Why CFL players restructure their contracts

While it’s easy to understand why Montreal Alouettes general manager Jim Popp would want to restructure the contracts of highly-paid stars like receiver S.J. Green and linebackers Chip Cox and Bear Woods – more salary cap flexibility – it does beg an important question: what’s in it for the player?

In a word: money.

American players pay income tax in Canada just like the rest of us do but a provision in the Canada-U.S. income tax treaty allows international players who maintain a permanent residence south of the border to be taxed just 15 per cent on any signing bonus – much less than their usual Canadian tax rate.

According to CFL sources, Green’s original contract called for a salary of $250,000 in 2016, meaning he would have expected to pay approximately $105,000 in federal and provincial taxes for take home pay in the $145,000 range.

Under the newly-restructured deal, Green will be paid $225,000 but he received a $100,000 signing bonus. The bonus is taxed at 15 per cent ($15,000) while the remainder is taxed less because of Canada’s progressive tax system which sees higher income earners taxed at a higher rate. His total tax burden now about $58,000, leaving $167,000 remaining.

So even though the Green’s total compensation is $25,000 less he is actually taking home $22,000 more – getting a significant chunk of that money immediately. Cox, meanwhile goes from approximately $190,000 to $160,000 with a $65,000 bonus and sees a net gain of around $6,000.

The Alouettes, meanwhile, have saved more than $50,000 off their $5.1 million salary cap.

The other big benefit to both players is that they have more upfront money – no small consideration in a league with non-guaranteed contracts. It does add an element of risk for the team: all bonus money counts towards the cap so if a player is released at a later date, the savings would be less significant. That means teams would only want to restructure deals with players they think will be on the roster for the duration of the season.

Canadian players, of course, do not enjoy these benefits which is why they are less likely to restructure their deals for purely salary cap reasons.

Any money saved against the cap is a win for any franchise. Which brings us to all the talk about teams being over the cap in the winter months. Especially after money flowed freely at the onset of free agency, it’s possible a number of teams need to trim salary, and that will happen naturally.

Each organization can bring 75 players to training camp, with players checking in at various points on the pay scale. But being projected to be over the cap in February is much different than June. Rosters will be trimmed down to meet the standard 46 active player limit to begin the season. Cutting 20 players making the minimum CFL salary would save more than $1,000,000 on the cap.

Comments