Now that the CBA is out ...

Discussion in 'The Business of Hockey' started by RTWAP*, Jun 29, 2006.

  1. RTWAP*

    RTWAP* Guest

    Can we answer the question about how the escrow is distributed?

    I'm interested in a specific scenario. Let's use next year's numbers for simplicity and assume that revenue comes in pretty close to this year's.

    Scenario A) The top 10 teams all spend to the cap ($44M) and the bottom 20 teams all spend $32M which would average out to $36M league-wide and result in no escrow payments or salary top-ups.

    Scenario B) All the teams spend $44M, which means the league is over the league cap by $240M. Here's where the distribution question comes in. If that $240M is distributed to the 20 teams that would have spend $32M in Scenario A, then they would get $12M each (on average). Which means their actual salary costs after factoring in the escrow distribution would be ... $32M. This is exactly the same as in Scenario A.

    So unless there is a huge hole in that supposition, that means the poorer teams in the league have a mechanism to completely wipe out any cap advantage of the rich teams.

    That can't be right, can it?
     
  2. kdb209

    kdb209 Global Moderator

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    No it's not.

    There are 3 stages of excess escrow payments being returned to the league.

    1. Excess escrow from the top 10 revenue teams is used to fund up to 1/3 of the cost of the first round of revenue sharing.

    2. Any remaining excess escrow is used for the second round of revenue sharing (to allow a team to afford up to the salary midpoint). Any team with a payroll over the midpoint is not eligible for these funds.

    3. Any remaining escrow funds are divided 30 ways and returned equally to all teams.

    So, in your pathological case:

    First the escrow dollars from the top 10 revenue teams would be used to fund the first round of revenue sharing. Low revenue teams are eligible for this, even if they spend over the cap midpoint.

    Second, since every team is over the midpoint, there is no second round of revenue sharing, so no escrow funds are used.

    Finally, the remaining funds are split 30 ways and returned equally to all teams.

     
  3. RTWAP*

    RTWAP* Guest

    Pathological case? I like that.

    So how about ...

    Scenario C)
    If all the teams are willing to budget at least about $36 million for payroll (a big if), and then realizing this, they all actually spend $44 million, then the revenue sharing would probably look after the low revenue clubs special distributions. There's a $10 million marketing distribution, and then the remaining $230 million would be split 30 ways (almost $8 million each). Which would leave any team that actually budgeted $36 million pretty much at budget.

    I'm not suggesting that this extreme case would happen, but if the system does have a tendency to slowly push mid-level team budgets upwards then that's good to know. It could have a significant effect over the life of some of these 4 or 5 year contracts.
     

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