As an aside, does this imply that the new formula will stop the cap from increasing too fast relative to league revenue?
im a little confused about why players hate escrow so much because i assume if the league overperforms the cap then they just get something of a “tax return” at the end of the season. and if it doesn’t over perform well then they just never earned that money to begin with.
Here's a short primer on how the cap structure works, including how it increases from year to year, along with the escrow situation (up to the new 2020 CBA, anyway).
First....cap. It is very important to realize that the initial cap calculation is done COMLETELY NEW EVERY YEAR. In other words, the league creates a kind of 'estimate' of what it's HRR is going to be, and then does a proposal of a cap for the NHLPA. This calculation does NOT, repeat, DOES NOT, use last year's cap in any way.
Following that proposal, the PA has the right to use their escalator clause so that the cap does not stagnate. Traditionally, they have used this. The reason they would use it is so that 'new crop' UFAs can get a larger contract than the last year's FAs. However, this is the PA's choice.
Second, escrow: Completely independent of the cap situation. All monies which are deemed HRR by the CBA are calculated and added together for all the teams at the end of the year. The players are entitled to 50% of those monies. However, certain layer costs, like LTIR and buyouts, which do not count as anyone's salary, DO count toward the 50% rule. The league's accountants watch the incoming monies all through the year, and they adjust the amount taken out for escrow as the year goes on. The goal is that MORE will be put into escrow than is actually needed, because then if there is extra, it can be distributed to the player's according their salary's %age of the total salaries of all paid players. And, you are correct, that last piece is like a 'tax return' in the way it comes to the players. Whatever is not returned to the players is the 'escrow losses'.
The problems with this system are:
-Since there are more player costs than just salaries, the linkage between HRR and the salary cap is very weak, and does not guarantee that escrow losses will be small.
-The weak linkage that exists assumes that teams will spend to the midpoint of the ceiling/floor numbers. Of course, market forces will dictate that most teams will spend nearer to the ceiling, so this introduces excess salary spending, which increases escrow losses.
-If the players choose too high a number for their escalator, then that also increases escrow losses.
Best solutions:
- Link the HRR estimate to the ceiling rather that the midpoint. There really doesn't need to be a midpoint.
- Players cease to use the escalator (this is already happening)
However, the problem with every 'solution' is that it LOOKS LIKE player salaries will decrease or be stagnant. Of course, in real dollars, this does not happen, because the number on the contract is NOT the number that the player will actually be paid (escrow losses). But, there is a 'face-saving' piece to this puzzle which is difficult to manage.
COVID gives opportunity to straighten some of this out, because everyone know that 19-20 and 20-21 will NOT be normal years, so whatever happens there can't be considered a baseline for anything, and that means there is a window to repair some of what is wrong for the 21-22 season and beyond.
