Last month, the Canadian Taxpayers Federation (in conjunction with Americans for Tax Reform) released a report called “Major Penalty for High Taxes”, claiming 60 percent of this year’s UFAs and players who waived their no-trade clause chose destinations with lower taxes.
The paper’s author, CTF Research Director Jeff Bowes, acknowledged “other factors at play besides taxes”, but noted that “significant disparities in tax rates can penalize players when they move between teams.”
Grover Norquist, the president of Americans for Tax Reform, touted the study as further proof Americans seek “lower taxes and less government.”
The groups released a similar study in 2014 called “Home Ice Disadvantage”, claiming 57 percent of NHL unrestricted free agents signed with teams in areas with lower taxes. When it released, Norquist claimed high taxes in a state or province could damage a sports team.
The Ottawa Citizen‘s Glen McGregor suggested a tax hike by the incoming Canadian Liberal government on the nation’s highest wage earners could make it harder for Canadian pro sports teams to sign star players. The rate is expected to rise from 29 percent to 33 percent on income over $200,000 Canadian.
McGregor interviewed hockey agent Rand Simon of Newport Sports Management Inc., who claimed issues such as local tax rates matter to some players. Simon represents Montreal Canadiens defenseman Jeff Petry, who joined the Habs last season in a trade with the Edmonton Oilers.
During his client’s contract negotiations in June with the Canadiens, Simon noted the tax difference between playing in Alberta (which has the lowest tax rate in Canada) and Quebec, which has the highest among provinces with professional sports teams.
While some American cities, like New York, have high tax rates, players can claim more deductions, which Simon claims still gives players in those cities an advantage over Ontario and Quebec.
High taxes are undoubtedly a consideration for pending free agents or players about to accept a trade by waiving their no-trade clauses. Under examination, however, some glaring flaws are revealed in the CTF/ATR’s 2015 report.
For example, the report listed Tyler Myers, Marc Savard, Nathan Horton, Dougie Hamilton, Travis Moen and Curtis Glencross among 10 players with no-trade clauses who were dealt in 2014-15. That suggests those players waived their movement clauses to accept trades to teams with lower tax rates.
Myers’ no-trade clause, however, doesn’t go into effect until 2016-17, so he had no say over the trade that shipped him from the Buffalo Sabres to the Winnipeg Jets. Hamilton, who was dealt in June by the Boston Bruins to the Calgary Flames, was coming off an entry-level contract. Under NHL rules, no-trade/no-movement clauses are forbidden for players on such contracts.
Moen, dealt by the Montreal Canadiens to the Dallas Stars last November, had a limited no-trade clause in his contract. However, it expired at the end of the 2013-14 season, giving him no control over where the Canadiens traded him.
The report also lists recently retired Curtis Glencross as being dealt from the Washington Capitals to the Calgary Flames, where he would enjoy a lower tax rate. In fact, Glencross was dealt from the Flames to the Capitals.
Savard’s last NHL game was in 2011, as he’s all but retired due to multiple concussions. Regardless, his no-movement clause expired in 2014. Horton agreed to waive his clause, but he’s been sidelined since last year with a potentially career-ending back injury. In both cases, only their rights were traded, not their tax locations.
Braydon Coburn, Phil Kessel, Nicklas Grossmann and Marek Zidlicky were the remaining four on the report’s list. While they went to destinations with lower tax rates, more significant factors were at play.
Coburn waived his no-trade clause to go from a non-playoff team (Philadelphia Flyers) to the Tampa Bay Lightning, one of the league’s best top clubs and a 2015 Stanley Cup finalist. Zidlicky also left a non-playoff club (New Jersey Devils) in a late-season trade to join a postseason team in the Detroit Red Wings. However, he was with them less than two months, becoming an unrestricted free agent at season’s end. He scarcely had time to enjoy the lower tax benefits of playing in Michigan.
Kessel agreed to leave the long-moribund Toronto Maple Leafs (and a city where he was excoriated by many local fans and pundits) to join the Pittsburgh Penguins, a team carrying two superstars (Sidney Crosby and Evgeni Malkin). In other words, he will not only be skating on a playoff contender with talented teammates, he is also in a city where he won’t draw nearly as much fan and media focus as in hockey-mad Toronto.
Once those factors are taken into consideration, it appears taxes played little or no role in where the majority of those players were dealt.
As for free agency, Florida Panthers winger Jaromir Jagr and Chicago Blackhawks center Artem Anisimov topped their chart of 10 players who saw significant tax savings. While acknowledging Jagr and Anisimov re-signed with their current teams, the report cited the fact they started last season playing for different teams as justification for including the pair in their listing.
Jagr, in fact, re-signed with the Panthers in April 2015, nearly three months before his UFA eligibility. Essentially, he re-signed with the team that held his expiring contract.
As for Anisimov, he wasn’t eligible for unrestricted free agency in 2015. In fact, he’s in the final season of his current contract. Anisimov inked a contract extension with the Blackhawks after they acquired him via trade from Columbus last summer. Thus, he re-signed with the team he was still under contract with.
The others on the list (Francois Beachemin, Matt Beleskey, Andrej Sekera, Johnny Oduya, Drew Stafford, Barret Jackman, Michael Frolik and Justin Williams) certainly saw tax savings with their new teams. However, it should be noted the NHL salary cap only marginally increased from $69 million in 2014-15 to $71.4 million for 2015-16. That obviously had an effect upon the number of teams willing to bid for their services, narrowing their respective lists of potential destinations.
The report also overlooked several other notable free agents who joined teams with high tax rates. Defenseman Paul Martin left the Pittsburgh Penguins (46.7 percent tax rate) to sign a four-year, $19.5-million deal with the San Jose Sharks (53.1 percent). So did right wing Joel Ward (three years, $9.75 million), leaving the Washington Capitals (49 percent). By the way, the tax rates indicated are those listed on page 11 of the report under “Cap Spending Teams Tax Rates.”
Center Brad Richards left the Chicago Blackhawks (44.8 percent) to join the Detroit Red Wings (47.2 percent). Winger Alex Semin, bought out by the Carolina Hurricanes (46.3 percent) signed a one-year deal with the Canadiens (49.5 percent). Christian Ehrhoff left the Penguins for the Los Angeles Kings (53.1 percent). Cody Franson, left unsigned by the Nashville Predators (40.6 percent) signed with the Buffalo Sabres (48.7 percent).
Those players accepted lesser deals, but if taxes are supposedly having such a significant impact upon NHL player movement, surely those players would’ve signed with clubs that enjoyed lower tax rates? Unless, of course, other factors (declining performance, limited salary cap space) ultimately determined their eventual destinations.
In their 2014 report, the group offered this advice to fans of the Montreal Canadiens and Toronto Maple Leafs: “Take a break from blaming your team’s management and consider blaming high taxes for why your team can’t seem to end that rut.” Looking at last season’s standings, however, tax rates played no part in how those clubs finished.
The Canadiens have the highest tax rate of the seven Canadian teams and also ranked among the highest in the league. However, they finished atop the Atlantic Division last season and had the best record of the Canadian clubs. Nearly one month into this season, the Canadiens hold the league’s best record.
While the Maple Leafs have the second-highest tax rate among Canadian teams and are also among the league’s highest, knowledgeable hockey fans and pundits understand that years of mismanagement, not high taxes, is behind the club’s lengthy championship drought.
Among the other clubs with high tax rates, the New York Rangers finished first overall last season, winning the President’s Trophy. The Anaheim Ducks finished atop the Western Conference. Both clubs were also conference finalists.
The Los Angeles Kings missed the 2015 playoffs, but were only a year removed from winning the Stanley Cup. The bulk of that championship roster returned last season. Indeed, despite having a tax rate among the highest tax rates for NHL teams, since 2012 the Kings won two Stanley Cups and advanced to the Western Conference Final three times.
The Minnesota Wild, Washington Capitals and New York Islanders were among only 12 teams to finish the season with 100 points. All are listed among the clubs with higher tax rates.
As for the teams with the lowest tax rates, the Chicago Blackhawks won their third Stanley Cup in six years last season, defeating the Tampa Bay Lightning. The Nashville Predators and Vancouver Canucks also finished with over 100 points.
The Calgary Flames have the report’s lowest tax rate, but barely squeaked into the playoffs. This season, with a supposedly improved roster, they’re off to their worst start since 1995-96.
The Edmonton Oilers have the second-lowest tax rate, but they’ve missed the playoffs every season since 2007. Last February, a poll of ten player agents conducted by ESPN.com’s Craig Custance revealed Edmonton was the least-favored destination for their clients.
Custance’s poll also revealed the Winnipeg Jets was the second least-favored trade destination, even though they have the 12th-lowest tax rate among NHL teams. Weather and lack of a winning record were among the reasons the Jets placed so high on that list.
Among last season’s playoff teams, seven of them (NY Rangers, Montreal, Anaheim, Washington, NY Islanders, Minnesota and Ottawa) were among the highest-taxed teams. Of those that missed the playoffs, six (Arizona, Carolina, Colorado, Dallas, Edmonton and Florida) were among those with the lowest tax rates.
If we look at the NHL standings as of Oct. 31, 2015, of the teams with the highest tax rates, seven (Montreal, New York Rangers, Minnesota Wild, Washington, New York Islanders, New Jersey Devils and Los Angeles Kings) were holding playoff berths. Meanwhile, of the clubs with the lowest tax rates, six (Calgary, Edmonton, Arizona, Colorado, Tampa Bay, and Carolina) were out of playoff contention.
The point here isn’t to dismiss the role tax rates play in free agency or which cities players with no-trade clauses will accepted being dealt to. However, the suggestion that tax rates are the dominant factor in determining player destination or franchise success doesn’t bear up under scrutiny.