The Financial Post published an article and accompanying graphic today that shows the difference between the take-home salaries of NHL players in every market, at the 2-million, 4-million and 7-million-dollar base salary levels. The story is all about how teams with tax-friendlier climates have an extra tool in the box when it comes to attracting and retaining good players. That, logically, would seem to translate to a better chance for teams in low-tax cities to win. The logic behind the article is slightly flawed, when you consider that Edmonton and Calgary offer players the best tax deal in Canada and neither one has been much of a Cup threat for some years now. Florida, Tampa, Nashville and Dallas have a total of two championships between them in the last 15 years, and they top the list of low-tax cities. What is interesting, however, is the Canadiens' rank on the list.
While it's nothing new to discover that income taxes in Quebec are steep, seeing it there in black and white is pretty stark. The Canadiens sit dead last in the amount players take home in every salary category. The comparison between the after-tax pay of Canadiens versus that of Panthers or Stars prove the Habs have a very significant hurdle to overcome in stocking their lineup. The chart shows a 4-million-dollar player is left with $2,464,189 after taxes in Florida, while in Montreal, he'd make only $2,086,763. The 400-thousand dollar difference there might not seem like a big deal to those of us who can only imagine making that kind of money, but when you consider a player's limited earning time and the significant health risks he takes by playing the game, then giving up nearly a fifth of his take-home pay is a problem. Even though it probably wouldn't impact his current lifestyle that much, it could seriously affect his future.
The Canadiens contribute quite a bit to league coffers. They, and the other six Canadian teams provide more than 30% of the total of NHL earned revenue. They're why the salary cap rises every year. Yet, while they're paying into the league kitty, they're getting punished at home because they're limited to the same base amount for player salaries as the rest of the league, regardless of the chunk that disappears in taxes. This isn't something a smart owner like Geoff Molson should accept.
Recent luxury tax increases in Ontario mean Ottawa's and Toronto's players will also be paying tax at a rate just slightly better than that in Montreal. These are powerful teams, and it isn't right that they should support weaker teams financially, while accepting the handicap of higher taxes. They have a chance to use their power to level the field for themselves and other teams saddled with high tax rates. Now, while negotiations for a new collective agreement are underway, there should be discussion about increasing the salary cap allowance to compensate for taxes.
Here's the idea: using the cities with the lowest tax rates as a base, teams whose players must pay more in income tax should be allowed to spend above the cap by the amount of the difference. So, if a player in Florida gets to keep 2.4-million of his 4-million cap hit, while a player in Montreal gets only 2-million, the Habs should be allowed to cover the extra tax on the player's behalf without being penalized on the cap.
Right now, if the Canadiens want to court a high-end free agent, they need to overpay him by up to a million dollars or so, just to compete on the tax front. That extra money counts against the cap, which reduces the amount left to spend on other players, who also must be overpaid to stay in Montreal. That, over time, can significantly impact the quality of roster the Habs can ice. Take the case of Mike Cammalleri as an example. When Bob Gainey signed him, he was probably worth about $5.5 million on the free agent market. Gainey had to pay him $6-million to convince him to come to Montreal. If, however, Gainey had been allowed to pay some of Cammalleri's tax in a legal tax bonus that didn't count against the cap, he might have been able to get him for the market value and use the extra half-million for another player.
If the NHL wants to have true parity, the biggest hurdle it must knock down is the difference taxes make in real salary under the current cap. A player should be able to choose a city based on location, competitiveness and philosophy rather than how much of his contract he'll be able to keep in one city versus another.
All that said, Molson and the other owners in high-tax jurisdictions probably won't argue the point during the collective agreement negotiations. There are too many low-tax owners who like being able to use take-home pay as a draw in attracting players, for the minority to win that battle. It's a shame, though. The Canadiens have a lot to offer, but they probably lose more players than they attract because of the money difference. It's hard to argue otherwise when you see that difference laid out in black and white.