Mëds wrote: ↑Sun Jan 05, 2025 6:11 pm
If the league approved it, then obviously this is workable. This also sets a precedent for players to be asking for guaranteed retirement income.
I’m curious how the numbers work. He’s deferring 50% of his salary, yet the Ducks save just under 25% on the cap hit. I assume they will have to carry $900K of dead cap for a decade.
No, there's no carrying the cap in the future.
This option's been in the CBA for a long time. IIRC, the Canes did this with some player last summer (or this fall).
The way to think of it is that the player really is only getting the equivalent of $4.57M present value per season, just what the team is getting hit with for the AAV.
What do you think $900,000 in 10 years is worth in today's money? About $417,000, invested in something with an 8% annual return.
What about $900,000 in 20 years (the last year Vatrano gets a 900K payment)? What's that worth in today's money? About $193,000, invested in something with an 8% annual return.
What's above is only intended to illustrate the point -- I don't know the formula for future value the CBA uses. But if you asked me if I wanted $4.71M in income today ($1.57M this year, 1.57M next, and 1.57M next) or $9M to be paid out in equal installments as income over a 10 year period starting in 10 years, I think I'd prefer the money now.
Now Vatrano would be paying a full 49.3% in income tax on the extra take it now cheese living in California (and assuming its paid in full and not escrowed). 37% fed, 12.3% Cali. (which is CRAZY!). So he takes home about $796K more a year after taxes than the contract he signed, for 3 years. But if that $$ is invested long term, gains are taxed at the long term capital gain tax rate. Which is a lot less than income tax (at least the federal rate). It really depends on when he realizes gains and his income at the time to know what he'd pay in taxes, but under current law, its not going over 20% and I'd be surprised if he didn't realize gains in a way that would keep that number closer to 15%. And that is substantially less as a percentage of gains than the income tax that will be paid on the $900,000 per year even if in a no-income tax state. Under today's federal tax law, his effective tax rate will be around 33%, and that's assuming NO other income.
And remember -- all $9M paid later is subject to income tax, where the capital gains are applied only to the gains from the investments. Tax advantage from deferring? Maybe kind of. California will be deprived of the revenue, so that's something.
Consult your tax and investment advisor, but it seems to me that the reason most players haven't opted for this approach is that this approach (take $18M, $9M paid over next 3 years; half paid between 10 and 20 years) really isn't wealth maximizing compared to being paid 13.71M in the next 3 years. Most players would rather build their own retirement account, though most NHL teams are a fairly safe investment, but they aren't AAA rated municipal bonds. If Anaheim goes bankrupt, Vatrano will see little to none of this money.