The Florida Panthers’ second-straight Stanley Cup win is a revealing case study of how Canada’s high personal income tax rates systematically disadvantage our teams in the NHL’s salary-cap era.
When the NHL implemented its hard salary cap in 2005, the intention was to create parity by preventing wealthier teams from effectively buying championships. Gone were the days of the Detroit Red Wings or New York Rangers using their disproportionate resources to accumulate a roster of all-star players. The salary cap’s inherent scarcity closed the gap between big and small market teams and placed a greater value on player development and roster management.
An underestimated effect, though, has been to accentuate the gap between pre-tax salaries and post-tax take-home pay across jurisdictions. Let me explain.
One way to think about the NHL in a world of a salary cap is that each team has a finite amount to spend on players. The aim is to extract as much surplus value from each player as possible. You need as many players as you can to outperform their contracts and few or none to underperform them. The best teams naturally have more players outperforming their contracts than poor teams.
There are hockey analysts who estimate players’ values relative to their salaries. You can then sum them up and assess whether a team is extracting surplus value relative to their contracts or actually running an overall deficit. The aggregate sum is known as “contract efficiency.”
The Florida Panthers have consistently been among the most efficient teams in the league. They have several players outperforming their contracts, including Sam Bennett who won the playoff MVP and Sam Reinhart who scored four goals in the cup-winning game.
There could be different explanations for why the Panthers have the highest contract efficiency. Maybe their management team is really effective at contract negotiations. Maybe the players are prepared to accept less money to play for the Panthers because they have a close-knit team. Or because they’re a regular Stanley Cup contender. Or maybe it’s because the weather in Florida is better than cities like Edmonton.
One factor though is that Florida doesn’t have a state income tax. Players’ take-home pay therefore is higher than those who play in high-tax jurisdictions and earn the same or even more. This is a huge advantage for the Panthers because their players are able to effectively leave money on the table in contract negotiations and still match their peers in after-tax earnings.
Take Florida Panthers star Matthew Tkachuk as an example. His $9.5 million salary (which is estimated to be among the highest-surplus contracts in the league) nets him roughly $6 million after taxes in income-tax-free Florida. To match that take-home pay in Toronto, a Maple Leafs forward would need to get paid closer to $11 or 12 million.
The difference—as much as $2.5 million in annual cap space—is significant. It’s the equivalent of adding a solid bottom-six forward or a top-six defenceman. This math plays out across an entire roster and gives a team like the Panthers a huge advantage. It’s not a coincidence for instance, that it dressed eight top-six forwards or had six players with 20 or more points in the playoffs.
It’s also not a coincidence that Florida, Tampa Bay, and Las Vegas— all located in low- or no-tax states—have won five of the past six Stanley Cups. Their favourable tax environments have enabled them to maximize their contract efficiency under the salary cap. It’s a bit ironic that what was designed as an equalizing mechanism has instead amplified these tax inequities.
That’s not a call for the NHL to adopt its own equalization formula. Professional sports leagues shouldn’t be in the business of neutralizing jurisdictional advantages. If Canada’s high tax rates make it less attractive to players, that’s ultimately Canada’s problem, not the NHL’s.
But it does speak to a broader challenge that the country faces when competing for talent. Not only are our top marginal tax rates much higher than in the United States, but they’re imposed at much lower income thresholds. The net result is that Canadians’ after-tax income is generally lower—and that’s even before accounting for the relative earnings premium in the U.S.
We shouldn’t underestimate the incentive effects for high-skilled workers choosing where to live and work just as we shouldn’t underestimate their role in helping the Florida Panthers win another Stanley Cup.
Generative AI assisted in the production of this article.
Sean Speer is The Hub's Editor-at-Large. He is also a university lecturer at the University of Toronto and Carleton University, as well…
