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Palm Trees in Buffalo? The Impact of Taxes on the NHL’s Free Agency Market

  • Writer: Villanova Sports Law Blog
    Villanova Sports Law Blog
  • Mar 18
  • 6 min read

 [1]


Amidst a 5-game losing streak, Buffalo Sabres’ General Manager (“GM”) Kevin Adams sat down to answer questions from the press.[2] When asked about the team’s struggles during the current and recent seasons, Adams lamented, “We don’t have palm trees. We have high taxes.”[3] While the comment drew mockery from frustrated fans who brought inflatable palm trees to the Sabres’ next game, it highlights a genuine expression of frustration that many NHL fans and GM’s have about competitive balance in the NHL.


The impact taxation has on a team’s success is difficult to ignore. Four of the last five Stanley Cup champions have come from states with no income tax. Currently, six NHL teams (Florida Panthers, Tampa Bay Lightning, Dallas Stars, Vegas Golden Knights, Nashville Predators, and Seattle Kraken) operate in tax-free jurisdictions.[4] Meanwhile, seven Canadian teams (Toronto Maple Leafs, Ottawa Senators, Montreal Canadiens, Winnipeg Jets, Edmonton Oilers, Vancouver Canucks, and Calgary Flames) face some of the highest tax burdens in the league, with provincial income tax rates reaching up to 20.5%.[5] When contrasted with California's league-leading U.S. rate of 13.3%,[6] this burden becomes even more apparent. Perhaps it is no coincidence no Canadian team has won the Stanley Cup since the Montreal Canadiens' victory in 1993.[7]


Following the Money: Quantifying the Tax Advantage


The 2024 free agency period provided a stark illustration of this dynamic. Seven of the top eighteen free agents signed with teams in states without income tax, including notable names like Sam Reinhart (Florida Panthers), Steven Stamkos (Nashville Predators), and Jake Guentzel (Tampa Bay Lightning).[8] Only three chose Canadian teams, while just an additional three opted for high-tax states (those with rates exceeding 10%).[9] The remaining five settled in states with moderate tax rates.[10]


Sam Reinhart's new contract with the Florida Panthers is an eight-year, $69 million deal carrying an annual value of $8.625 million.[11] However, the real value of this contract becomes apparent when considering the tax implications. In Florida, he owes $3.15 million collectively between federal and municipal taxes; however, if Reinhart had signed an identical deal in California, he would have to pay an additional $1.1 million in state income taxes annually. That figure jumps to $1.4 million in Toronto, and in New York, it would reach $1.5 million.[12] Throughout the full term of his contract, Reinhart could save up to $12 million playing in Florida rather than a high-tax jurisdiction.[13]


These savings create a significant competitive advantage for teams located in low-tax jurisdictions. As Alan Pogroszewski, a specialist in athlete tax preparation, noted, the New York Rangers or New York Islanders would need to offer a contract exceeding $88 million to match the value of Reinhart's $69 million Florida deal after taxes.[14] This effectively generates an extra $2 million in cap space from Reinhart’s contract alone, which the Panthers can work with annually, providing a clear advantage that teams in high-tax jurisdictions lack.[15] This is evident from the Panthers’ transaction history this past summer, where they signed defenseman Dmitry Kulikov for $1.15 million per year and fourth-line winger A.J. Greer for $850 thousand per year.[16] Without their tax advantage, there may not have been money available after Reinhart’s contract for these key signings, and the Panthers would be left filling out their roster with less skilled players.


Creative Solutions


Some teams have attempted to find creative solutions to this disparity. When John Tavares was weighing offers from six different teams in 2018 - including the tax-free Dallas Stars and Tampa Bay Lightning - the potential tax implications were substantial factors in his decision.[17] At the time, the New York Islanders were offering Tavares $11 million annually for seven years.[18] With these figures, Tavares would have netted $9.55 million more after taxes by choosing Dallas or Tampa Bay over Toronto.[19] However, Tavares ultimately signed with the Maple Leafs, who structured his compensation to include a $15.25 million "signing bonus," making up for the lost salary he would’ve been making had he signed with Dallas or Tampa Bay.[20]


This strategy took advantage of a Canada-U.S. tax treaty that applies a preferential 15% tax rate to signing bonuses and other inducements for athletes and performers.[21] However, this approach is now under challenge. The Canada Revenue Agency is disputing Tavares' tax treatment, arguing that the "signing bonus" was a salary and should be taxed at the standard federal rate of 33%.[22] If successful, this challenge could eliminate one of the few tools available to Canadian teams trying to compete with their tax-advantaged rivals.[23]


Leveling the Ice: The Future of the NHL’s Competitive Balance


This situation has led some to propose more systemic solutions, such as restructuring the NHL's salary cap system to account for the tax disparities.[24] Under this proposal, the league would establish a baseline salary cap and then adjust each team's cap based on local tax rates, ensuring equal purchasing power across the league.[25] While intriguing, such a system has not yet gained serious traction with the higher-ups in the NHL nor the National Hockey League Players Association (“NHLPA”).[26] So, for now, it remains confined to chat rooms and Reddit threads.[27]


The impact of taxation on the NHL's competitive balance raises complex questions about fairness and parity in professional sports. While teams in high-tax jurisdictions can still succeed through superior drafting, development, and management, they face an undeniable disadvantage in the free agent market. As the gap between Stanley Cup champions widens - with tax-advantaged teams increasingly dominating - the league may need to consider structural solutions to maintain competitive balance.[28]


The situation in Buffalo exemplifies these challenges. While Adams' comments about palm trees and taxes drew derision, they reflect a legitimate concern about competitive disadvantages beyond weather and lifestyle.[29] As the NHL evolves, finding ways to address these tax-driven disparities may become crucial to maintaining the league's competitive integrity and ensuring that all teams, regardless of location, have a fair shot at building a championship roster.



EASTON WARNER (guest writer) is a 1L at Villanova University Charles Widger School of Law. Easton is a Buffalo, New York native and loyal Buffalo sports fan whose passion for sports started at a young age playing hockey. Following law school, Easton plans to pursue a career in Litigation.



References:

[2] Matthew Fairburn, Sabres fans bring inflatable palm trees, chant 'Fire Kevyn!' as Buffalo loses sixth straight (Dec. 7, 2024) The Athletic. https://www.nytimes.com/athletic/5976919/2024/12/07/sabres-utah-kevyn-adams-palm-trees/.

[3] Id.

[4] Stephen Whyno, NHL free agency shows teams in states with no income tax have an advantage (Jul. 2, 2024) Associated Press. https://apnews.com/article/nhl-taxes-free-agency-a4a3280db7a7f4147301ccebfc3f41a7.

[6] Andrey Yushkov, State Individual Income Tax Rates and Brackets, 2024 (Feb. 20, 2024) Tax Foundation. https://taxfoundation.org/data/all/state/state-income-tax-rates-2024/.

[7] Austin Nivison, Last time a Canadian team won the Stanley Cup: Oilers still fighting to end a 31-year drought down 3-0 (June 14, 2024) CBS Sports. https://www.cbssports.com/nhl/news/last-time-a-canadian-team-won-the-stanley-cup-oilers-still-fighting-to-end-a-31-year-drought-down-3-0/#:~:text=The%20last%20time%20a%20Canadian,Angeles%20Kings%20in%20five%20games.

[8] Lyle Richardson, Re-Grading the Biggest Free-Agency Signings From the 2024 NHL Offseason (December 17, 2024) Bleacher Report. https://bleacherreport.com/articles/10147469-re-grading-the-biggest-free-agency-signings-from-the-2024-nhl-offseason.

[9] Id.

[10] Id.

[11] Stephen Whyno, NHL free agency shows teams in states with no income tax have an advantage (Jul. 2, 2024) Associated Press. https://apnews.com/article/nhl-taxes-free-agency-a4a3280db7a7f4147301ccebfc3f41a7.

[12] Id.

[13] Id.

[14]   Mark Evans, NHL Taxes: Do State Income Taxes Affect Sports Team Movement? (2024) Scripted. https://www.scripted.com/writing-samples/nhl-taxes-do-state-income-taxes-affe-c96e797b-0bb0-4721-a4c2-121b415e8929.

[15] Id.

[16] PuckPedia, Transactions (2024) PuckPedia. https://puckpedia.com/team/florida-panthers/transactions.

[17] Michael McCann and Robert Raiola, Where Will John Tavares Go and How Much Money Will He Take Home? (Jun. 27, 2018) Sports Illustrated. https://www.si.com/nhl/2018/06/27/john-tavares-islanders-free-agency-taxes-salary-contract.

[18] Glen McGregor, Canada Revenue Agency disputes Leafs captain John Tavares' argument in tax case (May 28, 2024) Sportsnet. https://www.sportsnet.ca/nhl/article/canada-revenue-agency-disputes-leafs-captain-john-tavares-argument-in-tax-case/.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Sean Gentille, Sean McIndoe, and Shayna Goldman, Tax-adjusted salary cap? Coaches serving penalties? NHL Rules Court returns (December 19, 2024) The Athletic. https://www.nytimes.com/athletic/6003889/2024/12/19/nhl-rules-court/.

[25] Id.

[26] Id.

[27] r/hockey, Can/would the NHL adjust the salary cap to account for income taxes? (2022) reddit. https://www.reddit.com/r/hockey/comments/w640h4/canwould_the_nhl_adjust_the_salary_cap_to_account/?rdt=39615.

[28] Stephen Whyno, NHL free agency shows teams in states with no income tax have an advantage (Jul. 2, 2024) Associated Press. https://apnews.com/article/nhl-taxes-free-agency-a4a3280db7a7f4147301ccebfc3f41a7.

[29] Matthew Fairburn, Sabres fans bring inflatable palm trees, chant 'Fire Kevyn!' as Buffalo loses sixth straight (Dec. 7, 2024) The Athletic. https://www.nytimes.com/athletic/5976919/2024/12/07/sabres-utah-kevyn-adams-palm-trees/.

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