Manitoba's high tax structure is putting a serious crimp in the Winnipeg Jets' plans to bring the Stanley Cup to this hockey-crazed city, according to a new study by the Canadian Taxpayers Federation.
The Ottawa-based watchdog said professional hockey players in Winnipeg pay an effective tax rate of 46 per cent, 13th best in the league, but still a far cry from the relative tax haven in Alberta where players on the Calgary Flames and Edmonton Oilers pay an effective tax rate of 39 per cent.
"If the Winnipeg Jets are competing for a free agent, they'll have to pay a premium to give that player the same amount of take-home pay (as in a lower-taxed jurisdiction)," said Nick Bergamini, research director at the Canadian Taxpayers Federation and author of the report, which was released Monday morning.
"Because the Jets are in such a small market, they need every possible advantage they can get. One of the reasons the Oilers and Flames have been able to survive is their competitive tax system," he said.
NHL players take a financial hit to play in places such as Ontario, Quebec, Manitoba, California, New York and New Jersey, he said.
So, what do all these tax rates mean?
For example, if the Jets signed San Jose Sharks centre Joe Thornton or goaltender Henrik Lundqvist of the New York Rangers for the same amount as their current contracts when they become free agents at the end of the 2013-14 season, (three years for $21 million and six years and $41.25 million, respectively), Thornton's take-home pay would be $11.3 million while Lundqvist would take home $22.2 million. If they signed in Calgary, Thornton would take home $12.9 million and Lundqvist would take home $25.2 million.
California has the highest personal tax rates in the NHL at 56 per cent, meaning Thornton would take home $9.3 million if he resigned with the Sharks or opted for the Los Angeles Kings or Anaheim Ducks. Lundqvist would take home $18.3 million with any of the California teams.
But it isn't always about the money, according to Jeff Kowall, a partner at Winnipeg-based law firm Thompson Dorfman Sweatman LLP and a certified NHL player agent.
"There are other variables in play, such as team competitiveness, the opportunity to play, the city itself, the lifestyle it offers and the familiarity with the coaches and management," he said.
Kowall's clients include Toby Enstrom of the Jets and Alex Steen of the St. Louis Blues.
The Jets are differentiating themselves on other important factors that go into a player's decision, such as the positive reputation of ownership and management throughout the league and a frenzied, sold-out home arena, Kowall said.
The various tax rates are only relevant for players who are unrestricted free agents and have the freedom to change teams (provided there is interest with another team, of course). Players who are on their entry-level contracts or are restricted free agents won't likely worry about taxes until they reach their unrestricted years.
Bergamini said governments have provided funding for arenas or bailed out pro sports teams in the past, but if they really want to give Canada's NHL teams a break, providing competitive income tax levels would be the best start.
"Surely helping to bring the Stanley Cup back to Canada is a reward too good for any politician to pass up," he said.