Escrow?

Discussion in 'The Business of Hockey' started by trahans99, Aug 27, 2006.

  1. trahans99

    trahans99 Registered User

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    Can someone tell me how the escrow works and is calculated? I remember reading about how last year the players had to put a % of each paycheque to this escrow account (think 8-12%).

    If my memory serves me correct its based on the fact that the median (half way from cap ceiling and floor - roughly $30 million).

    So if i'm correct - please tell me if i'm wrong - this years median is $34M (24 floor, 44 cap). It seems to me that an awful lot of teams are closer to the cap than the median, are the players going to have to put in a larger % to this escrow account this year?
     
  2. vbet*

    vbet* Guest

    2.1 billion expected revenues x 54% divided by 30 teams is a midpoint of 36 million.

    If they look at team salaries and find out that the average payroll is 42 million would have them start off with a 17% escrow, maybe even 20% this year.

    Escrow is re calculated a few times a year and adjusted if necessary.

    Lower paid players are getting screwed this year.
     
  3. trahans99

    trahans99 Registered User

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    Thanks I knew it was in mid 30's and that salaries seem pretty high so far. I read that every team is in high 30's and low 40's... well not every team but quite a few.
     
  4. joshjull

    joshjull Moderator

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    As of right now the average actual payroll , not cap hit, in the NHL is about 38mil. Thats with an average of 21 players signed per team, so each team theoretically needs to sign on average two more players. That could take the average payroll up to 39-41mil. But that would only create an escrow percentage of 8-12%.

    I was wondering if there was a provision in the CBA to maintain the minimum salary. I think I'm going to dive back in to the CBA to try and find out. If there isn't then you are right it really does suck for the lower paid guys. There really isn't a league min salary if through the escrow they end up getting paid less.
     
    Last edited: Aug 27, 2006
  5. trahans99

    trahans99 Registered User

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    Still 8-12% is alot, it just shows that it was a requirement and that a salary cap alone was not enough to stop the nuckledhead GM's from signing huge contracts.
     
  6. RangerBoy

    RangerBoy TRUST THE PROCESS

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    Some players aren't going to be happy:shakehead
     
  7. LadyStanley

    LadyStanley Elasmobranchology-go

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    From Strachan's story, what "scares" me (as a fan) the most is that the *players* can end the CBA after the 2007-2008 season. That could result in a real nasty labor conflict that the league may never come out of.

    Of course, I do realize that Strachan specializes in FUD and anything that will get his column read.
     
  8. vbet*

    vbet* Guest

    They could help the situation out by stipulating all contracts under 1.5 million are not influenced by escrow and others cannot drop to less than 1.5 million. The higher salaries are causing the problems and should be the most hit by escrow.
     
  9. RangerBoy

    RangerBoy TRUST THE PROCESS

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    Strach is wrong on his dates

    http://www.nhl.com/nhlhq/cba/index.html
     
  10. joshjull

    joshjull Moderator

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    Thats not entirely fair. The 44mil is the upper limit of the payroll range not a traditional salary cap. The actual "cap" is 54% of league revenues which averages out to 36mil per team. The players agents and the players should be well aware of that. Saskin tried to address this in meetings earlier in the summer but the usual morons (player agents + Chelios and friends) saw conspiracies and underhandedness at work. Saskin wanted to make the upper limit only 4 or 6 mil above the 36mil (54%) and the lower limit 10-12 mil below it. Obviously if the upper limit was 40mil it would put the average payroll lower than it is now. Because most teams try and leave a little space (1-2mil) below the upper limit in case of injuries or trades, etc. This of course would lead to a much smaller escrow number. But the same idiots that fought Saskin are now complaining about the situation. :shakehead
     
  11. joshjull

    joshjull Moderator

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    The point of the escrow is to make sure the players only get 54%. That would defeat the whole point of the escrow if the majority of players are exempt from it. Plus the top guys would be paying rediculously hugh escrow amounts to make up the difference. If anything maybe make it so no player can be paid less than the minimum. That would have a nominal effect on the escrow situation and protect the lesser paid players.
     
  12. kdb209

    kdb209 Registered User

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    Yup. Saskin's proposal was to change the Cap/Floor from midpoint+$8M/midpoint-$8M to midpoint+$5M/midpoint-$11M, to avoid just this type of large escrow percentage. The league was willing to accept the change, but there was no traction among the players. Since this would have been a change to the CBA, a player vote would have been needed.

    Things could have been worse. At least Saskin and the PA agreed to use an existing clause in the CBA that allowed them to base the cap on 100% of last years revenues (rather than including a 5% inflation factor). Otherwise the cap would have been $46.2M rather than $44M.
     
  13. joshjull

    joshjull Moderator

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    Makes me wonder if the agents percentage is based on the signed contract amount and not what the player actually may get paid minus escrow. Thus the agents wanting a higher cap ceiling to allow for bigger deals thus bigger pay days for themselves.
     
  14. puckhead103*

    puckhead103* Guest

    what is FUD?
     
  15. kdb209

    kdb209 Registered User

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    Fear, Uncertainty, and Doubt. Tech Sales/Marketing-speak - half truths and innuendo used to disparage a competitors product.
     
  16. trahans99

    trahans99 Registered User

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  17. braincramp

    braincramp Registered User

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    The NHL Clubs will pay out 54% of their hockey-related revenues to NHL Players as actual salaries, bonuses, and benefits when the final numbers are calculated. No more, no less. If revenues are higher than estimated, the owners must dig in their pockets. If revenues are lower than estimated, the players will cough it up from the escrow fund. That 54% will happen.

    The only issue regarding high- vs. low-priced players is obvious. However much you pay one player, that's less for anyone else. One $6M player in the league has the same impact as two $3M players.

    The salary cap (upper/lower limit of averaged club salary) serves three control purposes: it keeps any one club from over/underspending at a rate which would endanger the 54% formula above, and it serves to maintain equity between club vs. club spending and within a club (via the 20% player maximum). It's also derived from a pre-season estimate of hockey revenues, but is never adjusted for actual results, and no escrow account is applicable.

    Some other musings:

    The escrow account earns interest, so the players aren't out anything if they collect what they deserve at the end of the year. They can learn to live within their budgets if I can live within mine, which was never measured in the millions. They just must realize that the number on their contract has a few ifs, ands, and buts attached.

    If the owners are awful for offering too much for stars and thereby leaving less for lower-priced players, why aren't the stars awful for demanding such high salaries and depriving their fellow players?

    All these guys are signatories to this agreement.

    I notice that the Chairman of the Board of Exxon also makes a disproportionately large part of his company's salary budget, even if he is a star.
     
  18. puckhead103*

    puckhead103* Guest

    thanks...

    i thought it was an obscene acronym....
     
  19. joshjull

    joshjull Moderator

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    They are just quoting Strachan's article from the Toronto Sun, no new information. He is using a couple of agents, who obviously have an agenda, to come up with that figure. Strachan has been railing against this CBA since its inception. While whining about the escrow for next year did these agents forget about the profit sharing checks every player got this off season on top of getting their escrow back to get the players up to 54%. Because the players have to get 54% of the revenue, no more no less. As Daly said its a promise not a goal.
     
  20. jamiebez

    jamiebez Registered User

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    Does that decision apply to the life of the CBA, or can they change their minds on a year-to-year basis in the offseason?
     
  21. braincramp

    braincramp Registered User

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    [FONT=Georgia, serif]50.5(b) "Lower Limit" and "Upper Limit." For each League Year there shall be a "Lower Limit" and an "Upper Limit" at or between which each Club must have an Averaged Club Salary. The range between the Lower Limit and Upper Limit shall be known as the "Team Payroll Range" (the "Payroll Range" or "Range").[/FONT]

    [FONT=Georgia, serif](i) The Upper and Lower Limits of the Team Payroll Range shall be determined in accordance with the following formula:[/FONT]

    [FONT=Georgia, serif]Preliminary HRR for the prior League Year multiplied by [x] the Applicable Percentage (as defined in Section 50.4(b) of this Agreement), minus [-] Preliminary Benefits, divided [/] by the number of Clubs then playing in the NHL (e.g., 30), shall equal [=] the Midpoint of the Payroll Range, which shall be adjusted upward by a factor of five (5) percent in each League Year (yielding the Adjusted Midpoint) until League-wide Actual HRR equals or exceeds $2.1 billion, at which point the five (5) percent growth factor shall continue unless or until either party to this Agreement proposes a different growth factor based on actual revenue experience and/or projections, in which case the parties shall discuss and agree upon a new factor. If a significant (i.e., $20 million or more) one-time increase or decrease to League-wide revenues (e.g., by reason of the addition or loss of a national television contract or the scheduled opening of one or more new arenas which is expected to result in a significant increase in League-wide revenues) is anticipated in the next League Year, the parties will endeavor to estimate the expected increase or decrease and incorporate that estimate into the above-stated formula for calculating the Adjusted Midpoint.[/FONT]
    [FONT=Georgia, serif]After adjustment for the revenue growth factor, the Payroll Range shall be constructed by adding $8 million to the Adjusted Midpoint to establish the Upper Limit, and subtracting $8 million from the "Adjusted Midpoint" to establish the Lower Limit.[/FONT]
     
  22. kdb209

    kdb209 Registered User

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    That decision (to forego the 5% inflation factor) applies going forward untill both sides agree to change it again. There is nothing stopping them from changing it year-to-year, as long as both the NHL and NHLPA agree.

     
  23. Mighty Duck

    Mighty Duck Registered User

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    we must not forget that if the league revenue hits $2.3 Billion, the players will get 55.5% of league revenue.
    That calculates to another $1 million per team. Last year, players will get all the escrow back plus some. The escrow is a built in insurance policy for the league in case the league falls below expected or projected revenue. I suspect based on last years success, the league should hit above the 2.3 mark.
     
  24. kdb209

    kdb209 Registered User

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    I think that $2.3B is a bit optimistic - an almost 10% increase in revenues.

    Working backwards from the $44M cap / $36M midpoint gives a 2005-06 actual HRR of $2.12B.

    Hitting $2.2B is more realistic, which would be enough to boost the Players' Share to 55%.

    The reason that all (or almost all) of the escrow $$$s got returned was not that last year was such a rousing success, but that the NHL and NHLPA lowballed their revenue estimates given all of the unknowns coming out of the lockout.

    Given that this years cap is based on actual revenues (unlike last season's SWAG) and given that the average team payroll seems to be significantly above the midpoint, I would be very surprised if the players got most of their escrow back like last season.
     
  25. Resolute

    Resolute Registered User

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    Last years success was based upon the fact that the estimate of revenues at $1.8 billion was a wild guess.

    Chances are that revenue growth will be in the 3-5% range as it was in the final few years of the last CBA. Without expansion or a large national TV deal being signed, the double digit revenue increases are not going to happen again.

    Revenues will more than likely fall below $2.3 billion, and the players are not going to be happy about what they will be paying. That said, I doubt that should they end the CBA at the first option year that there will be a labour battle like what LadyStanley is fearing. The players already know the owners will work together, so the system in place is almost certant to remain in place. Ending the deal early would likely be a tactical move to change the numbers. Either lower maximum escrow, higher percentage of revenue, etc. Nothing that will doom the league.
     

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