- - Wednesday, April 30, 2014

ANALYSIS/OPINION:

Washington Capitals owner Ted Leonsis cleaned house last week, dismissing Coach Adam Oates and General Manager George McPhee after the team missed the Stanley Cup playoffs for the first time since 2008. The housecleaning was intended to show the Caps faithful that Mr. Leonsis remains committed to bringing a winning hockey team to the Verizon Center.

Unfortunately, no matter who Mr. Leonsis hires, the District’s tax climate is likely to make sustained success on the ice the exception, not the rule.

The National Hockey League caps the payroll of each team at a set amount, $64.3 million this season. Salaries offered to free-agent players are necessarily limited, and each team generally winds up making the same salary offer to rising stars. The only way a player can increase his take-home pay is to figure out a way to sign with a team in a low-tax state.

A player’s paycheck is subject to federal, city, state or provincial (seven teams reside in Canada) income taxes where each game is played. Every team plays half of its games at home, so high tax rates are a severe deterrent to landing quality free agents. That’s the problem facing the Capitals this year.

Players for the Capitals lose more than half their salary to various federal and local taxes. Only teams in New York, New Jersey, Minnesota and California fare worse, according to a study by the Canadian Taxpayers Federation.

Since Florida, Texas and Tennessee levy no personal income tax at all, players fortunate enough to suit up for the Florida Panthers, Tampa Bay Lightning, Dallas Stars and Nashville Predators get to keep 28 percent more of their paychecks than their counterparts in Washington. The rosters of the Edmonton Oilers and Calgary Flames fare extremely well, too, because Canada’s top federal tax bracket is only 29 percent, compared to 39.6 percent in the states, and both teams reside in the low-tax province of Alberta.

The Canadian Taxpayers Federation calculated that a top-flight Washington Capitals player with a contract paying him $41 million over six years would actually earn just $20.5 million, after taxes. That same player with the same contract would net $25.2 million playing for the Oilers or the Flames and $24.2 million playing for a U.S. team in an income tax-free state.

Nearly everyone but the players themselves think professional athletes are overpaid, and nobody struggling to buy baby’s shoes is likely to cry for someone making $20 million after taxes to hit or catch a ball or smack a puck, but what top-notch player would cheerfully give up $5 million to play for the Caps?

Even if Mr. Leonsis manages to hire the greatest coach and general manager in hockey, it’s unlikely that the Capitals can draw the talent on the ice needed to win the Stanley Cup. The team doesn’t need front-office smarts or coaching wisdom, but a city council that realizes the city’s oppressive tax regime isn’t just bad for business, it’s bad for sports. We advise the Caps, whom we wish well, not to hold their collective breath until that day.

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