Marc Methot saving 1.4 million dollars.

[Hockey Outsider]

I explained this in another post. What you'd need to calculate wouldn't be an exact post-tax income. You'd just need to use a simple consistent formula that gets you a good estimate.

You don't have to constantly update it and you don't want to. Just come up with a cap number when the contract is signed and that number stays with the player even if they are traded and their actual income changes. The point is to avoid systematic biases where some teams have $10m+ pay advantages over others, not to come up with something that exactly replicates actual post-tax income down to the penny.

Point by point

- yes you're calculating the cap hit for each player and then adding it up. That's how the current system works too, it's not that complicated. I could estimate your tax hit in thirty seconds if I know your income and what each of the tax brackets are.

- I'm not aware of any systemic bias where some teams are favored more than others because of players living in one jurisdiction while playing in another. This is a current issue, so would be no worse in a post-tax salary cap, and I'm not sure there is a need to change it.

- One way to handle this is to count bonuses as having the same implied tax as regular salary. That would just be implied for the purposes of counting the post-tax salary cap. It wouldn't be based on the actual tax bill and wouldn't have to be.

- You can just factor in an average amount of deductions for an athlete in that location and bracket and use that. Who makes these decisions? The formula is bargained and it goes in the CBA, like everything else. You know how complicated the CBA is? This isn't more complicated.

- Road taxes mostly average out across players, no need to even bother with small differences like that.

My point is - an after-tax cap hit, by definition, is based upon the various factors that go into determining a player's income taxes. If the league is going to calculate a number, they would presumably want to calculate an accurate number - otherwise why bother?

Here's an example that shows the difficulty. Look at the Leafs. Matthews and Marner had very similar remuneration in 2020 ($16.0 for Marner, $15.9M for Matthews). But Matthews' after-tax earnings are substantially higher than Marner's - even though they play on the same team.

Let's look at the signing bonus specifically. On the assumption that Matthews is a US resident, and Marner is a Canadian resident, Matthews would pay about $6.3M on his $15.2M signing bonus, while Marner would pay about $8.2M on his $15.3M signing bonus (before we start looking at deductions, jock taxes, etc). Remember, I'm not comparing a Leaf player to a Coyotes player. Both of them play on the same team, and despite their remuneration being almost identical, one of them gets to keep an extra $1.9M.

That highlights the folly in trying to calculate an after-tax salary cap - it requires far more work than looking at the tax rate in effect in a specific state or province. There are a ton of individual factors that go into the determination of what a player's after-tax earnings are. Two teammates with the same salary can have vastly different after-tax income. The notion that there's a "one size fits all" tax rate endemic to each team is simply wrong.

One of the obvious implications of creating an after-tax salary is it would incentivize Canadian teams to hire American players (because, in general, they'd have lower personal tax rates than Canadian players - though this is somewhat of a simplification). Given that the NHLPA is 40-45% Canadian (ballpark - someone can look up the exact number if they want), do you really think the players would vote for a change that would disadvantage almost half of the members?

All that being said - I see your point. You're saying that a partial adjustment is better than none. I can agree with that in theory - but in reality, it would come down to which adjustments are included, and which are excluded. Sure, that could get negotiated in the next collective agreement, but it's not hard to see that different parties would have different incentives, and these would have the unintended consequence of favouring certain types of players over others - which is the last thing you'd want in a collective agreement.

As I mentioned, I do this type of work for a living. Equalizing after-tax earnings between different jurisdictions is far more complicated than most people understand. The NHL could certainly enrich an army of lawyers and accountants to deal with this - but my guess is they understand the cost and complexity, and accept that (just like endorsement opportunities or climate), there just isn't a practical way to equalize this.

 

[HabsQC]

They could at least have the salary cap apply to post-tax income, not pre-tax. That would help even the playing field. The low-tax teams would still have a big advantage but not quite as egregious.

Just as an example, I don't know how much but something like $25m-$40m of Montreal's cap is lost to taxes.

Totally agree with this.

 

[DistantThunderRep]

My point is - an after-tax cap hit, by definition, is based upon the various factors that go into determining a player's income taxes. If the league is going to calculate a number, they would presumably want to calculate an accurate number - otherwise why bother?

Here's an example that shows the difficulty. Look at the Leafs. Matthews and Marner had very similar remuneration in 2020 ($16.0 for Marner, $15.9M for Matthews). But Matthews' after-tax earnings are substantially higher than Marner's - even though they play on the same team.

Let's look at the signing bonus specifically. On the assumption that Matthews is a US resident, and Marner is a Canadian resident, Matthews would pay about $6.3M on his $15.2M signing bonus, while Marner would pay about $8.2M on his $15.3M signing bonus (before we start looking at deductions, jock taxes, etc). Remember, I'm not comparing a Leaf player to a Coyotes player. Both of them play on the same team, and despite their remuneration being almost identical, one of them gets to keep an extra $1.9M.

That highlights the folly in trying to calculate an after-tax salary cap - it requires far more work than looking at the tax rate in effect in a specific state or province. There are a ton of individual factors that go into the determination of what a player's after-tax earnings are. Two teammates with the same salary can have vastly different after-tax income. The notion that there's a "one size fits all" tax rate endemic to each team is simply wrong.

One of the obvious implications of creating an after-tax salary is it would incentivize Canadian teams to hire American players (because, in general, they'd have lower personal tax rates than Canadian players - though this is somewhat of a simplification). Given that the NHLPA is 40-45% Canadian (ballpark - someone can look up the exact number if they want), do you really think the players would vote for a change that would disadvantage almost half of the members?

All that being said - I see your point. You're saying that a partial adjustment is better than none. I can agree with that in theory - but in reality, it would come down to which adjustments are included, and which are excluded. Sure, that could get negotiated in the next collective agreement, but it's not hard to see that different parties would have different incentives, and these would have the unintended consequence of favouring certain types of players over others - which is the last thing you'd want in a collective agreement.

As I mentioned, I do this type of work for a living. Equalizing after-tax earnings between different jurisdictions is far more complicated than most people understand. The NHL could certainly enrich an army of lawyers and accountants to deal with this - but my guess is they understand the cost and complexity, and accept that (just like endorsement opportunities or climate), there just isn't a practical way to equalize this.

Would you also say that RCA's for players who play in Canada can cover the general gap? I mention specifically Canada, because let's be real here, the only ones who care are Canadian teams.

 

[zar]

I don't wanna be that guy or anything but this is pretty crazy how much extra money he saved and is a big reason why certain hockey teams have a huge advantage over others.

Appreciate Methot sharing this.

He says over 2 years in Dallas he saved 1.4
Million.

Everyone knows this. It has been referenced by multiple players GMs agents and accountants.

Fans here pretend it’s not true..... but it is. Wait for someone to say he’s wrong

I love it that people on thia site think they know more about how much a player paid in taxes and what he would have paid than that player and his accountant. Just stupid.

100%.

I bring this point up often in my posts and some of the fans of teams getting advantaged get all butt hurt.

It's an unfair advantage... call it the Gary tax break. All the teams getting this advantage are the "Bettman Legacy" Teams and in areas that are not "traditional" hockey markets and it allows them to be more competitive if they choose to spend top the cap. It's not coincidence that the last 2 teams added in expansion are no state income tax states.

The other owners are along for the ride, playing the long game for their franchise values.

If you ever wonder why a Canadian team hasn't won a Cup since 1993.... this is a major contributing factor... then there's the weather... the fishbowl effect... then you have small market (lesser lifestyle friendly comparatively) Canadian cities like Calgary, Edmonton,
Winnipeg and Ottawa... it's take a miracle if one of those teams ever win a Cup again. Not saying many of those teams have been grossly mismanaged but some of that mismanagement is the extra pressures of being a Canadian NHL team and "rushing" to be a successful team.

 

[majormajor]

My point is - an after-tax cap hit, by definition, is based upon the various factors that go into determining a player's income taxes. If the league is going to calculate a number, they would presumably want to calculate an accurate number - otherwise why bother?

Here's an example that shows the difficulty. Look at the Leafs. Matthews and Marner had very similar remuneration in 2020 ($16.0 for Marner, $15.9M for Matthews). But Matthews' after-tax earnings are substantially higher than Marner's - even though they play on the same team.

Let's look at the signing bonus specifically. On the assumption that Matthews is a US resident, and Marner is a Canadian resident, Matthews would pay about $6.3M on his $15.2M signing bonus, while Marner would pay about $8.2M on his $15.3M signing bonus (before we start looking at deductions, jock taxes, etc). Remember, I'm not comparing a Leaf player to a Coyotes player. Both of them play on the same team, and despite their remuneration being almost identical, one of them gets to keep an extra $1.9M.

That highlights the folly in trying to calculate an after-tax salary cap - it requires far more work than looking at the tax rate in effect in a specific state or province. There are a ton of individual factors that go into the determination of what a player's after-tax earnings are. Two teammates with the same salary can have vastly different after-tax income. The notion that there's a "one size fits all" tax rate endemic to each team is simply wrong.

One of the obvious implications of creating an after-tax salary is it would incentivize Canadian teams to hire American players (because, in general, they'd have lower personal tax rates than Canadian players - though this is somewhat of a simplification). Given that the NHLPA is 40-45% Canadian (ballpark - someone can look up the exact number if they want), do you really think the players would vote for a change that would disadvantage almost half of the members?

All that being said - I see your point. You're saying that a partial adjustment is better than none. I can agree with that in theory - but in reality, it would come down to which adjustments are included, and which are excluded. Sure, that could get negotiated in the next collective agreement, but it's not hard to see that different parties would have different incentives, and these would have the unintended consequence of favouring certain types of players over others - which is the last thing you'd want in a collective agreement.

As I mentioned, I do this type of work for a living. Equalizing after-tax earnings between different jurisdictions is far more complicated than most people understand. The NHL could certainly enrich an army of lawyers and accountants to deal with this - but my guess is they understand the cost and complexity, and accept that (just like endorsement opportunities or climate), there just isn't a practical way to equalize this.

I think I've been arguing uphill on this by calling it "after-tax income". In my proposal the formula used to calculate each player's cap hit would be based on an average after-tax income for a player in that same location and income bracket. That cap hit is then attached to the player for the length of the contract and it doesn't matter whether they move locations or change their deductions, the cap hit stays the same. I'm not interested in finding the exact after-tax income, as you correctly point out it is constantly changing and very complicated. It's not the right standard to judge my proposal by, because it's not actually "after-tax income", it is a derivative of an estimate. People would just call it "Cap Hit".

I just want a roughly even playing field for teams. It can have a few bumps in it, I just don't want one end of the field to be much higher than the other, as is the problem with the current system.

- In the Matthews and Marner case I would have their cap hits be the same regardless of the location where they take their bonuses (assuming equal pay by the team). That part does involve the same possibility for unfairness as exists in the current system, it's just not a big enough problem to re-write the rules around.

- Good catch on the incentives of hiring players who take their bonuses in low-tax places. I imagine teams would just be less likely to do bonus-laden contracts with Canadian players? I'm not sure how big of an issue that would be. There's actually been speculation from time to time of the league wanting to change the CBA so that bonus-laden contracts are a thing of the past. They've been cap circumvention all along.

 

[DistantThunderRep]

100%.

I bring this point up often in my posts and some of the fans of teams getting advantaged get all butt hurt.

It's an unfair advantage... call it the Gary tax break. All the teams getting this advantage are the "Bettman Legacy" Teams and in areas that are not "traditional" hockey markets and it allows them to be more competitive if they choose to spend top the cap. It's not coincidence that the last 2 teams added in expansion are no state income tax states.

The other owners are along for the ride, playing the long game for their franchise values.

If you ever wonder why a Canadian team hasn't won a Cup since 1993.... this is a major contributing factor... then there's the weather... the fishbowl effect... then you have small market (lesser lifestyle friendly comparatively) Canadian cities like Calgary, Edmonton,
Winnipeg and Ottawa... it's take a miracle if one of those teams ever win a Cup again. Not saying many of those teams have been grossly mismanaged but some of that mismanagement is the extra pressures of being a Canadian NHL team and "rushing" to be a successful team.

LOL yes, huge factor since there was no cap until 2005-2006...It's like when more teams entered the league, and competitiveness wasn't spread between 6 teams, it became harder to win the Stanley Cup.

Here are a list of teams who won the Stanley Cup who are from no income tax states.

1999 (No Salary Cap): Dallas
2004 (No Salary Cap) : Tampa
2020 (Salary Cap) : Tampa

It's almost like Good Management, Good Development, Good Coaching, and not just mismashing teams together can win Stanley Cups? Who knew?

 

[Skinnyjimmy08]

While we are at it, can Canada please jump on board with with cheaper groceries and gas too?? Milk and cheese is a real bitch to buy here and I'm always envious in the States when filling up my car how cheap it is

 

[DistantThunderRep]

While we are at it, can Canada please jump on board with with cheaper groceries and gas too?? Milk and cheese is a real bitch to buy here and I'm always envious in the States when filling up my car how cheap it is

Try living in Vancouver. The only thing that's cheap out here is misery.

 

[kcunac]

Hockey isn't the only business where US tax rates, especially certain (mostly southern state tax rates), make the US more competitive than Canada and thereby draw greater jobs, investment, and resources than Canada. However, the US has much worse inequality than Canada, with many associated issues that make life in much of the US very poor - unless you are rich. Fortunately, the NHL isn't reality; it has exemptions from competition and anti-trust rules that allow it to make its own rules to determine a competitive neutrality among teams - for example, there could be a 'claw-back' or re-distribution mechanism to ensure the marginal effective tax rate is the same for all players, no matter where they play (this would require most teams to hire an additional accountant or two).

TLDR: Higher taxes mean a better life for the majority and for hockey the tax issues should be dealt with in the CBA.

 

[Skinnyjimmy08]

Try living in Vancouver. The only thing that's cheap out here is misery.

Yes I am in that vicinity hahah.. my friend from the States always comes up and says he has no idea how we can afford to live in BC... then looks at the real estate online and almost pukes lol

 

[DistantThunderRep]

Yes I am in that vicinity hahah.. my friend from the States always comes up and says he has no idea how we can afford to live in BC... then looks at the real estate online and almost pukes lol

3 years ago, I finally was able to afford to buy my first place with my wife. 2 Bedroom 2 bath townhouse. Not even big, 1200 sq ft. Building is from 1990 but renovated. 3 years ago, I paid $525,000 to live 35 minutes outside of the Vancouver core. When I went to get approved for the loan, we had to do our approval at 3% over the current mortgage rates as a "stress test" just to prove that if interest rates increase, we could still afford our home. 3 years later, my place is now worth $680,000. Not bad profit for 3 years, but what the f*** am I going to buy? I wouldn't be able to afford a house or a duplex. A slightly bigger and newer place is going to cost me close to $1M and that's moving further out than I already am. f*** Vancouver. Wife doesn't want leave the family behind.

 

[majormajor]

3 years ago, I finally was able to afford to buy my first place with my wife. 2 Bedroom 2 bath townhouse. Not even big, 1200 sq ft. Building is from 1990 but renovated. 3 years ago, I paid $525,000 to live 35 minutes outside of the Vancouver core. When I went to get approved for the loan, we had to do our approval at 3% over the current mortgage rates as a "stress test" just to prove that if interest rates increase, we could still afford our home. 3 years later, my place is now worth $680,000. Not bad profit for 3 years, but what the f*** am I going to buy? I wouldn't be able to afford a house or a duplex. A slightly bigger and newer place is going to cost me close to $1M and that's moving further out than I already am. f*** Vancouver. Wife doesn't want leave the family behind.

Step 1:

Rake in about 500k in capital gains on your current place.

Step 2:

Put that towards a mansion in Blaine or Point Roberts. It's only a slightly longer commute if you avoid the Peace Arch. That or just buy a giant place in beautiful Bellingham if you can work remotely. You can still do weekends with the family in Vancouver.

 

[Voight]

Burkie went through this last fall

Brian Burke breaks down the tax benefits to American NHL teams - Sportsnet.ca

 

[Garthinater]

Corporate taxes? We need loopholes closed, shelters eliminated, off shore money taxed.

For sure, you shouldn't be able to hide your money.

But if you tax someone too much, they will either move to another country or hide their money.

 

[DistantThunderRep]

Burkie went through this last fall

Brian Burke breaks down the tax benefits to American NHL teams - Sportsnet.ca

There is some truth to it but there is so much a player can do to limit their taxes. Allan Walsh mentions some of it here:


You can end up with a pretty low tax rate if you actually plan this stuff, something im 100% sure a player like Matthews has done. He will end up taking out a lot of that money when he retires in Arizona where there is a low tax rate and he will save tons. This isnt as black and white as some people think it is.

 

[Pens x]

I wouldn't want rich people's taxes reduced, I like having a more equal society. In any case why would I base my societal preferences around what works for the NHL? The league adjusts to reality not the other way around.

You’d want your taxes reduced if you were rich. It’s always easy to complain the other way around.

 

[New User Name]

The NBA banned Toronto from using RCA's for players because they deemed it too big of an advantage for the Raptors.

Oh my the irony. LOL

Some people here just don't understand RCA's. Sure, they're great if you want to retire in low tax areas. If you want to stay home, tough luck.

There is no doubt taxes play a significant role in attracting free agents. There's other reasons but taxes are up there.

 

[66871]

I'm curious, how much evidence is there that this actually drives decisions in ways that significantly impact team success.

At the top of the pay scale I imagine the considerations extend well beyond the tax implications. There's the ability to get endorsement deals, living where you want to live, setting yourself up to win a cup etc. There's also just the ego factor. If you are a top tier player you are probably comparing yourself to other top tier players based on salary, not what's left over after you fill out your Schedule B or whatever.

Then you have RFAs who are generally either going to accept a tender or end up in arbitration. If the arbiter isn't considering taxation, then the teams making the tender won't either.

Then you have guys who are barely in the league, 4th liners and some 3rd liners who truly have to worry if they are going to have a team from year to year. I doubt they are turning their nose up at deals because they can avoid taxes after they get a hypothetical offer from the Panthers.

So basically, all that is left is the middle tier UFAs. But they may like where they are playing or may also have the ego thing where what really matters is the size of the contract.

I get that the taxation effect is real -- but what is the evidence that it drives FA behavior?

 

[Finlandia WOAT]

Imagine if Texas had passed a law entitled "The Marc Methot Tax". They could have used that sweet 1.4 mil to winterize their natural gas pipelines.

 

[Hockey Outsider]

Would you also say that RCA's for players who play in Canada can cover the general gap? I mention specifically Canada, because let's be real here, the only ones who care are Canadian teams.

In certain situations, yes an RCA can make up for Canadian provinces having higher taxes than most US states. But (like most things relating to tax planning), it's very much dependent on the facts of a given situation.

(The RCA is a good example about how complex this can get. If a player should setup an RCA, but doesn't, it would reduce a team's after-tax salary cap. So the team's general manager is being penalized because the player received bad financial advice. On the other hand, if an RCA is used, how do you quantify the benefit? The RCA is conceptually similar to an RRSP - it's not a permanent deduction, only a deferral. You'd need to make assumptions about when the money is withdrawn from the RCA, what income tax rates will be at that time, and then you'd need to calculate the present value. Like I said, this would keep an army of lawyers and accountants busy year-round).

 

[mouser]

Oh my the irony. LOL

Some people here just don't understand RCA's. Sure, they're great if you want to retire in low tax areas. If you want to stay home, tough luck.

There is no doubt taxes play a significant role in attracting free agents. There's other reasons but taxes are up there.

Even if a player "stays home" the RCA still offers a tax deferred option to spread some portion of career earnings over the retirement years to ultimately end up with a lower effective total tax rate.

 

[DistantThunderRep]

In certain situations, yes an RCA can make up for Canadian provinces having higher taxes than most US states. But (like most things relating to tax planning), it's very much dependent on the facts of a given situation.

(The RCA is a good example about how complex this can get. If a player should setup an RCA, but doesn't, it would reduce a team's after-tax salary cap. So the team's general manager is being penalized because the player received bad financial advice. On the other hand, if an RCA is used, how do you quantify the benefit? The RCA is conceptually similar to an RRSP - it's not a permanent deduction, only a deferral. You'd need to make assumptions about when the money is withdrawn from the RCA, what income tax rates will be at that time, and then you'd need to calculate the present value. Like I said, this would keep an army of lawyers and accountants busy year-round).

This is great, thank you. I have a friend who works for the CRA and he was saying to me that if a player who plays in Canada doesn't set up an RCA, they have terrible people managing their money. A lot of the technical stuff about the RCA is way over my head.

 

[DistantThunderRep]

Even if a player "stays home" the RCA still offers a tax deferred option to spread some portion of career earnings over the retirement years to ultimately end up with a lower effective total tax rate.

It's hard for people to accept that their are alternative routes that Canada has a distinct advantage over the States. The fact that the RCA is not dependant on residency or citizenship is huge. The only real factor to the RCA is if you want your money now or later. Kind of like winning the lottery, you can take a lump sum which will be less or take the payments which will net you more in the long run. I might be completely wrong about this though.

 

[Dr Pepper]

45 games over two seasons.....what a mistake it was, bringing him in.

 

[OppositeLocK]

My point is - an after-tax cap hit, by definition, is based upon the various factors that go into determining a player's income taxes. If the league is going to calculate a number, they would presumably want to calculate an accurate number - otherwise why bother?

Here's an example that shows the difficulty. Look at the Leafs. Matthews and Marner had very similar remuneration in 2020 ($16.0 for Marner, $15.9M for Matthews). But Matthews' after-tax earnings are substantially higher than Marner's - even though they play on the same team.

Let's look at the signing bonus specifically. On the assumption that Matthews is a US resident, and Marner is a Canadian resident, Matthews would pay about $6.3M on his $15.2M signing bonus, while Marner would pay about $8.2M on his $15.3M signing bonus (before we start looking at deductions, jock taxes, etc). Remember, I'm not comparing a Leaf player to a Coyotes player. Both of them play on the same team, and despite their remuneration being almost identical, one of them gets to keep an extra $1.9M.

That highlights the folly in trying to calculate an after-tax salary cap - it requires far more work than looking at the tax rate in effect in a specific state or province. There are a ton of individual factors that go into the determination of what a player's after-tax earnings are. Two teammates with the same salary can have vastly different after-tax income. The notion that there's a "one size fits all" tax rate endemic to each team is simply wrong.

One of the obvious implications of creating an after-tax salary is it would incentivize Canadian teams to hire American players (because, in general, they'd have lower personal tax rates than Canadian players - though this is somewhat of a simplification). Given that the NHLPA is 40-45% Canadian (ballpark - someone can look up the exact number if they want), do you really think the players would vote for a change that would disadvantage almost half of the members?

All that being said - I see your point. You're saying that a partial adjustment is better than none. I can agree with that in theory - but in reality, it would come down to which adjustments are included, and which are excluded. Sure, that could get negotiated in the next collective agreement, but it's not hard to see that different parties would have different incentives, and these would have the unintended consequence of favouring certain types of players over others - which is the last thing you'd want in a collective agreement.

As I mentioned, I do this type of work for a living. Equalizing after-tax earnings between different jurisdictions is far more complicated than most people understand. The NHL could certainly enrich an army of lawyers and accountants to deal with this - but my guess is they understand the cost and complexity, and accept that (just like endorsement opportunities or climate), there just isn't a practical way to equalize this.

Well written and said. But also think of it from a fan understandability POV.

"How come Toronto gets to pay its roster $100M but Tampa can only pay their roster $70M?"

"After-tax income equalization"

"Huh??"

The salary cap and all its intricacies are already hard enough to understand for the average fan.

Plus what happens when/if tax rates change in the middle of the season/playoffs (something teams cannot control) and they find themselves offside the salary cap allowable?

Lastly, even if you did partial adjustments you would have people saying those adjustments now work against them.