The Stanley Cup Finals continue to march on. Maybe it’s because I’m overly invested in hockey and can’t muster more than a passing glance at the NBA that I take issue with the NHL scheduling around potential conflicts and dragging out the finals into mid to late June. The delay in starting the final round was ridiculous and seemed to create a situation where adapting to nights without hockey and removing any investment in the outcome. And now with lengthy breaks between game and not attempting build off the momentum of what have been exciting games is a huge misstep. For those of us without a dog in the fight, it’s hard to develop a short term rooting interest and for some it means cheering for whichever team can wrap the series up the fastest and for others it might be cheering for whomever will prolong hockey the furthest into summer. I guess both of those alternatives seem better than outright cheering for the Panthers or the Oilers.
It’s in the spirit of the Finals that I’ll start with the stray thought most related to them, and that’s the Panthers and their income tax advantage.
NHL tax havens
The continual presence of Florida based teams in the Stanley Cup Finals hasn’t been lost on the media and fans. And it seems like the favourite dot to connect is the one to Florida having no state income tax and being one of the cushier places to sign and keep a larger chunk of your pay cheque.
The value of the income advantage is at times overstated as the rate will change based on where players are playing on any given night but having a 41-game home base and potentially being in a division that has other income friendly locations does create an advantage. And when you hear about players (even Canadian ones) preferring to play in the United States, the federal income tax rate also factors in as well.
The tax rate is a nice perk. Just like the perk of residing in a warm climate throughout the majority of the winter. Just like a lot of players will prefer the anonymity of living their lives in a city where hockey players are frequently recognized as they go about their daily lives. I won’t begrudge anyone for making those choices for them and their families, and it a big part of what puts teams like the Jets at huge risk when free agency approaches. Though it seems like it is worth noting that the Jets were able to bring back both Connor Hellebucyk and Mark Schiefele when they hit free agency and neither contract looks like a premium was paid to bring them back.
And while much of the narrative has been built around the Panthers in this series and how easy it must be to attract players to their team, the argument that it is more about players wanting to be a part of a winning organization can made at the opposite end of the rink.
Edmonton is very much in the same realm of appeal as Winnipeg when it comes to picking a destination in the NHL. It’s cold. It lacks the exciting amenities that will appeal to millionaires in their 20s, and you’ll be spending more on income than in Florida. Yet somehow the Oilers have attracted players to their team and have been the back to Finals in the past two seasons. Winning culture is the key ingredient and why these teams will continue to be competitive in future years.
If that doesn’t convince you, look at Sergei Bobrovsky’s contract. Bobrovsky was signed as a free agent when the Panthers weren’t quite a playoff team. There was no consideration of state income tax or how nice it is to live in some place sunny near Miami. He cost the Panthers $10M AAV for seven years. There weren’t too many goaltenders getting contracts like that at the time or since. The Panthers were simply in the situation where they needed to pay to improve and they did. They won’t have to do that as much now because providing a chance to win matters more than access to South Beach nightclubs.
I guess what I’m saying is that income tax is an easy excuse to throw out there and ignores a lot of hard work put in by people like Bill Zito, Paul Maurice, Alexsander Barkov and others in building a winner and a winner players want to stay at or flock to.
And to pull this back around to the Leafs, it is easy to see how the free agent contracts might get a bit friendlier once the team can generate some Conference Final excitement or doesn’t trip over its own feet by announce the need to change the DNA or some variation of that every summer. It’s also worth noting that there have been players that have bought into Toronto before. Arguably Jake McCabe and Chris Tanev represent some of that, and veterans like Max Pacioretty and previously Mark Giordano, Joe Thornton, and Jason Spezza represent Toronto’s ability to be a destination.
If there is a silver lining to the income tax talk it might be that the NHL and NHLPA might look for ways of creating compensation parity around the league and soften the hard cap a little. Even then, with the salary cap benefiting from new TV deals, expansion, and legal gambling, it doesn’t seem like it will be too long before there is no need to worry about the cap at all, let alone income tax.
The importance of surplus value
With the draft and free agency around the corner it is roster improvement season. And while I disagree with Brad Treliving’s approach in-season regarding roster improvement, he 100% has the handle on the summer being the right time to set the overall direction and build the meaningful foundation.
No matter what direction and design teams take, unquestionably the difference maker when it comes to success is whether or not teams have a number of players that can outplay their contracts. The Leafs are where they are largely because of the deep discounts on players like Matthew Knies and Joseph Woll, and last season Toronto also received a tremendous amount of surplus value from Anthony Stolarz and will certainly do so again this season even if the bargain days of Woll and Knies are over.
Previous to that, taking a chance on Michael Bunting was a big part of the Leafs success as was the deep discount on Jake McCabe’s salary via the retention from the Blackhawks. If Toronto can position Scott Laughton in a role that works for him next season, he has the potential to be another surplus value player that Toronto can benefit from.
As you look up and down the lineup cards for the two teams in the Finals you don’t have to search for too long to find players exceeding their value on their clubs. The Panthers are unquestionably benefiting from very reasonable contracts across most of their lineup, but right now Sam Bennett and Niko Mikkola are easy examples of difference making savings, not to mention the LTIR benefit the Panthers received by having Matthew Tkachuk on the LTIR until the playoffs and affording them Brad Marchand and Seth Jones as additional value adds, but those don’t fit the team construction narrative of the summer.
Nor would the Evander Kane situation for the Oilers, but with value-add players like Stuart Skinner, Corey Perry, and especially Evan Bouchard, the Oilers would have a harder time being as competitive as they are.
Predictable surplus value is rare outside of entry level contracts. Knies was someone the Leafs could bank on as a deal, the same for the Oilers and Bouchard. Having a goaltender like Stolarz on a deal that he will far exceed is a huge benefit for the Leafs next season but there is a need to find other options.
Easton Cowan getting a lengthy look on the Leafs is one path to surplus value and arguably taking a look at what William Villeneuve or Topi Niemela can bring on a bottom pairing might also be a part of that. On day one of the preseason or even day one of the regular season it might be easy to say that someone like Steven Lorentz or Philippe Myers is exceeding what those young players bring to the table, but half a season in, will there be a benefit and surplus value from taking the chance on the unproven option? Possibly. In Cowan’s case I’d say likely, but regardless all represent an opportunity to upgrade substantially by rolling the dice rather than accepting a replacement level player.
The next best opportunity that is going to present itself in the coming weeks will be with the players that don’t receive qualified offers as restricted free agents. While this could be a situation where the Leafs are sending some opportunities out into the NHL depending on what they decide to do with Nick Robertson or Pontus Holmberg, it’s also very likely that potentially interesting projects like Philip Tomasino could be made available rather than going the arbitration route.
Beyond that, there is a benefit to sitting out if not the early days of free agency, at least the early hours. Acknowledging that if Marner and/or Tavares are on their way out that Brad Treliving isn’t going to entirely build the Leafs lineup out of castoffs and players who agents let the call to go voicemail, surplus value and optimized rosters go out the window the second you enter a bidding war on a player. Brad Treliving has to trust Brandon Pridham as well as the analytics shop that Kyle Dubas has left him and not chase “his guy” to the detriment of the team.
The Leafs and surplus value has been a complicated relationship. There have been plenty of examples of the ability to find it over the years but with half the salary cap committed to four players, the organization has struggled to achieve a lineup that plays above it overall. And given that come playoff time the core four haven’t come close to even meeting their value, this year seems like a great time to embrace the concept of bargain players on a greater scale.