Could this work to bypass the cap?

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WC Handy*

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habfan4 said:
Local tax rates aren't a factor at all.

You couldn't be more wrong. Tax rates have always been and always will be a factor in signings in every sport.
 

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WC Handy said:
You couldn't be more wrong. Tax rates have always been and always will be a factor in signings in every sport.

I note you ignored my point about accountants and tax lawyers. When you pull in the kind of money that professional athletes make, you don't pay taxes at the rates mere mortals such as ourselves do.

I do concede that I was perhaps hasty in proclaiming that they weren't a factor at all.
 

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Coffey77 said:
I see. The CBA is going to take a while to make if it's going to be tamper proof.

I'm curious, what do NFL teams do to manipulate the salary cap?

In the NFL, their salary structure is much different. For instance, contracts are not guaranteed contracts. However, bonus money is guaranteed, hence the reason why it counts against the cap. Now, if a player makes the team and is going to count hard against the cap, what you usually see is teams do stuff like sign a player to a higer based bonus with a low side salary. It's easier to shuffle around bonus money. That's how they manipulate the cap. However, there are some instances where that doesn't work. We've seen teams like the 49ers in salary cap hell, Tennessee is gong through salary cap hell, and it won't surprise me when the Redskins go through it shortly as well.
 

Mess

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quat said:
How does the team get the sponsorship from Nike for a player without the players approval? Wouldn't the player just go directly to the sponsor and get all the money and the proper market for his playing ability from the league? Hmmm. This senario simply wouldn't happen, and I believe someone else here agrees:.
I just tried to make it seem like a Cap violation and sinister .. but endorsement deals are perfectly legal in Sports .. Big Markets have lots of pull with lots of people.

I don't understand what you mean by without players approval?? .. I understand the sentence fine but how would that happen?.

The players agent would contact the team's GM or vice versa .. The player may want to come to a certain team, and only CAP room will prevent him in big markets. So the team and his agent go to a sponsor say like Molson's .. The team & player agent negotiate a endorsement deal that the player will be present in 2 commercials and at 3 charity events throughout the year .. For that he will get X million .. Without team involvement that may not happen,as for example the team could toss in FREE USE of a Luxury suite for the year for all events to the sponsor so they can entertain clients ..

Then the Agent and Team finalize the 2nd part of the deal that would include the NHL player contract part and bonus .. This is the only thing that counts against the NHL cap .. The player agent receives his commission on both parts .. the player gets more money then the Hard Cap allows and gets to play for the team of his choice as a UFA and the team gets the player to play for them.

This isn't a loophole . There is nothing illegal about it on any level. police will not investigate an endorsement deal. and the NHL can only look at the books of the NHL team not where or whom they get money from ..

It could happen in a small market as well that the team could get the player an endorsment deal, but with cap space available no need to and samller markets need every penny to survive .. This 36-38 mil cap is going to have big market teams sitting with 30-40 mil in PROFIT and Hard Cap limitations ..

Why do you see this as a problem ??
 

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habfan4 said:
I note you ignored my point about accountants and tax lawyers. When you pull in the kind of money that professional athletes make, you don't pay taxes at the rates mere mortals such as ourselves do.

I do concede that I was perhaps hasty in proclaiming that they weren't a factor at all.

If the tax rate is 5% higher in a specific state, what difference are tax lawyers going to make? They're gonna bring the amount paid in taxes down across the board, but in the end they're still going to be paying about 5% more.
 

Kritter471

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habfan4 said:
I note you ignored my point about accountants and tax lawyers. When you pull in the kind of money that professional athletes make, you don't pay taxes at the rates mere mortals such as ourselves do.

I do concede that I was perhaps hasty in proclaiming that they weren't a factor at all.
You're right about it being less of a factor in decisions when you have so much money, but some states (Texas) have no income tax. So a $1 million salary in Texas is $950,000 in some other places (assuming a 5 percent tax).

As the salary goes up, the more difference that makes. Things like that can play into all these money things
 

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WC Handy said:
If the tax rate is 5% higher in a specific state, what difference are tax lawyers going to make? They're gonna bring the amount paid in taxes down across the board, but in the end they're still going to be paying about 5% more.

He was talking about making revenue non taxable, which is what accountants are paid for. There's a different between the government tax rate and the effective tax rate of an individual.

As well, ways to make revenue non taxable have more value for an individual as the tax rate is higher.

Besides, the tax rate you pay might mean you're going to pay less for other things or have a higher quality of living. Take Montreal, it's the cheapest big city in North America to live in, including the taxes that are paid. Your big house in Montreal might cost you $1M while the same house in Texas might cost you $5M. As well, it's not the same, many Europeans prefer the Canada weather, architecture and people as they feel more welcome (and at home).

In the end, the tax rates might make a small difference, but that's it. You just have to look at all the players wanting to go play in Toronto, where tax rates are quite high.
 

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The Messenger said:
There are a million ways around a Cap .. I doubt that the NHL CBA can think of All of them ..

For Example .. Every team goes out and gets sponsorship money each year to cover cost particularly wages ..

So the team gets a $5 mil sponsorship from Nike .. for example .. but rather then getting the whole $5 mil they say give $2 mil directly to UFA player X , and as part of the deal UFA X agrees to play for a much lower cap friendly number and that is the contract that is registered with the league, and considers the money from Nike his Signing bonus .. He could even do a few guest appearences to really sell it.

How could the NHL prevent that ??

They can have a clause which states ANY attempt to get over the cap through out of the game maneuvers will be punished. They don't have to say exactly what it is.

As well, in your example, the NHLPA would be all over that deal to squash it. The millions not going to the teams will mean money not to be included in the total revenues, which will hurt their collective salaries (ie: $10M less will mean $5.4M less in player salaries). Don't you think someone would eventually find out, another player, an agent, someone from the sponsor leaking the info? When that happens, boom, big penalty (money and draft picks) for the team that went around the salary cap.
 

Jaded-Fan

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Smail said:
They can have a clause which states ANY attempt to get over the cap through out of the game maneuvers will be punished. They don't have to say exactly what it is.

As well, in your example, the NHLPA would be all over that deal to squash it. The millions not going to the teams will mean money not to be included in the total revenues, which will hurt their collective salaries (ie: $10M less will mean $5.4M less in player salaries). Don't you think someone would eventually find out, another player, an agent, someone from the sponsor leaking the info? When that happens, boom, big penalty (money and draft picks) for the team that went around the salary cap.

I beleive that is how football and basketball does it, as I linked earlier in this thread.
 

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Kritter471 said:
You're right about it being less of a factor in decisions when you have so much money, but some states (Texas) have no income tax. So a $1 million salary in Texas is $950,000 in some other places (assuming a 5 percent tax).

As the salary goes up, the more difference that makes. Things like that can play into all these money things

WC Handy said:
If the tax rate is 5% higher in a specific state, what difference are tax lawyers going to make? They're gonna bring the amount paid in taxes down across the board, but in the end they're still going to be paying about 5% more.

Smail actually paraphrased and clarified my comment nicely :cheers:

That 5% rate - gets cut down when you can afford to pay a lawyer or an accountant to create a Trust or other tax shelter.
 

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The Messenger said:
I just tried to make it seem like a Cap violation and sinister .. but endorsement deals are perfectly legal in Sports .. Big Markets have lots of pull with lots of people.

I don't understand what you mean by without players approval?? .. I understand the sentence fine but how would that happen?.

The players agent would contact the team's GM or vice versa .. The player may want to come to a certain team, and only CAP room will prevent him in big markets. So the team and his agent go to a sponsor say like Molson's .. The team & player agent negotiate a endorsement deal that the player will be present in 2 commercials and at 3 charity events throughout the year .. For that he will get X million .. Without team involvement that may not happen,as for example the team could toss in FREE USE of a Luxury suite for the year for all events to the sponsor so they can entertain clients ..

Then the Agent and Team finalize the 2nd part of the deal that would include the NHL player contract part and bonus .. This is the only thing that counts against the NHL cap .. The player agent receives his commission on both parts .. the player gets more money then the Hard Cap allows and gets to play for the team of his choice as a UFA and the team gets the player to play for them.

This isn't a loophole . There is nothing illegal about it on any level. police will not investigate an endorsement deal. and the NHL can only look at the books of the NHL team not where or whom they get money from ..

It could happen in a small market as well that the team could get the player an endorsment deal, but with cap space available no need to and samller markets need every penny to survive .. This 36-38 mil cap is going to have big market teams sitting with 30-40 mil in PROFIT and Hard Cap limitations ..

Why do you see this as a problem ??
Boy, you just keep on flogging this dead horse, trying to engage the newer members of the Board and trying to foist this garbage on the unsuspecting despite having been proven to be incorrect time and time again.

1. In the annual audit, a free luxury suite will come up. One thing would lead to another and the entire scheme is exposed.

2. If I am counsel for the sponsor, I want absolutely nothing to do with this in negotiating the deal. It is allocating monies in respect of what is not a bona fide transaction. If you actually were an accountant (which I continue to doubt), you would also know that what you are proposing would be contrary to GAAP and put the sponsor potentially afoul of Sarbanes-Oxley and in for some jail time.

3. If you could somehow convince the sponsor to go along with this when there is nothing in it for them, they would demand that it be a condition precedent of the sponsor contract that the player enter into the other agreement on the terms you have prescribed. It comes out in the audit when the sponsor contracts are reviewed by the auditors (and I guarantee they would be audited, as they are "material" sources of revenue).

4. When the player signs for less than his apparent market value, alarm bells would go off around the league and in PA headquarters.

I realize you probably have people like me and Iconoclast and a bunch of others on ignore because we slice and dice your posts to dust, but come on. :shakehead
 

WC Handy*

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Smail said:
In the end, the tax rates might make a small difference, but that's it. You just have to look at all the players wanting to go play in Toronto, where tax rates are quite high.

If it weren't for the fact that players in pro sports have made decisions based on tax reasons in the past, you might have a leg to stand on.

Taxes are a huge factor.
 

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habfan4 said:
I note you ignored my point about accountants and tax lawyers. When you pull in the kind of money that professional athletes make, you don't pay taxes at the rates mere mortals such as ourselves do.

I do concede that I was perhaps hasty in proclaiming that they weren't a factor at all.

One of the reason's Carlos Beltran signed in NY vs. Texas this year in MLB was taxes.... he will end saving roughly 5-6 million dollars in taxes over the life of the contract because of tax differences.
 

WC Handy*

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habfan4 said:
That 5% rate - gets cut down when you can afford to pay a lawyer or an accountant to create a Trust or other tax shelter.

And the 3% in another state wuoldn't get cut down?

All these people can do for you is reduce your taxable income.

Chris Pronger is deciding between the Blues and the Stars
He's gonna get $7M from the Blues or $6.7M from the Stars.
Accountants manage to reduce his taxable income by $3.5M.
So, his taxable income in Missouri would be $3.5M
And his taxable income in Texas would be $3.2M.
If the tax rate is 20% in Texas and 27% in Missouri...
Pronger gets taxed $945K in Missouri
And he gets taxed $640K in Texas
So, his earnings are $6.055 in Missouri
And they're $6.06 in Texas

Obviously this is a simple example, but since Texas has no state income tax, it's possible that the taxable income would be a little lower in Missouri thus pushing Missouri back ahead.
 

Tap on the Ankle

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One pretty easy way to work around the cap would be to frontload contracts when you know you can afford to, in order to open up cap space later. It's not really circumventing the cap, though, it's just clever management, but I bet we will be seeing frontloaded contracts a lot more in the future.

For the sake of example, I'll use the Ottawa Senators and we'll pretend there's a cap of $38 million. Let's say they've signed all of their players except for Spezza, and their total payroll at that point is $32 million. Let's say (for example) Spezza wants a salary of $3 million for 3 years (for a total of $9 million). So if they signed Spezza to his desired contract, the Senators would sit at $35 million, $3 million under the cap. Instead of letting unused cap space just sit there (assuming paying the luxury tax is not an issue for the owner), why not frontload Spezza's contract so you can open up some capspace for the next couple years? What I mean is, instead of signing Spezza for $3m for 3 years, sign him to a frontloaded contract of $6m in the first year (thus making the Sens' total salary for that year $38m), $1.5m in the second year, and $1.5m in the final year.

So instead of committing $3m of cap space to Spezza for 3 years, the Sens just paid him the majority of his contract in the first year (when they had the extra cap space to do it), and ended up clearing up $1.5m of cap space for the next two years, which would allow them to give other players their raises or even sign a free agent. Spezza still got his $9m, and the Sens just utilized what would have probably been unused cap space in order to make extra cap room in the future.
 

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fisher said:
One pretty easy way to work around the cap would be to frontload contracts when you know you can afford to, in order to open up cap space later. It's not really circumventing the cap, though, it's just clever management, but I bet we will be seeing frontloaded contracts a lot more in the future.

For the sake of example, I'll use the Ottawa Senators and we'll pretend there's a cap of $38 million. Let's say they've signed all of their players except for Spezza, and their total payroll at that point is $32 million. Let's say (for example) Spezza wants a salary of $3 million for 3 years (for a total of $9 million). So if they signed Spezza to his desired contract, the Senators would sit at $35 million, $3 million under the cap. Instead of letting unused cap space just sit there (assuming paying the luxury tax is not an issue for the owner), why not frontload Spezza's contract so you can open up some capspace for the next couple years? What I mean is, instead of signing Spezza for $3m for 3 years, sign him to a frontloaded contract of $6m in the first year (thus making the Sens' total salary for that year $38m), $1.5m in the second year, and $1.5m in the final year.

So instead of committing $3m of cap space to Spezza for 3 years, the Sens just paid him the majority of his contract in the first year (when they had the extra cap space to do it), and ended up clearing up $1.5m of cap space for the next two years, which would allow them to give other players their raises or even sign a free agent. Spezza still got his $9m, and the Sens just utilized what would have probably been unused cap space in order to make extra cap room in the future.
Assuming the cap rules did not force an averaging out (which they might), I would think that backloading might be even more prevalent. IF it were allowed, I assume the rule would still be that you could not "different-load" them such that you were over the cap in committed salary at any point. THere would also have to be a rules providing for retroactive adjustments if a player is bought out, to avoid sham attempts to circumvent the cap.
 

habfan4

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WC Handy said:
And the 3% in another state wuoldn't get cut down?

All these people can do for you is reduce your taxable income.

Chris Pronger is deciding between the Blues and the Stars
He's gonna get $7M from the Blues or $6.7M from the Stars.
Accountants manage to reduce his taxable income by $3.5M.
So, his taxable income in Missouri would be $3.5M
And his taxable income in Texas would be $3.2M.
If the tax rate is 20% in Texas and 27% in Missouri...
Pronger gets taxed $945K in Missouri
And he gets taxed $640K in Texas
So, his earnings are $6.055 in Missouri
And they're $6.06 in Texas

Obviously this is a simple example, but since Texas has no state income tax, it's possible that the taxable income would be a little lower in Missouri thus pushing Missouri back ahead.


I did concede that taxes are a factor. However, using your example (let's even say that the Stars offer was identical to the Blues) the difference in take home pay (while perhaps substantial to us) is relatively minuscule to Pronger.
 

futurcorerock

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I wouldnt have a problem with this coming from a rival team...


However, if someone like Forsberg signs for 300,000k with the Avs, i'm going to think that something is up...
 

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WC Handy said:
If it weren't for the fact that players in pro sports have made decisions based on tax reasons in the past, you might have a leg to stand on.

Taxes are a huge factor.

Players have said they'd take less to play in Toronto and Montreal, so what? I'm not saying that taxes aren't a factor, but to say it's a huge factor is incorrect.

Taxes are something really complicated. If you take a canadian earning a salary in the US, they still have to file canadian taxes (accordingly to the Canada-USA fiscal agreement).

As well, money that's left in your pocket after taxes isn't everything. You can get more with $2M in some places than with $3M in other places.
 

CarlRacki

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The Messenger said:
There are a million ways around a Cap .. I doubt that the NHL CBA can think of All of them ..

For Example .. Every team goes out and gets sponsorship money each year to cover cost particularly wages ..

So the team gets a $5 mil sponsorship from Nike .. for example .. but rather then getting the whole $5 mil they say give $2 mil directly to UFA player X , and as part of the deal UFA X agrees to play for a much lower cap friendly number and that is the contract that is registered with the league, and considers the money from Nike his Signing bonus .. He could even do a few guest appearences to really sell it.

How could the NHL prevent that ??


That would be a violation of the NFL CBA section entitled "Undisclosed Terms" which reads:
A Club (or a Club Affiliate) and a player (or a Player Affiliate or player agent) may not, at any time, enter into undisclosed agreements of any kind, express or implied, oral or written, or promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind: (a) involving consideration of any kind to be paid, furnished or made available or guaranteed to the player, or Player Affiliate, by the Club or Club Affiliate either prior to, during, or after the term of the Player Contract; and/or (b) concerning the terms of any renegotiation and/or extension of any Player Contract by a player subject to a Franchise Player or Transition Player designation.

The key phrase is club affiliate. If the Wings have a sponsorship deal with Nike, they are a club affiliate.
Now, could Nike say to Steve Yzerman "If you stay with Detroit you'll be more valuable to us than if you sign with Edmonton"? Absolutely. But that's done outside the terms and knowledge of his deal with the Wings. But if the Wings know what's happening, and are helping make it happen, then they'd be violating the cap.
 

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CarlRacki said:
That would be a violation of the NFL CBA section entitled "Undisclosed Terms" which reads:
A Club (or a Club Affiliate) and a player (or a Player Affiliate or player agent) may not, at any time, enter into undisclosed agreements of any kind, express or implied, oral or written, or promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind: (a) involving consideration of any kind to be paid, furnished or made available or guaranteed to the player, or Player Affiliate, by the Club or Club Affiliate either prior to, during, or after the term of the Player Contract; and/or (b) concerning the terms of any renegotiation and/or extension of any Player Contract by a player subject to a Franchise Player or Transition Player designation.

The key phrase is club affiliate. If the Wings have a sponsorship deal with Nike, they are a club affiliate.
Now, could Nike say to Steve Yzerman "If you stay with Detroit you'll be more valuable to us than if you sign with Edmonton"? Absolutely. But that's done outside the terms and knowledge of his deal with the Wings. But if the Wings know what's happening, and are helping make it happen, then they'd be violating the cap.
Well, without looking at the NFL agreement, I would think you are probably incorrect about the meaning of the term "club affiliate". Looking at the clause you quoted, it is a defined term under the agreement. "Affiliate" is a fairly common term employed in contracts and generally is used to refer to companies who are either owned by (in this case) the club, own the club, are sister companies of the club, or share common control with the club. THere is a lot of verbiage around each of those concepts, mind you, but it certainly would not apply to arm's length entities like Nike in your example. An actual example would be the RedWings and Ilitch's pizza companies, or a team and its subsidiary that owns the arena.

That being said, I suppose your main point is that there are other CBA's that address this very point, and I am certain the hockey CBA will do so as well. THat point is spot on.
 

Mr Sakich

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Cost of Living which includes housing, taxes, food etc

NYC - 100 %
LA - 87
Chi - 84
Houston - 79
Wash - 77
Bos - 77
Toronto - 76
Van - 74
Calgary - 72
Det - 72
STL - 72
Mon - 70
Pit - 70
Ott - 66

There are significant differences between cities. These numbers apply to executive level lifestyles and are a decent indicator for proffessional athletes. The point here is a free agent is considering a million dollar offer from ott. It would take a 1.5 million dollar offer from the rangers to end up with the same lifestyle and money in the bank.
 

Timmy

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Mr Sakich said:
Cost of Living which includes housing, taxes, food etc

NYC - 100 %
LA - 87
Chi - 84
Houston - 79
Wash - 77
Bos - 77
Toronto - 76
Van - 74
Calgary - 72
Det - 72
STL - 72
Mon - 70
Pit - 70
Ott - 66

There are significant differences between cities. These numbers apply to executive level lifestyles and are a decent indicator for proffessional athletes. The point here is a free agent is considering a million dollar offer from ott. It would take a 1.5 million dollar offer from the rangers to end up with the same lifestyle and money in the bank.

CCRA (revenue canada) reserves the right to take anyone to court who appears to be violating the spirit of the Act. While the courts may rule in the taxpayer's favour, CCRA invariably inserts a specific clause dealing with that issue.

I would, therefore, be very suprised to see the CBA not have a spirit of the cap provision to give the league the right to deny a transaction, fine a team, and/or take draft picks away for violations not specifically dealt with in the agreement.

The NHLPA, as noted above, would agree to it to keep all salaries and revenues inhouse.
 

CarlRacki

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Mr Sakich said:
Cost of Living which includes housing, taxes, food etc

NYC - 100 %
LA - 87
Chi - 84
Houston - 79
Wash - 77
Bos - 77
Toronto - 76
Van - 74
Calgary - 72
Det - 72
STL - 72
Mon - 70
Pit - 70
Ott - 66

There are significant differences between cities. These numbers apply to executive level lifestyles and are a decent indicator for proffessional athletes. The point here is a free agent is considering a million dollar offer from ott. It would take a 1.5 million dollar offer from the rangers to end up with the same lifestyle and money in the bank.

On the other hand, irregardless of money, a player living in Ottawa or Edmonton is never going to have the same lifestyle as a player living in New York and LA. Some players may, in fact, prefer the smaller town. But if nightlife, culture and entertainment is a priority, then those bigger cities have a big advantage. Also, keep in mind some sponsors will pay more to a player who works in a larger market because of the added exposure, That helps make the cost-of-living gap less significant.
 

CarlRacki

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Feb 9, 2004
1,442
2
gscarpenter2002 said:
Well, without looking at the NFL agreement, I would think you are probably incorrect about the meaning of the term "club affiliate". Looking at the clause you quoted, it is a defined term under the agreement. "Affiliate" is a fairly common term employed in contracts and generally is used to refer to companies who are either owned by (in this case) the club, own the club, are sister companies of the club, or share common control with the club. THere is a lot of verbiage around each of those concepts, mind you, but it certainly would not apply to arm's length entities like Nike in your example. An actual example would be the RedWings and Ilitch's pizza companies, or a team and its subsidiary that owns the arena.

That being said, I suppose your main point is that there are other CBA's that address this very point, and I am certain the hockey CBA will do so as well. THat point is spot on.


The NFL CBA defines affiliate as " (d)"Club Affiliate" or "Team Affiliate" means any entity or person owned by (wholly or partly), controlled by, affiliated with, or related to a Club or any owner of a Club."

You may be right, but I'm taking the terms "affiliated with" or "related to" to include business partners and other interests that have a fiduciary interest in the franchise.
 
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