreadsheet?

 

[mouser]

Players are incorporated so aren't paying a great amount in income tax. Unfortunately a lot of charts given just indicate rates of personal tax which is kinda meaningless in the discussion.
Not an expert on US taxes. In Canada "residence' means more than where you earned the money. Interesting that we never hear about Raptors and or Blue Jays paying higher personal taxes in Canada......because they don't. But it seems to a big topic with the tax experts on HFBoards.

Link if it's not too much to ask?