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The escrow primerWednesday, October 17, 2007 As details have leaked out about the deal between the NHL and NHLPA, the term escrow has come up in regards to the salary cap. How will it work? Here's a primer on the topic. Escrow is nothing new as far as sports leagues. The NBA has used one to insure that player costs do not exceed a set percentage of Basketball Related Income (BRI) in that league. In fact, the New York Post reported this weekend the NHLPA has been in contact with the NBPA, seeking advice as the NHLPA tries to make sure NHL teams don't try to hide any hockey related revenues. It's a key issue because of how the escrow system will supposedly work in the NHL. The calculation of those revenues will determine exactly how much NHL players end up getting paid as a group. For this example of an escrow system we are using only player salaries and not including benefits. We are also using the 15 percent figure that the Los Angeles Times reported in regards to how much of each team's payroll will be put into escrow. The system we are using as the basis for our example is the one the league detailed in its December 14 proposal. It will start with 15 percent of each team's payroll going into escrow. So, for example, if the Stars payroll is $36 million then $5.4 million will go into an escrow amount and the rest ($30.6 million) will go to the players during the course of the season. That will happen with NHL teams across the board and all the money will accumulate in that escrow account during the season At the end of the season there will be a calculation of hockey related revenues. Exactly how this is done will be spelled out in the CBA. If league-wide spending on player salaries exceeds 54 percent of league-wide revenues then money will be taken from the escrow account and refunded to the teams. What's left will go back to the players. If player salaries take up 54 percent then the money in escrow will go back to the players. Here's an example. Let's say the 30 teams combined spend $972 million or an average of $32.4 million per team on payroll. $145.8 million will end up in the escrow account. Now let's look at what happens at various revenue levels. If league revenues end up at $1.7 billion then player salaries would be at 57.2 percent of overall league revenues. In order to get it back down to 54 percent, player salaries would need to drop to $918 million. So, $54 million would come out of the escrow fund and go to the teams. The remaining $91.8 million in the escrow fund would then go back to the players. If revenues end up at $1.8 billion then the players' share is 54 percent and the players would get the full $145.8 million from the escrow fund. So what happens if the players' share falls to less than 54 percent? It hasn't been mentioned in the various reports, but based on the league's December 14 proposal the teams would owe the players some money. Let's say revenues came in at $1.85 billion. Then 54 percent would mean player salaries should be $999 million. Under this scenario the players would get the full $145.8 million from the escrow fund and an additional $27 million from the league. Again, this last scenario is based on the league's Escrow/Cash Recapture proposal from December 14. Whether it is actually the case will not be known until the two sides release the details of the new Collective Bargaining Agreement. This is how some scenarios break break down in table form based on the same formula the league used in its December proposal.
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