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Paying a player taxes

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Old
07-09-2006, 10:17 AM
  #1
LeHab
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Paying a player taxes

Would it be allowed under the new CBA for a team to pay their players taxes (or at least part of it) without it being counted as a cap hit ?

For exemple : player A gets a 4 million/year contract but the team also agrees to pay his taxes. This means, Player A gets a net 4 million into his pocket but the team will have to pay in total ~6 millions.

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07-09-2006, 03:11 PM
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Quote:
Originally Posted by ark1 View Post
Would it be allowed under the new CBA for a team to pay their players taxes (or at least part of it) without it being counted as a cap hit ?

For exemple : player A gets a 4 million/year contract but the team also agrees to pay his taxes. This means, Player A gets a net 4 million into his pocket but the team will have to pay in total ~6 millions.
i think the govt would have a problem with it, as technically the portion of the paid taxes would in fact be unaccounted income.

also, i belive the CBA specifically denies any forms of compensation outside of the players salary.

although, i fail to see how they could have any jurisdication if for example the owner of a team were to hire the players wife to work for one of this other companies at an "agreed" price.

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07-09-2006, 03:35 PM
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Answer: no.

Without even looking, I think the CBA prevents a team from paying the player's taxes in the first place ... but our resident CBA expert (kdb209 - yes, you're now appointed to that position) will be along shortly to give the details.

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07-09-2006, 05:07 PM
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Originally Posted by ark1 View Post
Would it be allowed under the new CBA for a team to pay their players taxes (or at least part of it) without it being counted as a cap hit ?

For exemple : player A gets a 4 million/year contract but the team also agrees to pay his taxes. This means, Player A gets a net 4 million into his pocket but the team will have to pay in total ~6 millions.
No. Unless specifically allowed under the CBA as a payment to player it will be considered a circumvention.

See "Article 26 - No Circumvention". In particular 26.3 (e) which provides that a club may not directly or indirectly provide any player "with anything of value" other than his salary and bonuses set out in his Standard Player Contract and share of benefits as set out in the CBA.

Examples of circumvention are set out at 26.15 and include:

"(b) A Club has an agreement to pay money or anything else of value to a player not expressly permitted by this Agrrement, or makes such a payment to a player."

This would include an agreement during a player's active career to pay a player for future services after a player has retired. See 26.15(e).

Basic rule - if it is not specifically permitted in the CBA you cannot do it and as noted in the CBA a "Circumvention" may be inferred from the surrounding circumstances.

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07-09-2006, 06:01 PM
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Originally Posted by Wetcoaster View Post
No. Unless specifically allowed under the CBA as a payment to player it will be considered a circumvention.

See "Article 26 - No Circumvention". In particular 26.3 (e) which provides that a club may not directly or indirectly provide any player "with anything of value" other than his salary and bonuses set out in his Standard Player Contract and share of benefits as set out in the CBA.

Examples of circumvention are set out at 26.15 and include:

"(b) A Club has an agreement to pay money or anything else of value to a player not expressly permitted by this Agrrement, or makes such a payment to a player."

This would include an agreement during a player's active career to pay a player for future services after a player has retired. See 26.15(e).

Basic rule - if it is not specifically permitted in the CBA you cannot do it and as noted in the CBA a "Circumvention" may be inferred from the surrounding circumstances.
What if a team pays a players wife? Lets say the Rangers after giving Shanahan 4 million a year choose to pay his wife (no idea if he is a married but lets say he is) 2 million a year as a scout?

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07-09-2006, 06:09 PM
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Originally Posted by Son of Steinbrenner View Post
What if a team pays a players wife? Lets say the Rangers after giving Shanahan 4 million a year choose to pay his wife (no idea if he is a married but lets say he is) 2 million a year as a scout?
or even in an unrelated company. the NHL surely wouldnt have the jurisdiction to audit a private company to determine if their payroll is clean and inline.

frankly, i doubt any owner goes out of this way in this manner, but just saying, how could the NHL prevent it or even know it happened?

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07-09-2006, 07:21 PM
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Originally Posted by Son of Steinbrenner View Post
What if a team pays a players wife? Lets say the Rangers after giving Shanahan 4 million a year choose to pay his wife (no idea if he is a married but lets say he is) 2 million a year as a scout?
All agreements a club and/or a player enter into must be disclosed even those specifically permitted by the CBA such as endorsements.

That would be likely be considered an indirect payment and would be prohibited per Article 26.3 (a) - Clubs or Club Actors (entering into agreements which may have the effect of defeating the salary cap) and (b) Players or Player Actors entering into agreements which may have the effect of defeating the salary cap, team payroll range or free agency. If she was in fact a bona fide scout then an exception might be available if the agreement was reported but that seems highly unlikely.

Also 26.3(d) provides that no club or club actor or player or player actor may commit any act through a third party (for example a wife) where if such activity were attributed to the club or player himself would constitute a circumvention. Such activities carried out or even attempted to be carried out shall be then attributed to the club and/or player as the case may be and then the quite severe penalties for circumvention or attempted circumvention would kick in such as fines (minimum $1 million up to $5 million which also reduces a club's next year's salary cap by a like amount) and loss of draft picks for clubs and for the player forfeiture of the value of the agreement as well as fines of the lesser of $1 million or 25% of his salary. Player contracts and extensions may be voided

Also the Commissioner has complete authority to strip as many draft picks as he thinks approriate in any year or years and even declare whatever games affected by the circumvention to be forfeit. The player, player agent or club employees guilty of circumvention can be suspended for whatever time the Commissioner determines in his absolute discretion.

BTW failing to report any fact or circumstance by clubs. players and/or agents that MIGHT be a circumvention, is also classed as circumvention and subjects the club, agent and/or player to penalties.

Player agents must file a yearly certificate that they have no knowledge of any agreement, fact or circumstance or any proposed action which might be considered a circumvention per article 26. Failure to file costs an agent his certification and therefore he is unable to represent players. The new CBA brings agents under this system.

Similarly GM's, Chief Financial officers and Club Presidents must file a similar certificate or lose their jobs. This also applied to Clubs who must file through on of its Governors.

There are Investigators (the NHL commissioner or the Executive Director of the NHLPA) who can start an investigation on any grounds either on their own initiative or in response to a complaint from any party. The finding of the Investigator is not binding on a System Arbitrator who hears the case.

System Arbitrtator can order complete disclosure of any and all documents and information to the Investigator related to the circumvention being investigated including tax records, e-mails, any income or revenue information of the player or clube, etc.

There are independent judges (System Arbitrators) who determine if there has been a circumvention or attempted circumvention of the system. The System Arbitrator is permitted to consider direct or circumstantial evidence and even conclude that there is no reasonable explantion for aterm or an agreement other than circumvention.

The language on this is pretty tight and well-tested as this has been in force in similar contract language in the NBA and NFL for a number of years.

I do not think that clubs or players will want to ake a chance of being found to have circumvented the system - it is just too expensive. And failure to report can cost agents, players and club personnel their jobs as well as money.

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07-09-2006, 07:21 PM
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Originally Posted by DR View Post
or even in an unrelated company. the NHL surely wouldnt have the jurisdiction to audit a private company to determine if their payroll is clean and inline.

frankly, i doubt any owner goes out of this way in this manner, but just saying, how could the NHL prevent it or even know it happened?
See my post above.

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Old
07-10-2006, 01:00 AM
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kdb209
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Quote:
Originally Posted by Irish Blues View Post
Answer: no.

Without even looking, I think the CBA prevents a team from paying the player's taxes in the first place ... but our resident CBA expert (kdb209 - yes, you're now appointed to that position) will be along shortly to give the details.
Well, Wetcoaster has already done a more than admirable job in addressing this, so I guess I'll have to delegate my title for the day.

I guess that's what I get for staying offline all day untill I could finally get around to watching my Tivo-ed World Cup Final - more proof that shootouts are a horrible idea, but finally some goalies who are worse in shootouts than the Sharks'.

But, to keep up my cut-and-paste skills:

Among the heavy handed punishments the league can hand out against teams - fines up to $5M (which count against the cap), loss of draft picks, and forfeiture of games.
Quote:
26.13 Enforcement by the System Arbitrator.

(c) In the event that the System Arbitrator finds that a Circumvention has been committed by a Player or Player Actor, the System Arbitrator may impose any or all of the following penalties and/or remedies set forth below. In the event that the System Arbitrator finds that a Circumvention has been committed by a Club or a Club Actor, the Commissioner may impose any or all of the following penalties and/or remedies set forth below:
(i) Impose a fine of up to $5 million in the case of a Circumvention by a Club or Club Actor, but in no circumstances shall such fine be less than $1 million against any Club or Club Actor if such party is found to have violated Article 50 of this Agreement. If such a fine is assessed against a Club (except in the case of a financial reporting violation), that Club's Payroll Room shall also be reduced by such amount for the following League Year, and if such reduction of the Club's Payroll Room renders the Club out of compliance with the Payroll Range (i.e., the Club does not have sufficient Payroll Room to accommodate its Player commitments comprising Club Salary) for such following League Year, then the Club must take such steps as are necessary (e.g. Assignment, Buy-Out, Waivers, etc.) and as are permitted by this Agreement to ensure that the Club will be in compliance with Article 50 of this Agreement upon commencement of the following League Year;

(ii) Impose a fine against a Player of up to the lesser of $1 million or twenty-five (25%) percent of a Player's Paragraph 1 Salary in the case of a Circumvention by a Player or Player Actor, but in no circumstances shall such fine be below the lesser of $250,000 or twenty-five (25%) percent of the Player's Paragraph 1 Salary. Notwithstanding the $1 million limitation set forth above, any additional amounts by which the Player has been unjustly enriched due to the Circumvention shall be ordered to be disgorged;

(iii) Direct a Club to forfeit draft picks (the number, placement, and League Year of which shall be determined in the Commissioner's sole discretion);

(iv) Declare a forfeiture of any NHL Game(s) determined to have been affected by a Circumvention;

(v) Direct a Club to disclose and report to the Independent Accountants all information required by this Agreement, including, without limitation, by the provisions of Article 50;

(vi) Void any SPC, or any extension of an SPC, between any Player and any Club when both the Player or Player Actor and the Club or Club Actor are found to have committed such a violation with respect to such SPC or extension; and

(vii) Suspend any Club employee, Player, or Certified Agent involved in such a violation for a period of time determined in the sole discretion of the Commissioner, the System Arbitrator, or the NHLPA, respectively.
Article 26 gives a lengthy, non-exhaustive list of circumvention examples.

Hiring Shanahan's wife as a $2M/yr scout would definitly fall under example 26.15 (f):
Quote:
26.15 Examples of Circumvention. The following is a non-exhaustive list of activities that either constitute a Circumvention under this Article 26 or from which a Circumvention may be inferred:

(a) A Club has a Club Salary that would exceed the Upper Limit, other than through the Bona-Fide Long-Term Injury/Illness Exception or the "Performance Bonus Cushion," such as by virtue of an undisclosed agreement or undisclosed payment to Players on its roster.

(b) A Club has an agreement to pay money or anything else of value to a Player not expressly permitted by this Agreement, or makes such a payment to a Player.

(c) A Player enters into a sponsorship or endorsement arrangement with a local sponsor or entity with which his Club does business, in which the Player receives something of value that is disproportionate to (i.e., clearly in excess of) the fair market value of the services rendered by the Player on behalf of the sponsor or endorser.

(d) A Club having access to the Averaged Amount Joint Exhibit and Averaged Club Salary Joint Exhibit and charged with the knowledge that it does not have sufficient Payroll Room to sign an SPC, as required by Article 50, proceeds to sign such SPC. Although it shall not be a Circumvention attributable or imputed to a Player if such Player signs an SPC that puts his Club out of compliance with the Payroll Range, the Certified Agent representing the Player in such circumstance, having access to the Averaged Amount Joint Exhibit and Averaged Club Salary Joint Exhibit, shall be charged with possession of the knowledge that the signing of that SPC will put the Club out of compliance with the Payroll Range.

(e) A Club and a Player, during the Player's active career, agree that upon the Player's retirement, he will receive a sum of money for services to be provided to the Club after retirement.

(f) A Club or Club Actor pays a Player or Player Actor for a "no-show" job, or for a job in which the payment to the Player or Player Actor clearly exceeds the fair market value of the services rendered.

(g) A Club fails to report sales from one of the ticket windows in its box office.

(h) A Club has an undisclosed agreement to obtain payment for tickets reported as complimentary tickets.

(i) A Club has an agreement below fair market value with a Club Affiliated Entity to broadcast or otherwise present footage of the Club's NHL Games.

(j) A Club fails to disclose a barter arrangement that should have been included in its HRR Reporting Package.

(k) A Club fails to report revenue generated from mascot appearances.

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Old
07-10-2006, 08:25 AM
  #10
LeHab
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Thanks! I was suspecting that it was not possible since I have not heard anyone doing it yet.


Last edited by LeHab: 07-10-2006 at 08:39 AM.
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