Earlier this week, the Anaheim Ducks announced that the team had reached a contract extension with forward Frank Vatrano. Vatrano has played in Anaheim for two and a half seasons and seems to have flourished with the Ducks. So, it’s no surprise that he agreed to a three-year deal worth $18 million. What was a surprise was the structure of the deal. It paid him $9 million upfront — $3 million per season starting in 2025-26 — and then $9 million in deferred salary. According to the terms of the deal, $900,000 would be paid out annually starting in 2035 and ending in 2044.
It led to a lot of people speculating that this could be a deal that other teams emulate in the future to avoid the full brunt of a cap hit. For players, it would allow them to avoid the tax hit that comes with playing in some of the more costly areas of the United States, like New York and California.
As one of the other California teams, obviously, the San Jose Sharks might consider a deal like this at some juncture down the road. So, I asked my husband, who happens to be a Certified Public Accountant (CPA), about whether the Vatrano deal was worth it for the team, for the player, and what the risks really are.
Money management is key for the Ducks
When you look at the numbers, this is a good deal for the Ducks. Anaheim lowers what would have been a $6 million AAV cap hit to $4.57 million AAV. That’s a $1.43 million savings per season over the next few seasons.
The cash savings involved must also have team ownership excited. The Ducks won’t have to pay out the $9 million until 2035 and even then it will be $900,000 per year. From a simple inflation standpoint, ownership knows that $9 million now is worth a lot more than $9 million in 2035.
That said, my husband offered up a don’t count your chickens warning. He harkened it back to the days of the Bobby Bonilla contract, which pays Bonilla almost $1.2 million a year (thanks to 8% interest) and will until 2035. With hindsight being 20/20, it might not have been the deal the New York Mets truly believed it to be.
“They [The Mets] overpaid him [Bonilla] thinking they’d be making tons of money on the saved salary and investing it … with Bernie Madoff it turns out,” my husband said.
So, while yes, the Ducks will be saving money, what they do with that $9 million in savings will help determine whether this deal is an empty net goal for ownership or not.
Why did Vatrano take this deal?
Unlike Bonilla, it doesn’t sound like Vatrano got an interest clause put into this contract, which means that the $9 million now is still $9 million in 2035. At face value, that doesn’t sound like a great deal.
So then, why did he take it?
“All I wanted (for) a long time was to be a Duck. It didn’t matter what money I was making or anything,” Vatrano told NHL.com on Jan. 5. “I wanted to play here; I didn’t want to play anywhere else. I’m just happy to help these young guys grow and be a part of it.”
It also sounds like the Ducks weren’t ready to pay Vatrano the contract amount he wanted unless there was money massaging worked in.
“As this process went along, I think Frankie was looking for a number, and we were looking for a number. … We looked at it and said this could be the perfect scenario for us to present this to Frankie and his agent, Peter Fish,” Ducks General Manager Pat Verbeek said. “I’m grateful that they were open to this idea of how we set this sort of thing up, and I think as the talks evolved, it became clear that this was going to be a scenario that satisfied the club and what we were looking for and also satisfy Frankie.”
So, to remain a Duck and get paid what he thought he was worth, Vatrano took the deal.
Vatrano takes on the most risk
But the deal comes with some risk to Vatrano.
According to my husband, technically, like Shohei Ohtani’s deal with the Los Angeles Dodgers, Vatrano can establish tax residency somewhere else where income tax is lower or nonexistent before he starts receiving his payments in 2035. That would, in theory, allow him to only pay the appropriate taxes in the tax haven he’s living in at the time.
But my husband would not bet on things staying the same.
“Honestly, I’d be puckering my cheeks about this tax dodge until I received it all [the money] and my tax returns passed through the statute of limitations for audit,” he said.
He also said it may not be as simple as residency. He said California taxes worldwide income, given that many of its businesses and residents work internationally. The state itself has rules around deferred compensation contracts that consider where and how the income is earned, not just when and where the cash compensation is paid.
“How this might be applied by California in the future is unknown and is delving far into legal interpretation — where I have no business being since I’m not a lawyer,” he said. “It also might be specific to the contract. Are these payments guaranteed, or is there a substantial risk of forfeiture? But in either case, good luck to Frank. I just don’t think he’s out of the woods yet.”
And, having dealt with the State of California before, my husband would not be surprised if things change between now and 2035.
He says the one move that might help is how much Vatrano is getting paid annually. At the moment, $1 million seems to be the cut-off for California before special tax rules kick in. Shifting the amount down to $900,000 per year might help Vatrano avoid any issues.
Or it might not.
“Then again, I wouldn’t put it past California to claim that the whole present value of earnings of $4.57 million a year in the next three years is actually what he should pay tax on, in which case the whole thing backfires!” he said.
Could a deal like this be worked out for the Sharks?
Which leads to the question all Sharks fans are wondering: will this be the type of deal the Sharks could work out with a player in the future?
The answer is probably not.
First off, both parties involved would have to want to do a deal like this. It takes two willing parties. While ownership might be willing, a player must also be willing to defer payment to a later date.
In Vatrano’s case, that means making a decision ten years before anything happens. Vatrano seems pretty sure that he’s not going to be living in California in 2035. What’s more, he’s also pretty sure he won’t be living in a higher-tax state or country (like Canada) either.
If the Sharks were to do a deal like this, it would have to be with a player that sees similar tax value in deferring their money to a later date. Younger players may not be willing since it’s a long way down the road. Older players, though willing, may not see the financial value in deferring.
In other words, it takes a specific set of circumstances for the Sharks to make a deal like this and those situations don’t come along every day.
