Quote:
Originally Posted by Resolute 14
The escalator clause was given to the NHLPA to allow it to immediately benefit from predicted jumps in revenue - such as new TV deals. Instead, the union uses it to push the cap up to allow for higher AAV contracts. But the trade-off is that when they escalate the cap in years where revenue growth isn't expected to catch up, they are only increasing escrow.
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Those are two separate things. The cap can go up because of expected increases in revenue independent of the escalator. The escalator is there to account for normal year-to-year inflation.
This is how the cap is calculated each year:
- In June, between the end of the Stanley Cup Final and the Draft, the league calculates the expected final HRR for the season that just ended (the fiscal year ends on June 30).
- Unless the NHLPA chooses to use another number, the 5% escalator is applied to the final revenue projection from the season just ending to determine the anticipated HRR for the upcoming season.
- If there are any known and predictable significant increases (or decreases) in league-wide HRR for the upcoming season, those are added on top of the projected revenue. These sorts of increases may be for a new arena opening, a new major broadcast deal, or a new large-scale sponsorship.
Once the final adjusted anticipated HRR for the upcoming season is calculated, the cap for the upcoming season is calculated. They take the projected total HRR, multiply by 50% to determine the players' share of the revenue and divide by 30 to determine the per-team players' share. That is the per-team midpoint of the salary range. 15% is added to the midpoint to determine the Cap and 15% is subtracted to determine the floor.
The escalator isn't a problem. It just accounts for normal inflation and has been a pretty reliable method for anticipating normal revenue increases. Some years, it can be too low; some years, it can be too high; but over time, it's pretty accurate.
The escrow issue isn't caused by the escalator. The escrow problem exists because the entire salary cap system is based on a flawed assumption. The entire system is based on the idea that the cap and floor are the extreme ends of the scale and the majority of teams will have team payrolls near the midpoint of the cap and floor.
The average team payroll is supposed to be the midpoint. Instead, what has consistently happened is that virtually every team far exceeds the midpoint. Very few teams are below the midpoint, and virtually none are ever close to the floor.
In fact, in most seasons, by the end of the year, more teams are over the salary cap than are under the midpoint.
Look at this season: The cap is $71.4M and the floor is $52.8M. The midpoint of those two numbers is $62.1M. Right now, only 5 teams (Nashville, Buffalo, Carolina, Arizona, and Winnipeg) are below the midpoint. Due to LTIR exemptions, 6 teams are currently over the cap (Pittsburgh, Tampa, Detroit, St Louis, Vancouver, LA). Winnipeg has the lowest payroll in the league, and they're still almost $7M above the floor.
Right now, the average cap payroll for this season is just over $68.1M (that is cap hit not actual salaries -- so actual money paid could be higher or lower, likely higher). If the average payroll is supposed to be $62.1M, but it's actually $68.1M, escrow exists to make up that $6M difference.
Escrow will always cost the players money because that's how the whole system is set up. Teams have an incentive to get as close to the cap as possible because they know they'll get more money back from escrow.
The only way the players will ever be able to reduce escrow long-term is to change the way the cap and floor are calculated to bring the cap closer to the midpoint.