We're in the fourth season under the current CBA that will extend for at least another two more, and this is the year that the players give back in a big way.
In order to ensure that the players do not receive more than they are entitled to under the Collective Bargaining Agreement, a portion of each player’s salary and bonuses are deducted and kept in escrow until final League revenues have been computed. In the past, escrow payments have been close to 10% and in two out of the years, the players received all their money back and a little more.
In 2006-07, players did lose a small portion of their salaries – 2.49% to be exact. So for every $1 million earned that year, the players actually took home $975,100.
2005-06
1st Half Escrow: 12.0%
2nd Half Escrow: 4.0%
Players received 104.38% back + interest
2006-07
1st Half Escrow: 10.0%
2nd Half Escrow: 10.0%
Players received 72.4% back + interest
2007-08
1st Half Escrow: 9.5%
2nd Half Escrow: 9.5%
Players received 105% back + interest
This year as it’s been widely reported, escrow payments are higher than ever and the players won’t be seeing much of the money that is being deducted from their bi-weekly paychecks. For the first half of the year, 13.5% was deducted and in the second half that percentage will almost double to 25%.
Last season, Hockey Related Revenues (HRR) totaled $2.606 billion. This year, despite tough economic times, the League has recently forecasted a 2% increase which would bring total HRR to $2.658 mil.
So if revenues are going up, why are escrow payments so high and why won’t the players once again get their money back at the end of the year?
Well remember July 1st when GMs went on that shopping spree and spent all that money on players like Wade Redden and Cristobal Huet? And remember those ridiculous deals given to unproven players like Rostislav Olesz?
Those contracts are now coming back to haunt the rest of the players. Salary growth has vastly exceeded revenue growth in the last year, so the mechanism kicks in to keep the formula in balance.
At $2.658 billion in HRR, the players are entitled to receive 56.86% of that money ($1.511 billion).
As of January 16th, the League/PA had forecasted total league-wide payroll at the end of the year at $1.619 billion. Add in another estimated $87 million for benefits (I may be a little off there) and you’re looking at an overpayment to the players of almost $200 million. That means that players will lose 12.9% of their salaries, which would have been covered off by the prior escrow rate of 13.5%.
The fact that the PA is upping the escrow rate leads one to assume that there’s at least a decent chance that total HRR won’t grow by 2% when all the beans have been counted at the end of the year following the playoffs. The number being reported in the last day or so is that $217 million is the projected loss by the Players’ Association, which would put revenue growth closer to 1%.
If revenues end up flat year-over-year, the players will lose 15.5% of their salaries, which explains why the PA would want to up the escrow to an average of 19.5%. That ensures that they won’t have to go back to all the players at the end of the year to have them each write a check to the owners, and in all likelihood will be able to return a small amount to each player. Payments are also subject to regular tax deductions.
For those who are interested, I’ve run the numbers from the first three post-lockout seasons, along with three scenarios for the current season.
A few assumptions have been made in regards to the average interest rates and total league-wide benefits but for the most part the number should be accurate, based upon the 2007-08 breakdown which I have confirmed to be correct in its entirety (any small discrepancies are due to rounding).
I’ve also included a HRR% chart at the bottom to show the player’s total share as revenues increase.
(7 images in total, may take a moment to load)
In my next posting I’ll show how the salary cap for next year will be impacted under the three revenue scenarios.
Any questions, just send me a note or post in the comments and I’ll attempt to clarify..
Danny – [email protected]
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