Professional athletes get paid very well for doing a job they love to do. While athletes make a lot of money compared to the typical individual, athletes’ take-home pay is not nearly as high as advertised. The information we hear and see most often is that this player signed for $1 million or that player signed for $5 million. But how much of that goes into their pocket? Below we uncover common fees that impact most NHL players.
Jock and Income Taxes
As some may know, athletes have federal, state and, in some cases, city taxes withheld from their pay. Athletes are subject to what’s called “jock tax” to be paid in each state, and some cities, in which they play. Along with paying taxes wherever they play, most of these athletes will find themselves in the highest income tax brackets due to their compensation levels. Depending on a number of factors, such as state of residency and team schedules, athletes can be paying roughly 45-50% in income taxes on a rather frequent basis – and may even be north of 55% in certain situations.
Agent Fees
While not withheld from a player’s paycheck, agent fees are another somewhat significant expense for each player. Agent fees generally range anywhere from 3-5% of a player’s salary, which takes another chunk out of their take home pay.
Escrow
The four major sports leagues each have their own collective bargaining agreement (“CBA”) that governs much of the league rules and finances. The National Hockey League is one of the leagues where teams withhold a portion of player earnings in escrow to ensure a 50/50 revenue split between owners and players. The amount/percent teams withhold in escrow is determined at the beginning of each season and is adjusted after each quarter of the season, if needed.
As of the second quarter of the 2018-2019 NHL season, the escrow withholding rate is 13.5% of a player’s compensation. While escrow funds are not directly deducted from bonus payments, the escrow withholding rate is set to include all the player’s compensation – salary, signing bonuses, and estimated performance bonuses. After the end of each season and financial figures are ultimately determined to ensure the appropriate revenue split, a portion of the amounts held in escrow may be refunded to the player. In the recent past, refunds have generally been less than 4% of the amounts withheld, and are not refunded until about a year or so after that season ends.
Down to the Numbers
Using federal/state/city income taxes of 50%, escrow withholding rate of 13.5%, and agent fees of 4%, a player making $2 million in a season would see that dwindle down to $795,800 – a number that almost anyone would still be content with. A player’s NHL salary may seem high, and it is, but the take-home pay is not nearly as much as it sounds after withholdings and agent fees. We work with athletes to help them make better financial decisions during and after their careers. Learn more about the Anders Sports, Arts & Entertainment Group.
