The NHL Needs More Than Just A Salary Cap

As a league progresses it’s vital that it displays a willingness to take stock of what it's has learned and to also see where it’s headed. It needs to holistically scrutinize and evaluate every detail of its operations and decide when and if changes are necessary, and this includes much more than just on-field rules and game strategy.

This is very much about the economic realm as well. In many instances, what often happens here is as important as what happens on the field.

A competitive imbalance in a sport's economics can be as lethal to a sport's future as much as anything and when these sorts of problems become obvious, or at least intrusive, league management must be willing to make changes.

We would be at that point right now in the NHL where an economic imbalance has become invaluable for those who prosper from it, but potentially lethal to those who suffer from it. It’s high time the league acknowledges the competitive advantage of a jurisdiction’s income tax rate.

For context, four of the league's last five Stanley Cup winners, and seven of the last 10 finalists, play in U.S. jurisdictions without state income tax. This is a big factor for teams trying to attract free agents when you consider that Florida has a zero income tax rate while the province of Quebec's is 14.5%.

This thorny issue came up recently with the NHL brass, through Deputy Commissioner Bill Daly, commenting that "there are just too many variables to really control all of them" and Daly ended up summarizing the current zeitgeist by saying that the NHL has no intention of "correcting" these disparities even though the league appreciates that they do actually exist.

This is, of course, is the wrong tact for the NHL to take although having an awkward stance on a seemingly obvious issue is nothing new for the league (see: Arizona Coyotes).

Although this isn’t only a Canadian problem (California has a Top Marginal Income tax rate of 13.3%, for example) it is largely a Canadian problem, especially when you consider the extra benefits a team in a state like California can offer to balance the tax burden). When "harsh" winters and a lack of ocean frontage as major downsides to selling your city, you need every advantage you can muster to woo free agents to your city.

Making things worse is the NHL's salary cap which calculates a player’s annual salary hit against a team's salary cap total with no consideration for how the tax rates affect the final number.

For example, if Player A in Dallas and Player B in Vancouver were making identical $5.0 Million USD salaries, Player B would end up paying $817,467 a year more in income tax than Player A (Player A is taxed at the US federal rate (36.16%) but pays no state tax for a total of $1,808,187, while Player B has an effective tax rate of 52.51% and would pay $2,625,655 annually).

This means that to pay two competing players the the exact same salary (factoring in both the tax and the currency exchange), a team dealing with these tax concerns would need to put more cash into that player's salary just to make a comparable offer even though the final cap hit (the AAV) would be identical.

That means paying more money for the very same product. It’s not difficult to see how this gives certain teams a head start in putting together a contract and, despite this being considered an off-ice issue, it’s something that has a direct and massive effect on the look of the team that hits the ice.

While this problem should be obvious to the NHL it apparently isn't. It's simply shrugged off as something beyond their scope although and as just another reality of international economics.

Problem is, it is a major problem and one the NHL could needs to address before it grows beyond their control. This is as important as any rule change they make for the game itself and it's imperative that the dilemma is given its due.

When a team faces increased and unfair financial adversity just in trying to build a roster, something needs to change and while the NHL might not be responsible for the disparate financial realities that exist, it is responsible for finding ways to limit their league-wide effect, thereby doing all it can to create a level a playing field.

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