[News] Daly: 2016 salary cap projects to be $74 million with escalator

[DJones]

Originally Posted by New Era

Is the cap going up only because the players executed their escalator? It can't be based on revenues. The sagging Canadian buck and the poor performance of the Canadian clubs is certain to hit the cap. 23% of the teams account for 40% of the revenues, and that 40% is going to shrink. because of the dollar and poor seasons. Players will likely pay for this in the long run.

Their theory is probably that it doesn't matter until the next CBA agreement. And at that point they will get knocked down to 50% either way.

[Enoch Root]

Originally Posted by MarkGio

You would think eventually the players would stop escalating since they're already taking a beating on the escrow payments each year

Escrow has no net effect on their salaries. Neither does the escalator.

All that happens is that the pie is made bigger before the season, and then adjusted to actual revenues after the fact.

In the end, they receive the same amount.

However, the escalator makes the cap seem bigger, allowing teams to be more aggressive with their salaries.

This helps senior players who are getting paid the most, at the expense of junior players.

And I would imagine that the NHLPA is quite happy with that exchange.

[Resolute 14]

Originally Posted by New Era

Is the cap going up only because the players executed their escalator? It can't be based on revenues. The sagging Canadian buck and the poor performance of the Canadian clubs is certain to hit the cap. 23% of the teams account for 40% of the revenues, and that 40% is going to shrink. because of the dollar and poor seasons. Players will likely pay for this in the long run.

The union uses its escalator literally every year. If the cap is going up, it means revenues have (or are expected to) rise. The union is stupid to do it, given it generally only means raising escrow payments by the same percentage, but they've locked themselves into a situation where they have to do it, or see a bunch of guys bought out and basically kicked out of the league.

Also, don't assume that the Canadian teams = 40% of revenues is a static measurement. It changes year over year, and with 0 playoff games being paid by a public paying for tickets in Canadian dollars, the Canadian percentage of revenues is going to shrink by a non-trivial amount, and be replaced with American dollar purchases.

[mikephoen]

Originally Posted by Enoch Root

Escrow has no net effect on their salaries. Neither does the escalator.

All that happens is that the pie is made bigger before the season, and then adjusted to actual revenues after the fact.

In the end, they receive the same amount.

However, the escalator makes the cap seem bigger, allowing teams to be more aggressive with their salaries.

This helps senior players who are getting paid the most, at the expense of junior players.

And I would imagine that the NHLPA is quite happy with that exchange.

Just a small clarification on what you said:

Escrow has no effect on the TOTAL amount paid to all players, but it certainly can affect how much an individual player makes. Players who signed cap friendly deals in the past lose a little bit more in escrow so that UFAs/RFAs that sign this offseason can sign bigger deals.

[DJones]

Originally Posted by Resolute 14

The union uses its escalator literally every year. If the cap is going up, it means revenues have (or are expected to) rise. The union is stupid to do it, given it generally only means raising escrow payments by the same percentage, but they've locked themselves into a situation where they have to do it, or see a bunch of guys bought out and basically kicked out of the league.

Also, don't assume that the Canadian teams = 40% of revenues is a static measurement. It changes year over year, and with 0 playoff games being paid by a public paying for tickets in Canadian dollars, the Canadian percentage of revenues is going to shrink by a non-trivial amount, and be replaced with American dollar purchases.

Never thought of that. If there was ever a year for no Canadian teams to make the playoffs, this year certainly has it's advantages.

Canada already has a nice and big contract for TV so nothing to worry about there either.

[Resolute 14]

Originally Posted by Enoch Root

Escrow has no net effect on their salaries. Neither does the escalator.

All that happens is that the pie is made bigger before the season, and then adjusted to actual revenues after the fact.

In the end, they receive the same amount.

However, the escalator makes the cap seem bigger, allowing teams to be more aggressive with their salaries.

This helps senior players who are getting paid the most, at the expense of junior players.

And I would imagine that the NHLPA is quite happy with that exchange.

Escrow has a huge effect on their salaries. What it has no effect on is their AAV.

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.

I think the last escrow percentage was set at 16% Taken over a full year, that would equate to a player like Sidney Crosby losing nearly $1.4 million of his salary. Even a minimum wage guy would see his salary drop by nearly $100,000.

That is why the players - big stars and minimum wage guys alike - despise escrow. But they are only cutting themselves deeper with this move.

[Resolute 14]

Originally Posted by DJones

Never thought of that. If there was ever a year for no Canadian teams to make the playoffs, this year certainly has it's advantages.

Canada already has a nice and big contract for TV so nothing to worry about there either.

Well, in as much as losing out on millions of revenue, even if in the form of 70-cent Loonies can be considered an "advantage"

In terms of the big TV contract, the only winner there is Rogers, since it is paid out in Canadian dollars so the Loonie's decline doesn't change their cost structure. But since the NHL foolishly failed to hedge the currency on that transaction, it means the NHL - and all 30 teams - have had millions shaved off the value of that deal.

[Enoch Root]

Originally Posted by Resolute 14

Escrow has a huge effect on their salaries. What it has no effect on is their AAV.

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.

I think the last escrow percentage was set at 16% Taken over a full year, that would equate to a player like Sidney Crosby losing nearly $1.4 million of his salary. Even a minimum wage guy would see his salary drop by nearly $100,000.

That is why the players - big stars and minimum wage guys alike - despise escrow. But they are only cutting themselves deeper with this move.

The escalator inflates HRR, and thus salaries.

Escrow withholds some of their salary until actual HRR is known.

Once HRR is known, salaries are adjusted and some escrow is reimbursed to bring salaries back in line with actual HRR.

In the end, and in the aggregate, it has no net effect.

Having some of your salary withheld until the end of the year (and possibly permanently) sucks.

And the players who already have had contracts for a while lose out a bit to the players who have just signed new contracts (assuming they are inflated), but this averages out over time. Everyone gets their turn at both ends of that (again, aggregately, and on average).

But overall, total salaries end up exactly where they should be, which is equal to half of the actual HRR.

[Enoch Root]

Originally Posted by mikephoen

Just a small clarification on what you said:

Escrow has no effect on the TOTAL amount paid to all players, but it certainly can affect how much an individual player makes. Players who signed cap friendly deals in the past lose a little bit more in escrow so that UFAs/RFAs that sign this offseason can sign bigger deals.

Individual deals are affected differently, for sure.

But players should end up on both sides of that over time and it should (mostly) average out.

Having a smarter agent could pay dividends though.

[getbak]

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.

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:

1. 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).
   
   
2. 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.
   
   
3. 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.

[J79]

Originally Posted by sureLoss

Pierre LeBrun @Real_ESPNLeBrun
Bill Daly says salary cap projection given was around $74 million with the escalator, but a flat cap without the escalator.

Pierre LeBrun @Real_ESPNLeBrun
Cap projection in Pebble Beach at Board of Gov was around $74.5 million, so today's projection just a tad lower

Sorry for asking, but in what context do I read the word 'escalator' here?

[Resolute 14]

No, the escrow issue is not caused by the escalator, but it is exacerbated by it by pushing the extremes farther out. As you say, the league figured most teams would spend toward the midpoint, but instead most of the league spends toward the high end. That largely creates the escrow problem. Bit escrow would be reduced if the NHLPA did not consistently use the escalator because the cap wouldn't be pushed so far away from expected (and in many years, actual) revenue.

[ricardodw]

Originally Posted by Enoch Root

Escrow has no net effect on their salaries. Neither does the escalator.

All that happens is that the pie is made bigger before the season, and then adjusted to actual revenues after the fact.

In the end, they receive the same amount.

However, the escalator makes the cap seem bigger, allowing teams to be more aggressive with their salaries.

This helps senior players who are getting paid the most, at the expense of junior players.

And I would imagine that the NHLPA is quite happy with that exchange.

It helps players coming into RFA/UFA over guys that have already signed long term contracts.

If there is no escaltor clause then there would be less escrow and the players already signed get paid closer to what they signed for.


Hamilton/Gio and Brodie/ Frolik will lose some % of their pay to escrow to (say 10%) so that there is cap space for Gaudreau and Monahan to get their 6x6s. No escalator and all the Flames can afford is 6x6 for Gaudreau and look at a bridge contract for Monahan.

Their 6x6 under the escalator will really end up as 5.4 M in the first year if the escrow takes and keeps 10% ie they lose 10% to escrow.

[Enoch Root]

Originally Posted by ricardodw

It helps players coming into RFA/UFA over guys that have already signed long term contracts.

If there is no escaltor clause then there would be less escrow and the players already signed get paid closer to what they signed for.


Hamilton/Gio and Brodie/ Frolik will lose some % of their pay to escrow to (say 10%) so that there is cap space for Gaudreau and Monahan to get their 6x6s. No escalator and all the Flames can afford is 6x6 for Gaudreau and look at a bridge contract for Monahan.

Their 6x6 under the escalator will really end up as 5.4 M in the first year if the escrow takes and keeps 10% ie they lose 10% to escrow.

Correct. And in a few years when they get new contracts, they will win at the expense of Gaudreau and Monahan.

Those timing issues all balance out in the long run.

[ricardodw]

Originally Posted by Enoch Root

Correct. And in a few years when they get new contracts, they will win at the expense of Gaudreau and Monahan.

Those timing issues all balance out in the long run.

Gio for sure will not be getting a new contract... probably not Frolik either.

Every dollar they lose to an escrow inflated cap is gone for ever for them. Sort of a charitable donation.


Timing issue: Brodie extends last year at 4.65/5. Had he been looking for new contract this spring , after the flames decided Hamilton was worth 5.75 , Brodie would have been looking at at least 6.75, maybe 7.