Forbes article on Salary Cap, NHLPA and the next CBA

[gcom007 1,465]

http://blogs.forbes.com/sportsmoney/2011/05/26/nhl-salary-cap-to-rise-players-association-faces-decision/

Interesting article for anyone who hasn't considered what the big issue likely will be heading into the next CBA negotiation.

[CenterIce 83]

http://blogs.forbes.com/sportsmoney/2011/05/26/nhl-salary-cap-to-rise-players-association-faces-decision/

Interesting article for anyone who hasn't considered what the big issue likely will be heading into the next CBA negotiation.

Some of the owners don't like the cap floor continuously going up. They want to spend as little as possible, and they keep having to spend to get above it. Player wise hiring Fehr is definitely a sign that they want to take the hard line. Hopefully, one or both sides don't decide to dig in. The league is doing well as a whole. Hopefully, the knowledge of the lost season, plus what the NFL/NBA are/will be going through will keep things in perspective.

[Bannedforlife 403]

I really don't understand the "escrow effect". Can someone explain that?

[gcom007 1,465]

I really don't understand the "escrow effect". Can someone explain that?

I will...try...but I'm no expert and am not likely going to do a good job of explaining it in the clearest of manners. But here goes...

The players share of revenue cannot be determined until a season is over, thus the cap is set for a given year based on estimates of what league revenue will be. In order to ensure that the players get their fair share, money is withheld from their salaries (around 18% recently) and placed into escrow to bridge any potential gaps you could say. At the end of the year they can then direct the correct amount of money back to the players and back to the league once total hockey-related revenue has been calculated for the season.

The problem that's developed though stems from these front-loaded long term contracts because it's not a players cap hit that's accounted for when the owners are calculating salary expenses, it's the actual amount paid out for a given season. So when guys have a $5.5 million cap hit but actually are making $10 million that year, they're forcing the rest of the players to account for the amount of money paid out over their cap hit. Subsequently, the low to mid-tier guys who tend to have a cap hit demonstrative of their actual salary end up paying out a greater percentage of their salary than they otherwise would if all cap hits were comparable to players actual yearly salary.

The easiest way to understand it is to remember the term that's been attached to these long-term front loaded deals: salary cap circumvention. In other words...cheating. You can't spend more than allowed on player salaries, and if you do, you've got to make up for it somehow, hence the need for the percentage of player salaries in escrow.

As said, the cap number is based on an estimate of what the players percentage of total hockey-related revenues. So take a $60 million salary cap for example and recall the deal where a player has a $5.5 million cap hit but is actually making $10 million that year. Assuming that this player is the only player who has a salary different from his cap hit, at the end of the year, the team is actually spending $64.5 million on player salaries. Seeing as the cap and all hockey-related revenues are linked, once the books are done, it's quite likely that the players share of salary is in fact $60 million. So the amount the players receive back from escrow will usually not be close the amount that they had to put in.

So again, the guys who really have to be upset are the low-level guys who won't have 10+ year NHL careers. They're giving up more of their money so teams can essentially "cheat" the cap and pay a star a lot more money then their cap hit suggests. As has been noted by some, in the later years of the deals, this is actually a benefit to those players if the long-term guys complete their contracts as the cap hit ends up being far higher than the actual salary, but again, this doesn't tend to help the majority of the average NHL players who may not even be in the league that long.

I personally am not passing any judgements around. On one level, I think the NHLPA has only themselves to blame as they signed off on the deal knowing that escrow was in the cards. On top of that, the lower cap hits allow teams to be more competitive and role guys to potentially make a bit more money while playing for said competitive teams. None the less, this escrow thing is definitely going to be a major issue heading into the next CBA negotiation, and it'll be very interesting to see how it affects the future of long-term deals. I doubt anyone involved will be stupid enough to let it become an issue big enough to warrant worry over a work stoppage, but the days of signing guys with contracts like Zetterberg and Franzen will no doubt be over, and it's very likely that the NHLPA is going to make rather negative examples out of many of these guys who signed the long term deals in order to rally support within the union.

Can't wait for that mess...

This spells it out in more detail: http://www.mc79hockey.com/?p=3266#more-3266

[Bannedforlife 403]

As said, the cap number is based on an estimate of what the players percentage of total hockey-related revenues. So take a $60 million salary cap for example and recall the deal where a player has a $5.5 million cap hit but is actually making $10 million that year. Assuming that this player is the only player who has a salary different from his cap hit, at the end of the year, the team is actually spending $64.5 million on player salaries. Seeing as the cap and all hockey-related revenues are linked, once the books are done, it's quite likely that the players share of salary is in fact $60 million. So the amount the players receive back from escrow will usually not be close the amount that they had to put in.

I see the light. Thank you

I never did understand why they GMs to structure contracts where the cap hit is different than the yearly salary. It never made much sense to me.

[Buppy 1,720]

I really don't understand the "escrow effect". Can someone explain that?

To simplify and add a little to what gcom said:

The "player's share" is a percentage of actual revenues for the year.

"League-wide Player Compensation" is the total of actual salaries, bonuses, benefits, etc earned in that season. This can not exceed the Player's share. This includes a lot of 'off-cap' stuff, like the difference between cap hit and salary, benefits, LTIR exemptions, and I think players on one-way deals in the minors.

The long-term deals seem to get all the blame, but there's really not that many of them. But even short-term deals can have cap hits lower than actual salary; even if just a little it adds up.

Upshot of it all is that if LWPC exceeds the PS, players have to give some salary back. Escrow just holds a portion in case it's needed.