Salary Cap: Escrow is a Dirty Word in NHL Dressing Rooms

[KINGS17]

Pretty good article on escrow in The Athletic.

Why the NHL's salary cap is actually unlikely to rise much...

The escrow problem

SEASON	PER-TEAM HRR GROWTH	ESCROW WITHHOLDING	ESCROW RETURNED
2013-14	8.90%	14.00%	3.70%
2014-15	7.60%	15.00%	2.10%
2015-16	3.00%	17.00%	3.30%
2016-17	8.00%	15.50%	2.80%
2017-18	6.20%	11.50%	3.00%
2018-19	4.70%	11.50%	TBD
2019-20	TBD	14.00%	TBD

[TBODY] [/TBODY]
[TBODY] [/TBODY]

This isn't really a problem. This is basic math. The players were stupid for continually applying the escalator to the salary cap. All it did was take money out of the pockets of players already under contract and transfer it to players who were negotiating new contracts.

Hey NHLPA, you might want to figure this out and tell your members they get 50% of the hockey related revenue. Increasing the total cap of all NHL teams to some number greater than 50% of HRR means guess what? ESCROW!

The one issue that is almost always forgotten in calculating HRR is the value of the Candian dollar. The U.S. economy despite the latest corona virus "crisis" (it's not) is very strong. Economists are expecting a drop in the Canadian dollar to 0.70 of a U.S. dollar. That is not good news for the salary cap.

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[DoktorJeep]

Does the escrow money get returned to the players at some point? Like after the season once the financials are settled and the league is shown to be profitable?

 

[KingsFan7824]

That's why the hard cap doesn't work. For the players. Nobody wants to sacrifice for the greater good. The players that already have their big contract, they don't want to give up more of their money. The players that haven't hit free agency yet, want a chance to have to give back more money, since they'll still get more money overall than they previously had.

 

[KINGS17]

That's why the hard cap doesn't work. For the players. Nobody wants to sacrifice for the greater good. The players that already have their big contract, they don't want to give up more of their money. The players that haven't hit free agency yet, want a chance to have to give back more money, since they'll still get more money overall than they previously had.

The hard cap works for the owners and the NHL. The players need to figure it out for themselves.

 

[KingLB]

Random question, is escrow before or after tax?

 

[Legionnaire]

Escrow is the biggest scam going.

 

[Master Yoda]

Random question, is escrow before or after tax?

They probably pay escrow before tax. I'd think they don't want to pay taxes on money they may never get back.
Then they can just pay taxes on any returned escrow.

 

[KINGS17]

Random question, is escrow before or after tax?

Good question, but I think it would have to be pre-tax. The players' gross income is based on 50% of the NHL's HRR.

 

[KINGS17]

Escrow is the biggest scam going.

How so? The players, and especially their agents know the players are going to get 50% of the HRR every season. The players wanted the cap escalator clause in the CBA so UFAs could get more money when they signed. The players, and especially their agents, should have realized the guys getting new contracts were doing so at the expense of the players already under contract. Use of the escalator clause is on the players. No one was holding a gun to their heads every year they voted to use it.

 

[KINGS17]

Does the escrow money get returned to the players at some point? Like after the season once the financials are settled and the league is shown to be profitable?

As the table shows in the "Escrow Returned" column the owners return money in escrow to the players until they have paid out 50% of the HRR. Take the 2017-18 season for example. The owner's put in escrow 11.5% of player salaries. When the final HRR numbers were tallied for that season the owners returned 3% of the 11.5% that was kept in escrow.

In effect, for the 2017-18 season, every NHL player took a haircut of an 8.5% reduction in their gross pay, because the NHL did not make enough HRR for 50% of it to cover their combined salaries.

 

[kilowatt]

Is there a league that does a salary cap well?

 

[Legionnaire]

How so? The players, and especially their agents know the players are going to get 50% of the HRR every season. The players wanted the cap escalator clause in the CBA so UFAs could get more money when they signed. The players, and especially their agents, should have realized the guys getting new contracts were doing so at the expense of the players already under contract. Use of the escalator clause is on the players. No one was holding a gun to their heads every year they voted to use it.

Just like taxes. I can do more with a dollar that isn't in limbo or taken prematurely. Duh.

Ever think about that? The US government demands you pay first. In what other world do you pay up front for corrupt, and shitty performance?

 

[KINGS17]

Just like taxes. I can do more with a dollar that isn't in limbo or taken prematurely. Duh.

Ever think about that? The US government demands you pay first. In what other world do you pay up front for corrupt, and shitty performance?

Okay, I don't understand your post at all. The CBA calls for an escrow account which holds funds to cover the amount players are over in the total amount of their contracts of the 50% HRR threshold. There is nothing shady about it at all. Until the accountants of both sides get together and determine the HRR amount for a season, the players and owners can't settle up and each get their 50/50 split of HRR. It isn't a hard concept to understand.

The U.S. government demands you pay your taxes as money is earned. If you are paying your taxes up front and don't owe something on April 15, well you gave them too much of your money, and that's on you.

 

[KINGS17]

Is there a league that does a salary cap well?

Is there a league where all teams are financially healthy without a salary cap? Some teams manage the cap well, and others don't. That is the GM's fault.

 

[kilowatt]

Is there a league where all teams are financially healthy without a salary cap?

¯\_(ツ)_/¯

 

[Statto]

Is there a league where all teams are financially healthy without a salary cap? Some teams manage the cap well, and others don't. That is the GM's fault.

Quite. The alternative is they have a cap that goes down on a regular or periodic basis when revenues fall short of expected numbers which wouldn’t work for anyone. The only way that works is if contracts are not guaranteed. Players cannot have it both ways.

I have little sympathy as when the next CBA comes up, the focus will again be on star players making maximum numbers. Things like minimum numbers, the benevolent fund, head injuries etc will all be secondary issues when they should all fall behind getting more money for established players.

Both sides need to start by giving up more money for the benevolent fund and historical injuries and health issues but I digress.

 

[onlyalad]

How do front loaded contracts affect the cap? Especially if the player retires before finishing his deal.

 

[King'sPawn]

How do front loaded contracts affect the cap? Especially if the player retires before finishing his deal.

They don't at all. To my understanding. Though to be honest, this is the aspect of hockey business I'm most woefully ignorant and don't understand. The escrow stuff confuses me.

The cap is based on revenue, not profit.

 

[KINGS17]

Quite. The alternative is they have a cap that goes down on a regular or periodic basis when revenues fall short of expected numbers which wouldn’t work for anyone. The only way that works is if contracts are not guaranteed. Players cannot have it both ways.

I have little sympathy as when the next CBA comes up, the focus will again be on star players making maximum numbers. Things like minimum numbers, the benevolent fund, head injuries etc will all be secondary issues when they should all fall behind getting more money for established players.

Both sides need to start by giving up more money for the benevolent fund and historical injuries and health issues but I digress.

We are about to see this play out in the NFL CBA negotiations.

 

[Bandit]

Escrow is the biggest scam going.

Nah, that would be the stock market.

 

[onlyalad]

They don't at all. To my understanding. Though to be honest, this is the aspect of hockey business I'm most woefully ignorant and don't understand. The escrow stuff confuses me.

The cap is based on revenue, not profit.

Ok I meant escrow. If a team has a higher payroll than cap hit, wouldn’t escrow have to be taken to make sure all the teams only pay the actual dollars total?

 

[KINGS17]

Ok I meant escrow. If a team has a higher payroll than cap hit, wouldn’t escrow have to be taken to make sure all the teams only pay the actual dollars total?

When it comes to escrow, I don't think the NHL cares about the cap hit. Escrow comes entirely from the players pay checks and is a percentage calculated by a formula in the CBA.

 

[Legionnaire]

Okay, I don't understand your post at all. The CBA calls for an escrow account which holds funds to cover the amount players are over in the total amount of their contracts of the 50% HRR threshold. There is nothing shady about it at all. Until the accountants of both sides get together and determine the HRR amount for a season, the players and owners can't settle up and each get their 50/50 split of HRR. It isn't a hard concept to understand.

The U.S. government demands you pay your taxes as money is earned. If you are paying your taxes up front and don't owe something on April 15, well you gave them too much of your money, and that's on you.

No. I get it. Escrow and withholdings are nothing more than profiteering.

Edit: Think about it like this: there are potentially excellent investments that occur every day. How are you supposed to take advantage when you don't have liquid assets?

 

[Raccoon Jesus]

No. I get it. Escrow and withholdings are nothing more than profiteering.

Edit: Think about it like this: there are potentially excellent investments that occur every day. How are you supposed to take advantage when you don't have liquid assets?

It's in escrow, hence frozen. No one is profiteering off that money until it's released. It's not like the NHL is withholding a portion of it and making money off it.

 

[Legionnaire]

It's in escrow, hence frozen. No one is profiteering off that money until it's released. It's not like the NHL is withholding a portion of it and making money off it.

Of course it is. Pay me first.