If you listen to hockey media’s cabal of insiders, it’s becoming increasingly obvious that the National Hockey League and its players association are closing in on a new collective bargaining agreement and a Return to Play scheme for the 2020 playoffs.
The key to the whole CBA seems to be fixing escrow. So let’s dive into what escrow is, why the players hate it, and how the new CBA tries to address it.
As a general concept, escrow is a withholding of payment until financial details can be confirmed. In the context of the NHL and NHLPA, it’s related to the confirmation of hockey-related revenues (HRR) for a given season.
Each year, the NHL provides revenue projection to NHLPA for the upcoming season – this season it was about $4.8 billion before the pandemic. They pour over the projections, then work together to set the cap. Nominally, the cap is supposed to be 50% of projected HRR, but it’s usually a little bit above halfway because not all teams spend to the cap. But the NHLPA can invoke an “escalator” to inflate the cap a bit to inject money into the system.
Now, every player has contracts with NHL clubs but the contracts are governed by the CBA. That means that no matter what the dollar amount says on, say, Matthew Tkachuk’s contract, escrow will be withheld from his paychecks to ensure that collectively players don’t get more than 50% of HRR in any given season. It usually takes a couple seasons to verify HRR. But if you sign a contract expecting to get $7 million and you only get $6 million before taxes and other deductions, you would be understandably cranky.
Here’s where it gets mathy, gang.
2019-20’s cap was based on a projection of $4.8 billion of HRR. (The system has $2.53 billion of cap ceiling across 31 teams, but the 50% HRR split seems to be based on teams collectively spending about 95% of their total cap allocation, or $2.4 billion.)
A reported loss of $1.1 billion in revenue from the loss of the final chunk of the season (and playoffs) drops the total HRR pot to $3.7 billion and raises player spending share to 64.9% (a fair jump from 50%). Uh-oh. Going ahead with the playoffs reportedly injects about $450 million of HRR back into the system (bumping HRR back up to $4.15 billon) and decreases the player share from 57.8%. But this would mean that collectively the players would owe the league about $325 million. (They’ve already started paying this back by letting the owners keep their last paycheck, which covers about $110 million according to the Hockey News. Add in 14% escrow on their total pay this season per ESPN and they’re potentially most of the way there – escrow on signing bonuses gets complicated, so it’s unclear how much that would leave.)
With the NHL’s revenues understandably in flux for the next while, everybody’s on-board with two changes with the new CBA – a flat cap for a couple seasons and a cap on escrow. From our pal Elliotte Friedman:
The updated rules will carry through 2025-26, although there is a provision for a one-year extension if more than $125 million in escrow is owed to the league. The salary cap for 2020-21 is $81.5 million. The NHL/NHLPA are talking about keeping it there until revenues hit $4.8 billion. At that point, they will use the two years prior to calculate the cap number — meaning the 2022-23 ceiling will be based on 2020-21 revenues. That will give more certainty and planning.
Cap on escrow is 20 per cent next season. Somewhere between 14-18 per cent in 2021-22, depending on 2020-21 revenue. Then we go 10 per cent in 2022-23, with a maximum of six per cent over the remaining term (if there is an extra year, the escrow cap will be at nine per cent). There will be a 10 per cent salary deferral next season. It will be repaid during the final three years of this CBA.
Let’s get into some math. I know. I’m sorry.
Season
Salary Cap
Player Share
HRR Estimate
2013-14
$64.3M
$1.833B
$3.665B
2014-15
$69.0M
$1.966B
$3.633B
2015-16
$71.4M
$2.035B
$4.070B
2016-17
$73.0M
$2.081B
$4.161B
2017-18
$75.0M
$2.209B
$4.418B
2018-19
$79.5M
$2.341B
$4.683B
2019-20
$81.5M
$2.400B
$4.800B
2020-21
$81.5M
$2.400B
TBD
2021-22
$81.5M
$2.400B
TBD
2022-23
TBD
TBD
TBD
(If you’re doing the math, here’s a simple calculation for 2020-21 and 2021-22: if HRR is below $4.8 billion, players will owe money in escrow to keep the 50/50 split alive. The further below $4.8 billion, the more they owe.)
Linking the cap to HRR from two seasons prior makes sense and removes a big piece of uncertainty from the system, but for the time being it appears that escrow isn’t going away and installing an escrow cap is just kicking the problem down the road. This new cap system seems to depend on continual growth – again, adding Seattle (2021-22) and new buildings in Long Island (2021-22) and Calgary (2024-25) will help, as will new American TV deal in 2021-22 – but it relies on the cap being flat for a few seasons to allow revenue growth to catch back up after what will probably be a tumultuous 2020-21 season from a revenue perspective.
In short: does the new system definitively end the scourge of escrow? No. With the 50/50 HRR split between the NHL and NHLPA, there’s always going to be some form of escrow. But linking it to prior revenue (and linking cap growth to past revenue growth) is a nice way to remove the guesswork from the system and make things a little bit more palatable for everybody involved.