As the trade deadline approaches soon-to-be free agents, like Loui Eriksson, may be on the move. They’ll all be looking for a big pay day this summer. But there is one little detail that often gets overlooked in how much these guys will actually make, and it’s called escrow.
In case you didn’t know, the NHL salary cap is based off of league revenues from the previous season. Also, the NHLPA votes every off season whether or not to include a 5% escalator to the cap. With that the salary cap ceiling for the current 2015-2016 season was set at $71.4 million. It was an increase of $2.1 million from the previous season.
Basically, the only reason there was a salary cap increase for this season was due to the NHLPA approving the 5% escalator. This can cause heated debate in the locker rooms around the NHL. The reason approving the escalator can be a hot topic in locker rooms is due to escrow.
So essentially here is how escrow works in the NHL:
Since the salary cap is based off of last year’s revenue, and the players and owners split the revenue 50/50, the amount players are being paid in the current season cannot be over 50% of hockey related revenue. So instead of the owners asking the players for their money back in the event the league does not make enough money they have the player’s salaries escrow. In other words, the league holds back a percentage of the players salaries.
For the first quarter of the 2015-2016 season the players and league agreed on having 16% of the player’s salaries go to escrow. So the league is holding 16% of every player’s salary just in case they do not make enough money. Basically if a player signs a $1 million contract they will have $160,000 held from them. That player is only guaranteed $840,000 of the million dollar contract they signed. Now at the end of the year the league accountants get together and figure out the revenue from the previous season. Then the players get some of the money that was withheld back, plus interest.
The player’s very rarely get the full amount back. See the below image from a tsn article by Frank Seravalli.
Can you imagine your boss coming up to you and saying, “I know you signed a contract, but we are going to withhold 16% of your salary this year to make sure the company makes enough money.” How well do you think that would go over with you? So why do the NHL players agree to this in the CBA?
Now to get back to why the NHLPA voting to approve the 5% escalator could be a heated debate in NHL locker rooms…
Most likely the players that have long term contracts want to deny the escalator, but the players who are going to be free agents are going to want to approve the escalator so the salary cap is higher when they are on the market. Teams will have more room to spend money on free agents. Typically the higher the salary cap goes the higher the escrow percent will be to prevent player salaries being greater than 50% of “hockey related revenue.” Players with long term contracts want to keep the escrow payments low since their deal is already locked in, and they can keep more of that money.
I heard on either TSN radio or Sportsnet a couple of weeks ago that the escrow payment could reach 18% for next year and players are not going to take “home town discounts” in the off season due to the potential of the increase in escrow payments.
This is not good news for Bruins fans who want/hope they resign Loui Eriksson. Loui will most certainly be chasing top dollar, and escrow is something he’s going to have to consider. Either way it does not seem like Eriksson is willing to take a “home town discount” but it is something for hockey fans to keep an eye on over the summer. How much money will the players have withheld from their pay checks?