Breaking: Should Higher-Taxed NHL Teams Like the Maple Leafs Get an NHL Salary Cap Exception

The Florida Panthers are poised to make their fifth consecutive Stanley Cup Final appearance, raising questions about whether the NHL’s salary cap is effectively leveling the playing field among teams.

The NHL salary cap will remain at $81.5 million for the 2020-21 season, as part of a four-year extension to the NHL/NHLPA Collective Bargaining Agreement[1]. The cap could incrementally increase in future seasons if hockey-related revenues recover from pandemic-related losses.

However, the current salary cap structure may not be sufficient to prevent dominant teams like the Panthers from repeatedly reaching the Stanley Cup Final. Teams with higher tax rates, such as the Toronto Maple Leafs, have argued that they should receive a salary cap exception to account for their higher player costs.

As the NHL and NHLPA continue to negotiate the terms of the CBA, they may need to revisit the salary cap rules to ensure a more equitable distribution of talent and prevent a small number of teams from dominating the league for extended periods.

The Florida Panthers have advanced to the Stanley Cup Final for the second year in a row after defeating the New York Rangers, who had the best record in the NHL during the regular season, in a six-game series. This marks the fifth consecutive season that a Florida-based NHL team has reached the championship round.

The Panthers’ success in recent years raises questions about the effectiveness of the NHL’s salary cap in creating parity and preventing a small number of teams from dominating the league for an extended period. While the salary cap is intended to level the playing field, teams with higher tax rates, such as the Toronto Maple Leafs, have argued that they should receive an exception to account for their higher player costs.

As the NHL and the NHL Players’ Association (NHLPA) continue to negotiate the terms of the Collective Bargaining Agreement (CBA), they may need to revisit the salary cap rules to ensure a more equitable distribution of talent and prevent a small number of teams from consistently reaching the Stanley Cup Final.

For the FIFTH straight year, a Florida team has advanced to the Stanley Cup Final 😳 pic.twitter.com/ZrYJhahnHw

— SportsCenter (@SportsCenter) June 2, 2024

Upon learning that the Florida Panthers are headed to the Stanley Cup Final for the second consecutive year, I couldn’t help but poke fun at the situation by highlighting the financial advantage that Florida-based teams enjoy. Both the Panthers and the Tampa Bay Lightning, the other Florida team in the NHL, are exempt from state income tax, which can significantly impact their ability to attract and retain top talent.

I jokingly suggested that the Prince of Wales Trophy, awarded to the Stanley Cup Final winner, should be renamed the “No-State Conference Championship” to reflect the financial edge that these teams have. This tongue-in-cheek comment underscores the potential imbalance in the league, where teams with lower tax burdens may have an unfair advantage in terms of player salaries and roster construction.

No-state income tax conference champions. https://t.co/o6t7FxpkZt

— David Alter (@dalter) June 2, 2024

The advantage of no-state income taxes is not unique to hockey, but it remains a popular topic for debate given the impressive track records of success among teams in these jurisdictions. Under the current NHL collective bargaining agreement, all teams are subject to a salary cap based on gross pay (pre-tax income) rather than net pay (take-home pay). This means that teams in states with no state income tax, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, have a distinct advantage in terms of player salaries.

These teams, including the Florida Panthers, Tampa Bay Lightning, Vegas Golden Knights, Dallas Stars, and Nashville Predators, have consistently performed well over the last eight seasons. The lack of state income tax allows them to offer higher salaries to players, which can be a significant factor in attracting and retaining top talent. However, it is essential to consider that other factors such as cost of living, property taxes, and quality of life also influence player decisions.

Since 2016, the Stanley Cup Final has featured at least one team that benefits from no state or provincial income tax levies in all cases except one. The exception was in 2019, when the St. Louis Blues defeated the Boston Bruins to win their first-ever Stanley Cup. In all other instances, at least one team in the Cup Final enjoyed this financial advantage.

The teams that benefit from this advantage are:

Florida Panthers(2016, 2018, 2020)
Tampa Bay Lightning(2015, 2016, 2020)
Vegas Golden Knights(2018)
Dallas Stars (2019)
Nashville Predators (2017)

These teams, located in states or provinces with no state or provincial income tax, have a significant financial advantage in terms of player salaries, which can contribute to their success in the league.

Only 1 Stanley Cup Final since 2016 featured two teams that levied a state/provincial income tax.

No State income tax team in BOLD

2024: Florida Panthers
2023: Vegas Golden Knights def Florida Panthers
2022: Colorado Avalanche def Tampa Bay Lightning
2021: Tampa Bay Lighting…

— David Alter (@dalter) June 2, 2024

It is essential to note that the 2024 Western Conference Final is still pending, and if the Dallas Stars defeat the Edmonton Oilers, it would mark the second consecutive Stanley Cup Final featuring teams from jurisdictions with no state income tax.

The financial advantage that teams in these jurisdictions enjoy is undeniable. As salaries increase, this advantage becomes more significant. The salary cap, introduced in 2005, did not initially account for these tax differences. It would be impractical to revisit tax codes within each CBA, so the cap was designed to be a general guideline.

To circumvent this rule, teams have explored other financial strategies. The current Collective Bargaining Agreement (CBA) does not restrict signing bonuses as long as the player’s minimum salary of $775,000 is met. The Toronto Maple Leafs have taken advantage of this by frontloading contracts, and other teams have followed suit to retain players. However, this strategy is no longer as effective due to the Canadian Revenue Agency’s (CRA) scrutiny of these deals, particularly in cases like John Tavares. This increased scrutiny raises questions about the long-term viability of these financial advantages.

Higher-taxed teams, such as those in provinces with high income tax rates, face significant challenges in outbidding teams from jurisdictions with no state income tax. While they can employ other tactics like utilizing long-term injured reserve to maximize their roster, these strategies are limited in their ability to bridge the financial gap.

In essence, the lack of salary cap room is a major obstacle for higher-taxed teams in their pursuit of top talent. They may not have the necessary financial resources to offer competitive contracts, making it difficult to attract and retain the best players. This disparity in financial resources can significantly impact a team’s ability to build a strong roster and compete at the highest level.

The value of a dollar is not the same everywhere. When considering take-home pay, a $3 million salary in Toronto is not equivalent to the same amount in Florida. The difference in state income tax rates significantly impacts the actual amount of money a player takes home.

To better understand this disparity, I recommend using Cardinal Point’s NHL income tax calculator. According to their tool, a $3 million player would take home nearly $500,000 more in Florida compared to playing in Toronto. This substantial difference in take-home pay can be a significant factor in a player’s decision-making process when choosing a team.

The brain drain effect, where the most talented individuals migrate to areas with better pay and tax advantages, is not too different from what can occur in the NHL. Top players may be drawn to teams in jurisdictions with no state income tax due to the significant difference in take-home pay.

Given that the current NHL collective bargaining agreement expires in 2025-26, any changes to address this imbalance are unlikely to happen before then. However, if I were one of the wealthier teams in the highest tax bracket, I would advocate for an exception in the next CBA negotiations. This could take the form of calculating the salary cap based on net pay (although this may be too complicated to implement) or allowing for a luxury tax based on the tax code as an offset.

These measures could help level the playing field and provide higher-taxed teams with a better chance of competing for top talent. While implementing such changes may be challenging, it is essential for the NHL to address the financial disparities created by the current salary cap structure to maintain a competitive and engaging league.