Escrow, Refunds, and Salary lost

[sureLoss]

Thought this was interesting as this appears to be the main issue that is leading to an upcoming lockout.

https://twitter.com/user/status/963812980528943104


Also kind of ridiculous that it takes them this long to do the audits. Would be pretty infuriating if your employer held on to 15% or more of your paycheck for more than a year while they figured how much they actually owe you.

[Bingo]

Not sure but I'd assume the audit was from the NHLPA side which delayed things because they didn't believe the first settlement.

What I don't understand, perhaps this will educate me, ... is why this is a problem. Shouldn't this have been expected when the CBA was struck based on a percentage of total revenue?

It's a lot easier to get 31 teams to true up a number than 750 hockey players.

[Timbo]

Wow those numbers are amazing ! I must live in a bubble as I never thought the escrow return was so pathetically small.

[GullFoss]

I don't see the big deal about this.

1) escrow is common in high salary positions in financial institutions too. People grumble, but they're not too upset after a few years because (a) they get paid interest on funds held back and (b) once your in the cycle, your: current year salary - current year escrow + last year's escrow = close to your current year salary.

2) collective salaries are determined by the cap not by escrow repayments. If the league/players wanted to fix this, the obvious solutions are one of three:

- reduce the annual inflator until no claw back
- reduce player salary across the board until no claw back
- move to a system where you negotiate % of team salary for each player rather than dollars. So for example tkachuk negotiates 5% of flames payroll for each of next 6 years. And then his salary is say 5% of 50% of hockey revenue divided by 31 in every year of deal. And maybe received 85% of this up front and 15% held in escrow until the numbers are confirmed. And that way, he's not "losing money off his salary" but it's effectively the same outcome.

It's hardly worth having a lockout over.

[Textcritic]

If the NHLPA stopped triggering the cap escalator every year, they would not surrender as much money into escrow and would receive a higher percentage of it in the end. This seems pretty simple to me.

[mrkajz44]

Originally Posted by sureLoss

https://twitter.com/user/status/963812980528943104

The most important thing I take away from that tweet is how hard the lockout in 2012-13 hit hockey. Up until that point it looked like HRR was growing at the rate they expected, and as such almost all escrow was refunded. After the lock-out, suddenly HRR stops growing as expected and very little escrow is refunded.

This table should be put in front the owners and NHLPA if they think another lock-out is coming. Seems pretty obvious how much another lock-out could hurt the league - both players and owners.

[Bring_Back_Shantz]

I'm really curious how the NHLPA decides if it should use the escalator.
It's either not a vote, or the players don't understand how the math works.

If I was a player with an existing contract I would be arguing pretty darn hard against, and/or not voting for using the cap escalator, as all it does is up the amount of escrow I'm likely to lose.

The only people who should be asking for the escalator are free agents.

[mikephoen]

Originally Posted by Bring_Back_Shantz

I'm really curious how the NHLPA decides if it should use the escalator.
It's either not a vote, or the players don't understand how the math works.

If I was a player with an existing contract I would be arguing pretty darn hard against, and/or not voting for using the cap escalator, as all it does is up the amount of escrow I'm likely to lose.

The only people who should be asking for the escalator are free agents.

Pretty sure you nailed it with the bolded part.

[omelete]

Originally Posted by mrkajz44

The most important thing I take away from that tweet is how hard the lockout in 2012-13 hit hockey. Up until that point it looked like HRR was growing at the rate they expected, and as such almost all escrow was refunded. After the lock-out, suddenly HRR stops growing as expected and very little escrow is refunded.

More likely it's to do with the plummeting value of the CAD compared to the USD over that time.

[sureLoss]

Originally Posted by Bingo

Not sure but I'd assume the audit was from the NHLPA side which delayed things because they didn't believe the first settlement.

What I don't understand, perhaps this will educate me, ... is why this is a problem. Shouldn't this have been expected when the CBA was struck based on a percentage of total revenue?

It's a lot easier to get 31 teams to true up a number than 750 hockey players.

I think the NHLPA want a system like the NBA.

In the NBA escrow is capped at 10%. If it is determined that the 10% escrow is insufficient to cover the player's share, the owners can take up to 1% of Basketball related income from the player's benefits.

If that 1% is still not enough, nothing more is taken from the players.


The NBA also has a system to try and prevent taking from the player's benefits and the Owners being out of luck. If it start looking like the 10% escrow will not be enough when projecting revenues for the upcoming season, the salary cap is reduced regardless of projected revenue.

[Northendzone]

hopefully the players know that they will be in our thoughts and prayers over the next few weeks

[Oil Stain]

Yes the players use the escalator every season, but that is because its in the best interests of the majority of the players.

Most players have shorter term contracts and have less to lose from using the escalator.

I could see there being two or more camps within the players union.

The huge contract, and NHL star players group that despises escrow and are vocal about it.

The middle group that might go either way.

The guys on 1-2 year contracts that could give a #### and just want the cap to go up to increase the amount of the minimum salaries paid out.

[Oil Stain]

Originally Posted by Bring_Back_Shantz

I'm really curious how the NHLPA decides if it should use the escalator.
It's either not a vote, or the players don't understand how the math works.

If I was a player with an existing contract I would be arguing pretty darn hard against, and/or not voting for using the cap escalator, as all it does is up the amount of escrow I'm likely to lose.

The only people who should be asking for the escalator are free agents.

Pretty sure a large majority of NHL players have 2 years or less remaining on their contracts. All the time.

[omelete]

Originally Posted by sureLoss

I think the NHLPA want a system like the NBA.

In the NBA escrow is capped at 10%. If it is determined that the 10% escrow is insufficient to cover the player's share, the owners can take up to 1% of Basketball related income from the player's benefits.

If that 1% is still not enough, nothing more is taken from the players.


The NBA also has a system to try and prevent taking from the player's benefits and the Owners being out of luck. If it start looking like the 10% escrow will not be enough when projecting revenues for the upcoming season, the salary cap is reduced regardless of projected revenue.

Seems reasonable enough, but there's a couple of tricky caveats to make it work for the NHL.

First, the NHLPA would need to give up the escalator. Increases to the cap would need to be based solely on reasonably expected increases to HRR. Given how vulnerable HRR can be to the value of the Canadian dollar the league might even push for clauses allowing for a cap decrease if it looks like HRR might fall if the CAD is struggling.

Second, if such a setup was introduced I imagine ( looking at the numbers above ) that the cap in the first year would be significantly lower than it is now. Let alone what it might be in a couple of years.

I'm not sure the NHLPA would be happy with either of those situations.

[mrkajz44]

Originally Posted by omelete

More likely it's to do with the plummeting value of the CAD compared to the USD over that time.

Good point; I hadn't really considered that. Looking back though, CAD was around $0.90 until the '14-'15 season, so it can't all just be the exchange rate. I will concede that it is a contributing factor.

[Lord Carnage]

Originally Posted by omelete

Seems reasonable enough, but there's a couple of tricky caveats to make it work for the NHL.

First, the NHLPA would need to give up the escalator. Increases to the cap would need to be based solely on reasonably expected increases to HRR. Given how vulnerable HRR can be to the value of the Canadian dollar the league might even push for clauses allowing for a cap decrease if it looks like HRR might fall if the CAD is struggling.

Second, if such a setup was introduced I imagine ( looking at the numbers above ) that the cap in the first year would be significantly lower than it is now. Let alone what it might be in a couple of years.

I'm not sure the NHLPA would be happy with either of those situations.

Not to mention, in an environment where the players could end up with more than what the CBA dictates as "their share" (due to a max escrow), I would expect the owners would probably expect the 50/50 split to become 55/45 in their favor (at least).

All told, that's probably a lot to swallow for the NHLPA to get a cap on escrow.

[Finger Cookin]

I think they should re-label "lost salary" as "unearned salary".

[iggy_oi]

Originally Posted by Textcritic

If the NHLPA stopped triggering the cap escalator every year, they would not surrender as much money into escrow and would receive a higher percentage of it in the end. This seems pretty simple to me.

Does the percentage of how much salary is held back in escrow increase if they use the escalator?

[powderjunkie]

Originally Posted by Finger Cookin

I think they should re-label "lost salary" as "unearned salary".

Or something like "Salary correction" - "lost' is definitely a misnomer


Lots of people don't know the exact dollars and cents of their remuneration when they take a job - commissions, expected bonuses, stock options, etc. can leave great uncertainty for lots of people in terms of actual income.

[Textcritic]

Originally Posted by iggy_oi

Does the percentage of how much salary is held back in escrow increase if they use the escalator?

Yes. The escalator is an artificial inflator that is not dependent on actual HRR. Whenever the escalator is triggered the new cap is artificially high. HRR is the data from which the salary cap is projected each year, but the cap itself is no more than a reasonable estimate of future HRR. Escrow is the mechanism that ensures the appropriate distribution of future HRR, which is independent of whatever the cap happens to be. Escrow is the difference between the lowest and highest projected revenues for a season; thus when the cap is artificially higher than the projection, the percentage held back will necessarily be higher.