Seravalli: Salary Cap to $82.5 million next season

[Breakers]

Can someone explain to the financially illiterate roughly how long paying back that escrow will be/what it means? I mean, I assume they’ll never be like “okay you owe us the entirety of this years salary still”. Is that just a number we’ll hear about all the time like the US debt but little ever happens

players who have negotiated contracts these past few offseason have been trying to middle load their contracts essentially to avoid escrow
Like Markstrom and piteangelo
Players who signed this offseason are trying to defer as much as possible into the 3rd of their deal when escrow is the lowest

 

[Confused Turnip]

The 2019-20 escalator was 0.5%. Which increased the cap ceiling by roughly $400k.

Multiplied by 31 teams, that's $12.4m in additional space, but not every team used it. A rough estimate is the escalator maybe added $10m of player debt into the Escrow Balance account in each of 2019-20 and 2020-21. That would contribute about $20m to the Escrow Balance that's over $1B. Frank suggested $1.1B.

In summary the escalator is a drop in the bucket, accounting for less then 2% of the Escrow Balance.

The escalator use to this point has caused the paper salaries and real salaries to diverge already, though. Do you think escrow would have been roughly neutral had COVID not happened? I see no way not to interpret it as just the second whammy.

 

[mouser]

The escalator use to this point has caused the paper salaries and real salaries to diverge already, though. Do you think escrow would have been roughly neutral had COVID not happened? I see no way not to interpret it as just the second whammy.

I think you may be misunderstanding how the escalator works. There’s no season to season carryover effect from the escalator—it doesn’t compound cap growth.

The 2019-20 salary cap was based solely on:
1) 2018-19 season revenue (HRR), and
2) The 0.5% 2018-19 escalator the PA used.

Some things that had no effect on the 2019-20 salary cap include:
1) The 2017-18 salary cap, or any prior season cap.
2) The 2017-18 escalator, or any prior season escalator.
3) 2017-18 season revenue HRR, or any prior season HRR.


Without Covid the players would have lost somewhere around 7-10% of their salaries to escrow in 2019-20. However at max only 0.5% (0.65% technically) of that would be due to the 2019-20 escalator.

The core escrow problem isn’t the escalator, it’s the cap formula being set too high. The NHL and PA agreed on changes to the cap formula in 2020 to address this. However those changes won’t go into effect until the Escrow Balance is paid back in 2025-26 or 2026-27. Until then we’ll have a essentially flat cap that increases by $1m/season.

 

[Confused Turnip]

I think you may be misunderstanding how the escalator works. There’s no season to season carryover effect from the escalator—it doesn’t compound cap growth.

You really think the escalator doesn't impact cap growth longer term? In order for that to be true it would have to be possible to lower the salary cap compared to a previous season, and it's (at least in practice, genuinely no idea about the CBA) not. Pump it high enough and it only stays there or goes up, league revenue not so much.

 

[Osakahaus]

can we just get a salary cap that isn't under 100M?

 

[Voight]

Daily Faceoff's projections:

SEASON	PROJ. SALARY CAP	PROJ. REVENUE	ENDING ESCROW BAL
2021-22	$81.5 MILLION	$4.8 BILLION	$1.3 BILLION
2022-23	$82.5 MILLION	$5.4 BILLION	$0.98 BILLION
2023-24	$83.5 MILLION	$5.6 BILLION	$0.63 BILLION
2024-25	$84.5 MILLION	$5.8 BILLION	$0.20 BILLION
2025-26	$85.5 MILLION	$6 BILLION	PAID OFF
2026-27	$91.4 MILLION	$6.2 BILLION	N/A

[TBODY] [/TBODY]

Free Agency Frenzy 2026 is going to be bonkers.

 

[Beukeboom Fan]

I completely agree that both sides got screwed by Covid and under the circumstances I think it's a pretty fair deal for all of the parties involved. But the OP was suggesting that the $1B escrow is somehow due to the players' choices and that's very much not true.

All numbers very rough.

The NHLPA didn't want to take a discount for either games played or no fans. I heard about 70% of NHL revenue is from the gate, and a pre-Covid regular season was about $5B per year. That means that the NHL had about $1.5B in revenue last year, of which the players would make $750M, but players salaries were about $2.1B ($5B x 50% of HRR =$2.5 - escrow of 15% means about $400m = $2.1B. The difference between the $2.1B - 50% of HRRwhich was $750m = 1.3B which the NHLPA owes the owners back.

Hope that helped.

 

[mouser]

You really think the escalator doesn't impact cap growth longer term? In order for that to be true it would have to be possible to lower the salary cap compared to a previous season, and it's (at least in practice, genuinely no idea about the CBA) not. Pump it high enough and it only stays there or goes up, league revenue not so much.

The escalator does not impact long term cap growth—it’s impossible.

It is possible to lower the cap season to season. However the NHL and PA have negotiated not to lower the cap until the Covid Escrow Balance is paid back.

 

[Confused Turnip]

The escalator does not impact long term cap growth—it’s impossible.

It is possible to lower the cap season to season. However the NHL and PA have negotiated not to lower the cap until the Covid Escrow Balance is paid back.

This looks incredibly naive to me, we're just going to have to agree to disagree. From where I sit what I see is if the players jack the cap to the moon it's politically impossible for the NHL to reign it in later even if the players have technically stopped for a season or two, pretty much regardless of where the cap 'should' be. The fact that even you expected the no-COVID escrow to still have been just under 10% should tell you as much, do you really think the league could have just dumped 10% of the cap to make the number 'right'? Every GM and every player on an expiring contract would riot. The number was already going to miss by a mile, and COVID just made it two or three miles.

 

[RoyalRed]

Great news! More "normalcy".

 

[mouser]

This looks incredibly naive to me, we're just going to have to agree to disagree. From where I sit what I see is if the players jack the cap to the moon it's politically impossible for the NHL to reign it in later even if the players have technically stopped for a season or two, pretty much regardless of where the cap 'should' be. The fact that even you expected the no-COVID escrow to still have been just under 10% should tell you as much, do you really think the league could have just dumped 10% of the cap to make the number 'right'? Every GM and every player on an expiring contract would riot. The number was already going to miss by a mile, and COVID just made it two or three miles.

And I’ll leave my summary again: the players did not do this. You have a misunderstanding of how the escalator works. I’d recommend going back and carefully reading my long post on the escalator.

 

[ElysiumAB]

Buncha nerds in here, amirite?

 

[Frank Drebin]

I get irrationally angry seeing this Seravelli name. Feels like at the E.D. most reporters respected the request for silence so that the "draft" had a bit of watch value but there was Frankie S. "breaking" every pick.

Never even heard of him before the expansion draft.

 

[MadLuke]

The players used their full escalator every year to make the numbers bigger, that's how we got here. It's Hollywood math, Tom Hanks or whoever didn't really make the salary numbers you hear, just like NHLers don't make the salary you hear, but you'd rather have the news reporting that you make 10 mil instead of the 7 mil you actually made for image reasons.

It is a bit the reverse for Hollywood, an actor like Tom Hanks during is prime was making more money from the revenues participation contract he had on is movies than is upfront salary.

So people would hear that Hanks is making 20M on some movie, in reality he was making 20M+10% of the "gross revenues" and that was turning sometime over 70 or 80M on a single movie when it was an hit (on DaVinci Code for example, 130.73M of the profit went to the talents he probably got around half of that for a 85m or so pay, for Forest Gump he printed money for a long time).

 

[Confused Turnip]

And I’ll leave my summary again: the players did not do this. You have a misunderstanding of how the escalator works. I’d recommend going back and carefully reading my long post on the escalator.

They used the maximum escalator from 2005-2017 or so, and continued to use lesser escalators since. Please, tell me more about how they haven't been jacking up the cap. I appreciate that you know the written on paper part of this very well but you're stuck in rigid thinking that doesn't let you see past paper to reality.

 

[mouser]

They used the maximum escalator from 2005-2017 or so, and continued to use lesser escalators since. Please, tell me more about how they haven't been jacking up the cap. I appreciate that you know the written on paper part of this very well but you're stuck in rigid thinking that doesn't let you see past paper to reality.

Doesn’t matter what escalator they used in 2005-2017.

The current salary cap was not increased by the 2005-2018 escalator decisions.

You incorrectly believe that the escalator compounds salary cap growth year over year. The escalator does not work that way—The escalator impact on the salary cap does not carry over from season to season.

 

[Crosschecker]

Buncha nerds in here, amirite?

 

[Kuhta]

If I remember correctly Toronto and Detroit had 80+m payroll before cap era.

Inflation adjusted and the cap wont reach their level even in 2027 if ever.

 

[JAK]

It is a bit the reverse for Hollywood, an actor like Tom Hanks during is prime was making more money from the revenues participation contract he had on is movies than is upfront salary.

So people would hear that Hanks is making 20M on some movie, in reality he was making 20M+10% of the "gross revenues" and that was turning sometime over 70 or 80M on a single movie when it was an hit (on DaVinci Code for example, 130.73M of the profit went to the talents, for Forest Gump he printed money for a long time).

Well, for Forrest Gump it was actually because the studio kept trying to slash budget so he and the director swapped salaries for creative control and higher participation in the earnings

 

[MadLuke]

If I remember correctly Toronto and Detroit had 80+m payroll before cap era.

Inflation adjusted and the cap wont reach their level even in 2027 if ever.

Rangers was at 76.5m just before 2004-2005, the Wings 77.85, Toronto peaked at 65m, Stars at 69.5, Blues at 68.7m if those are accurate:

List of team payrolls in the NHL - Wikipedia

Wings 77.85m in 2003 is around 115m 2021 dollars.

 

[TheTotalPackage]

Free Agency Frenzy 2026 is going to be bonkers.

The five years leading up to it though we are going to see a lot of teams get squeezed out of retaining good talent.

 

[Kuhta]

Rangers was at 76.5m just before 2004-2005, the Wings 77.85, Toronto peaked at 65m, Stars at 69.5, Blues at 68.7m if those are accurate:

List of team payrolls in the NHL - Wikipedia

Wings 77.85m in 2003 is around 115m 2021 dollars.

Thanks for having a look at this.

115m cap would mean almost 30m annual salary for McDavid and such.