One of the most overemphasized salary-cap advantages from NHL pundits is that of no-state income taxes.
Sure, the Tampa Bay Lightning and Florida Panthers have proven capable of luring players to Florida, which does not have a state income tax.
In theory, Florida, along with Texas, Washington, Nevada and Tennessee should be more adept at attracting talented players — in the hard-salary-cap, escrow-account era of the NHL — than high-tax states like Illinois, California and New York.
Yet, the Edmonton Oilers also exploited a huge, yet unheralded financial advantage in their negotiations with Connor McDavid, which kept him in the Alberta capital, and self-proclaimed City of Champions, for two extra years at a extremely reasonable $12.5 million annual-average value, which will run through 2028.
The advantage is players get paid in U.S. dollars while spending in CDN to live north of the border.
Canadian Teams Can Offer Players Something American Teams Cannot
The narrative surrounding contracts in the hockey circles is free agents won’t sign in Canadian cities due to the high taxes.
It’s true taxes in Canada are greater than those in many U.S. states. But the difference isn’t as great as the exchange rate between the US Dollar and Canadian Dollar, which as of Tuesday afternoon, was about $1.40 to $1.
Without getting too deep in the weeds, that means players in Canada make 30 percent extra than those playing in the United States, since NHL contracts are paid out in US dollars.
If you include cost-of-living factors, like real-estate prices, players in Edmonton take home 50 percent more money than those in U.S. cities like Los Angeles or even Miami.
There isn’t a state-income tax in the U.S. that would account for a 30 percent advantage. State income taxes in the U.S. are roughly 6-12 percent — with the high-end range coming in places like California.
But even Montreal, which taxes double-digit percentages both at the federal level and provincial levels and have a high cost of living, would offer NHL players a huge advantage over the likes of LA, New York and Chicago, due to the built-in 30 percent advantage.
Canadian teams, for some reason, have not been able to crack the narrative that taxes are too high. But McDavid’s deal may start the trend.
Connor McDavid’s Contract Could Open The Door For Canadian Teams To Bargain With Stars
The Toronto Maple Leafs struggled to keep their homegrown talent, since Auston Matthews, Mitch Marner and William Nylander each took market-value long-term contracts when they were eligible to.
Plus, Marner couldn’t wait to go to the Vegas Golden Knights and cash in on his $12 million AAV contract this off-season — albeit in a sign-and-trade.
Yet, many of the questions about why McDavid signed for his relatively low-end deal only referenced his desire to win in Edmonton.
They failed to acknowledge that, even though McDavid surely left money on the table — Kirill Kaprizov’s $17 million AAV deal signed with the Minnesota Wild just last week should have been the starting point for negotiations — his $12.5 million actually calculates to $17.5 million CDN given the exchange rate.
With the cap slated to keep rising in the post-COVID world, stars will keep commanding more money. Canadian clubs may feel the squeeze, since they rake in revenues in CDN and pay out salaries in USD — it has happened before.
But that could also entice teams north of the border to try negotiating with the exchange rate in mind when trying to attract elite players or keep their homegrown ones.
Connor McDavid Contract Shows Advantage Canadian Teams Could Be Exploiting