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Americans for Tax Reform (ATR) and the Canadian Taxpayers Federation (CTF) recently published a report, "Major Penalty for High Taxes," that claims taxes drive free agency in the National Hockey League (NHL). I'm a sports fan and tax geek, but the ATR/CTF report is a case study for stories that mistakenly merge the two topics together.
I wrote about the intersection of sports and taxes in January after baseball’s Max Scherzer signed a deal with the Washington Nationals that came with tax advantages. My conclusion: Income taxes are complicated and the way they affect job and living decisions is debatable at best, especially for highly paid athletes.
The problems with the ATR/CTF report starts in its methods. The study did not "include deductions or tax credits for mortgage interest, retirement savings, donations to charities, or anything else" and assumed players lived in the state they played (note: many NHL players live in different countries). It also excluded "jock taxes," which are taxes paid by professional athletes in every city they play—both home and road games (see my Scherzer post for details). The result is an oversimplified tax number.
The study then used its flawed tax data to rank NHL cities by tax and thus explain why free-agent hockey players chose their new team. The conclusion: "54 percent of unrestricted free agents who changed teams picked teams with lower taxes."
Methods aside, 54 percent is awfully close to 50 percent. In other words, roughly half picked teams with lower taxes and half picked teams with higher taxes. And why exclude players who stuck with their current team? Deciding to stay is just as much of a decision as deciding to leave. Not to mention free agency in sports is a two-way street: most players are lucky to get an offer from one or two organizations, not all 30 teams.
So I used ATR/CTF’s rankings (where No. 1 was the lowest-taxed team and No. 30 was the highest-taxed) to examine players with the most control over their finances: the top 25 salaried players in the league. All of these players are on at least their second contract, meaning they had an opportunity to change teams. I got salaries from Spotrac and used "average salary" because long-term contracts often concentrate payouts into a few years for salary cap reasons.
More than half of the players on this list play for—and thus chose to sign with—a team in the bottom half of the ATR/CTF tax rankings. Among the 10 highest-paid players, four—Alex Ovechkin (Washington), P.K. Subban (Montreal), Corey Perry (Anaheim), and Henrik Lundqvist (New York)—play for one the highest-taxed teams.
You might object to my picking those four players. After all, each was drafted by his current team and chose to stay. Each plays for a team enjoying recent success. Each is in (or near in Anaheim's case) a big media market with lots of opportunity to make endorsement money. Some re-signed before becoming a free agent, taking guaranteed money instead of risking injury or poor performance. But that’s the point: Job choices are about a lot more than taxes.
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