A recent report from the Montreal Economic Institute (MEI) suggests that high personal income taxes in Canada may be a key factor contributing to the prolonged Stanley Cup drought for Canadian NHL teams. The last Canadian team to win the Cup was the Montreal Canadiens over 30 years ago.
Tax Policies and Player Recruitment
The MEI report argues that Canadian teams are not on equal footing with their American rivals due to tax policies that directly affect their ability to attract and retain top talent. Professional athletes have short careers and a limited window to earn income, creating a strong incentive to play where taxes are lowest, according to MEI senior economist Vincent Geloso.
Stanley Cup Winners from Low-Tax States
Excluding the current season, five of the last six Stanley Cups have been won by teams from states with no personal income tax. The Vegas Golden Knights (2023), Tampa Bay Lightning (2020, 2021), and Florida Panthers (2024) all play in tax-free states. The only exception was the Colorado Avalanche in 2022, where the personal income tax rate is 4.4%.
The Salary Cap Disadvantage
The NHL's salary cap is based on gross salary, not net salary, meaning a team in a low-tax state can offer the same contract as a Canadian team while allowing the player to keep more money. For example, a player earning $750,000 annually with the Montreal Canadiens pays $364,312 in taxes (effective rate 48.5%), while a player with the Florida Panthers or Dallas Stars pays only $234,520 (rate 31.2%). This disparity gives low-tax teams an advantage in negotiations.
Impact on Win Rates
A study by Erik Hembre, published in International Tax and Public Finance, examined NHL data from 1980 to 2017 and found that for every one-percentage-point increase in tax rate, a team's win rate decreases by 1.55 to 1.57 percentage points. Geloso noted that a few wins or losses can make a huge difference in playoffs and championships.
However, Geloso cautioned against attributing team performance solely to tax differences, emphasizing that these rates are one factor among many. The MEI report aims to highlight the structural disadvantage Canadian teams face season after season.
