2019-20 escrow set at 14% 1st quarter

[Noldo]

One recommendation I would make for the next CBA is to still allow LTIR in a similar fashion as it exists today. However LTIR relief from a contract each season would be limited to the lesser amount of the player salary/bonuses for that league year or the AAV.

My theory behind this is it would stop LTIR from causing active roster players to in net receive more then the contract AAV. Which is one thing that pushes up escrow for all players.

E.g. Player signs a six year $30m contract, $5m AAV. Annual salary breakdown is: $7m, $6m, $6m, $4m, $3.5m, $3.5m.

Player goes onto LTIR for years 5 & 6 of this contract. At this point in time the player has been paid $23m while having a net cap hit of $20m. Under the current system LTIR allows the team to fully replace the AAV, resulting in that original $30m contract causing $33m of active roster spending.

My suggestion would cap the maximum LTIR relief at $3.5m in years 5 & 6. The player would still carry their $5m AAV cap hit, so in effect the team’s maximum active roster space will be reduced by at least $1.5m.

I see this change as being similar to the idea of Buyouts reclaiming cap space based on how much the player was “overpaid” in the early years of the contract vs their cap hit.

Looking sensible ideas like this (as well as the more dramatic change to the cap formula aiming to reduce the space between ceiling and revenue based target (current day midpoint)) the first though that comes to my mind is:

Who are financial/ economic advisors involved in the CBA negotiations? Aren’t Bettman and Fehr both lawyers?

I sincerely hope that they would have a team of experts running various models and trying to estimate how different ideas would affect various parties (free agents, players on contract, small market teams, big spenders).

 

[varano]

If you gave every NHL player a two question quiz consisting of:

What does Escrow do?

Why does Escrow need to be in place?

what percentage of players would answer correctly?

All of them.

 

[Filthy Dangles]

All of them.

is this sarcasm?

 

[LeHab]

Escrow has been historically set at an absolute 5-10% higher then final escrow. Meaning an opening prediction of 14% translates to a final escrow of 4-9%. If it comes in towards the lower range that's pretty good for the players.

Since 2013 CBA went into effect with 50/50 split, escrow refunds are rather meager: Escrow Calculator | Gavin Group

There was the make whole provision in effect for some time but overall we are looking at 2-4% refunded on average. Still waiting for numbers for the past two seasons but I would be surprised to see >5% refunded unless there is an unexpected increase in revenues.

Last season escrow retention was initially set at 11.5% then raised to 13.5% mid-season to offset lower revenues. We will see if any adjustment occurs later this year.

 

[Henkka]

Bonuses will tend to do this, as the year goes on the escrow % will flatten out; actually should be an easy number to back out from as the midpoint/cap are known and so are the bonuses.

Yeah, it's the insanity of all signing bonuses. They should limit those to half on next CBA.

 

[Ted Hoffman]

Yeah, it's the insanity of all signing bonuses. They should limit those to half on next CBA.

Why? It still counts against the cap just like if it was salary. If teams are too dumb to keep themselves from having to write $50-60 million in checks on July 1, that's their problem. They should learn how to say "no." If players are too dumb to realize front-loaded contracts (with or without huge signing bonuses) negatively impact escrow, that's their problem. Let them suffer the consequences of trying to grab every last dollar as quickly as possible.

 

[mouser]

Looking from a view of the NHL owners I see two primary issues with Signing Bonuses:

A) Making contracts effectively buyout proof. I don’t think it was ever the intent of the CBA negotiations to create buyout proof contracts, which have been increasing in recent years. I don’t have a proposed solution to this other then the obvious answer to cap signing bonuses at some % of the total contract or make signing bonuses subject to buyout at some reduced %.

More importantly to me is:

B) Signing Bonuses are distorting trade values. There’s something fundamentally wrong when trading a player on June 30th vs July 1st can create big differences in the player value after a July 1st signing bonus.

Simple example: Player on Team A on a $4m AAV contract with one year remaining on their contract is owed $4m total. $3m signing bonus on July 1st and $1m salary.

- Scenario (1) Player is traded on June 30 to Team B. Team B now pays the player $4m and has the $4m AAV cap hit.

- Scenario (2) Player is traded on July 1st to Team B. Team A pays the player $3m and has $0 AAV cap hit. Team B pays the player $1m and has a $4m AAV cap hit.


Scenario (2) is the most warping situation, and it comes up very regularly in recent years. I’ve thought through various ways to address it, but so many possible solutions simply create a different loophole to exploit.

So far the best idea I’ve come up with is: If Team A pays a Player’s Signing Bonus during a season and subsequently Trades that Player to Team B then Team B must repay Team A a pro-rated portion of the Signing Bonus equal to the % of time the Player was on Team A’s roster during the regular season.

This would transform our Scenario (2) into:

- Scenario (2A): Team A pays Player $3m Bonus on July 1st and then Trades Player to Team B. Team B must now pay Team A $3m because the Player spent zero time on Team A’s regular season roster. No financial benefit to Team B or flexing financial power by Team A. Compensation paid and cap hit AAV are identical for both teams.

- Scenario (2B) Team A pays Player $3m Bonus on July 1st and later Trades Player to Team B exactly halfway through the regular season. Team B would have to pay Team A $1.5m (50%) as part of the trade. Both Team A and B end up paying the Player the same total $2m each while also taking a equal $2m cap hit.

 

[Ola]

In the end, escrow is only a problem if the players are as financially responsible and aware as the normal 13 y/o.

Really, it shouldn’t be impossible for agents to explain this when a contract is signed.

 

[Ted Hoffman]

B) Signing Bonuses are distorting trade values. There’s something fundamentally wrong when trading a player on June 30th vs July 1st can create big differences in the player value after a July 1st signing bonus.

Simple example: Player on Team A on a $4m AAV contract with one year remaining on their contract is owed $4m total. $3m signing bonus on July 1st and $1m salary.

- Scenario (1) Player is traded on June 30 to Team B. Team B now pays the player $4m and has the $4m AAV cap hit.

- Scenario (2) Player is traded on July 1st to Team B. Team A pays the player $3m and has $0 AAV cap hit. Team B pays the player $1m and has a $4m AAV cap hit.

I'm not really that bothered that Team B is taking the full cap hit in (2). Yeah, they're only paying $1M and incurring 4x that for a cap hit; that's presumably loaded into the trade, though. When the Blues got O'Reilly from Buffalo, the deal was that they'd pay a lower price in exchange for writing the bonus check. Had the Blues not written the check, Buffalo was prepared to just sit on ROR and write the check themselves. (How willing they really were to do that is another discussion.)

Where I might have a problem with signing bonuses is that under the current rules, they arguably are exempt from buyouts. However, the tradeoff is that anyone who wants to execute a buyout of a heavily bonus-laden contract incurs a much more punitive cap charge ... so, I don't know that I'm so bothered by it that I'd say, "that has to be changed." Again, if teams want to handcuff themselves like that, go for it.