Draft prospect Shane Wright falls from first overall to fourth and in the process reaps the financial reward.
By: Alan Pogroszewski
Introduction
It took two years to finally occur, but on July 6th and 7th the Bell Center in Montreal finally had the opportunity to host the NHL Draft and for the first time since 1985 the host team had the first selection in the draft.
Projections prior to the draft had Canadian prospect Shane Wright of Kingston being selected by the home team, however, when the Canadiens selected Juraj Slafkovský from Slovakia, Wright fell to Seattle. By falling to fourth overall, Wright’s initial disappointment ends up being his financial gain as his net compensation for his entry level contract ends up being an astronomical 38% more, roughly $388,430.
Entry Level Compensation
Under the current Collective Bargaining Agreement, players drafted will be limited by the Entry Level Compensation Limits. Therefore, the guaranteed compensation that the top picks will receive is limited to $925,000 per season. On top of that, players are eligible to receive additional performance bonuses. If Wright were to earn those bonuses, the tax disparity would be widened.
Although both Wright and Slafkovský may receive the same compensation, the unique tax consequences between Montreal, Quebec and Seattle, Washington cause the actual net value of their compensation to significantly vary.
Tax Liability
The tax liability of a professional hockey player is dependent on the country and state they play in and their residency. Exposure to federal, state, and local taxes will be dictated by a team’s home and road schedule. Next season, Slafkovský and Wright will potentially play in 22 U.S. tax jurisdictions while also playing in four additional Canadian provinces. Therefore, by analyzing each team’s home and away schedule a player’s unique tax liability can be determined. Below, is the comparison of the two contracts that will be signed by the Slafkovský and Wright.
The table above shows after the Montreal Canadiens selected first in the NHL Draft, the net, after tax, value of a 3-year maximum entry-level contract for their selection is $1,372,247 which is $388,430 less than the net of the Seattle Kraken’s fourth overall selection.
Conclusion
Although there may not be a monetary value attached to being selected first overall, there is one for Wright slipping to fourth. Knowing the financial consequences of where you play may be just as important as when you are selected and with Wright falling to four, he reaps a sizable financial reward for the inconvenience.