Devils' Kovalchuk Returns To The Land Of The Lower Tax Rate

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Ilya Kovalchuk (17) left the New Jersey Devils to play in his native Russia. (Julio Cortez/AP)

On July 11, New Jersey Devils star winger Ilya Kovalchuk walked away from his 12-year, $77-million NHL contract so that he could return to his native Russia. Bill Littlefield spoke Mike Sielski, who wrote about the move in the Wall Street Journal.

BL: Kovalchuk is 30 years old. He has tallied more than 400 career goals. Why did he walk away at the peak of his hockey abilities?

MS: A couple of different reasons. First of all, given the two tax rates, one in the United States and on in Russia, he stands to make quite a bit more money in the KHL, the Kontinental Hockey League, than he would have with the Devils. We crunched some numbers on this. Over the next four years of his contract with the Devils he would earn $46 million in real gross dollars, but he'd end up paying more than half of that in various federal and state taxes.

Now, no one exactly knows, other than Ilya himself and his agent and the KHL team he signed with, SKA St. Petersburg, exactly how much his new contract is for. We do know it's for four years. But he'd only have to make about $6.6 million a year annually over those four years to match what he was making with the Devils. Plus, his family is there. When he came back after the lockout last year after having played in the KHL during the lockout, he was kinda wistful about wanting to go back. Anybody who spent any time talking with him could tell he really enjoyed it over there, so it's a combination of a couple different factors, I would say.

BL: Could the Devils have stopped Kovalchuk from playing somewhere else?

[sidebar title="A KHL Team's Tragedy And Turnaround" width="630" align="right"]After a 2011 plane crash killed nearly the entire Russian pro hockey team Lokomotiv Yaroslavl, the squad returned to the ice for the 2012-13 season. Tal Pinchevsky of spoke with Bill Littlefield in March 2013 about their comeback.[/sidebar]MS: They could have, yes. They could have challenged this under the NHL bylaws. That said, I think they knew that this was how Kovalchuk felt coming back from the KHL after the lockout ended. And, I think, rather than fight it, the Devils looked at it and said, 'Well, we're not going to change his mind and if we let him go we do free up significant space under the salary cap. So down the road, we'll be able to acquire a player who can approximate what Kovalchuk would have given us.'

BL: Other than being close to family and potentially making more money because he's paying so much less in taxes, what are the other benefits for anybody playing in Russia, assuming there are some?

MS: Well, if you're a Russian player, obviously you're close to family, you become a national hero again. The other is that the KHL is really trying to establish itself, I think, as a viable alternative to the NHL. So if you're Kovalchuk and you want to be at the forefront of that movement, suddenly going home seems pretty appealing.

BL: When word of this relatively attractive 13 percent flat tax rate in Russia get out, are we likely to see other NHL players, whether or not they're Russians, heading in that direction?

MS: I think Russian players will obviously be more tempted to do that. But I also think that these guys are all competitors and they want to test themselves at the very highest level of their sport. And at the moment, and for a long time, the NHL is that level. So I don't think there's going to be a mass exodus to the KHL. I think in a lot of respects, Kovalchuk's was kinda sui generis. He wanted to go back, he had family there. He felt the time was right for him. I don't necessarily think we're gonna see a flood of European players heading over there.

This segment aired on July 20, 2013.


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