Each year the league sets a payroll midpoint, equaling 54% of the avg. club's revenue
Teams can spend up to $8 mill. above or below the midpoint (the range is slightly higher for the 2005-06 season)
Since teams can spend anywhere in this $16 mill. range, there's a high probability that total compensation of players will be greater than 54%
To protect against such overpayment, the league requires a portion of each player's salary to be set in escrow; that money will be used as one of several sources to fund revenue sharing, which is designed to allow representative and competitive payrolls
Clubs start with 54% of their own revenues for payroll, and revenue sharing makes up the difference.
There are two batches of revenue sharing:
First batch - equal to 4.5% of league revenues (estimated to be $78 mill. this season); this batch aims to allow clubs to afford payrolls of $4 mill. below the midpoint; it is funded by league media revenue, playoff gate receipts, escrow funds, and top-grossing clubs
Second batch - designed to help clubs get to the midpoint but not over it; funded by excess escrow funds, if available
Any leftover escrow funds are to be distributed evenly between all 30 NHL clubs.