By Victor Zeidenfeld
The National Hockey League (NHL) is highly-touted for its fast-paced action and engaging gameplay. The NHL’s annual playoffs showcase the best 16 of the league’s 32 teams competing for the coveted Stanley Cup. However, do the NHL’s rules leave some teams better off from the beginning of the season? The NHL has a rigid salary cap, where the sum of each player’s average annual salary, for the entire roster, cannot exceed $75 million, and teams must comply with this binding ceiling. Different teams endure varying income taxes that make some markets more advantageous.
For instance, the Vegas Golden Knights acquired Jack Eichel during the previous season. He previously played for the Sabres in Buffalo, NY, where he would earn less after taxes. Eichel has an average annual salary of $10 million. In Nevada, there is no state income tax, and Eichel is solely responsible for the federal income tax. Eichel would therefore bring home a salary of around $6.3 million in Las Vegas, NV, but would earn only $5.5 million after taxes in Buffalo due to New York’s income tax. Eichel is reaping the benefits of this trade by now earning an additional $800,000. It is reasonable to believe this type of post-tax income calculation is considered by free agents. Unrestricted free agents (UFAs) can negotiate with all 32 teams, which make markets such as Vegas more enticing.
To correct this shortcoming, the NHL needs to consider a flexible salary cap. Places with higher income taxes will have more cap space while teams located in Nevada and Florida, among others, will have no extra cap space to negotiate due to their lack of a state income tax. A change of this magnitude would allow all 32 teams to have a more equitable chance of signing a player.
A counterargument to this change would be that teams with more cap space will have to pay more money to sign a player, and the owner’s willingness to pay may hinder their ability to sign players. However, the NHL has a revenue-sharing process. As explained by Ken Campbell of the Hockey News:
“Teams receive revenue sharing if they qualify for it under the terms of the collective bargaining agreement. One NHL executive said that, generally speaking, the way NHL revenue sharing works is that the teams that finish in the top 10 in revenues share some of those revenues with the teams that finish from 11 through 31. This isn’t always the case, but it appears to be a general rule.”
The NHL could adjust the revenue sharing process so places with higher income taxes will receive more from high-grossing teams, or if they are a high-grossing team, they need not contribute as much. A couple of financial adjustments to the business side of hockey could make the game more equitable, with most teams competitive every year as opposed to lengthy playoff droughts from teams disadvantaged due to tax differences between states.
Another solution is to scrap the salary cap altogether. In professional sports leagues such as Major League Baseball (MLB), there is a luxury tax instead of a salary cap. A team will forfeit a draft pick when they go over the luxury tax threshold. Many teams refrain from going over the threshold to keep their futures safe. Additionally, when a free agent who receives a qualifying offer signs with a new team, the old team receives compensation in the form of additional draft picks. A qualifying offer is a way for the current team to ensure compensation if the player decides to part ways. This allows small market teams to bolster their future roster when they cannot compete financially with larger markets. Given the wide disparity in MLB payrolls, a flexible salary cap can pan out better. Teams in large markets always have a leg up on smaller-market teams and have the power to outbid small market teams in free agency. This is because the luxury tax is significantly higher than the payroll of small-market teams, in turn meaning that teams in large markets often reap the benefits without even exceeding the tax, so a salary cap may be a more viable solution to level the playing field. There is no clear solution, yet there are many approaches for the NHL to remedy the shortcomings of the rigid salary cap, and it will be exciting when changes eventually surface.