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The NHL players’ choice: Low cap or high escrow

J.P. Moczulski/The Globe and Mail

It, like much of this lockout, is a no-win situation.

NHL players will either have a low salary cap or escrow taking a bite out of their contracts come 2013-14.

The choice may not be entirely up to them either.

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On the cap front, the league wants the number for that season set at $60-million, which would be about a 7 per cent decrease from where it was in 2011-12.

The players were aiming for a number close to $67.5-million, but this week have lowered their expectations to $65-million.

Either one of the players' numbers would mean a portion of their salaries would likely be lost to escrow that season; the league's number, meanwhile, would mean free agents looking for new homes may not have many options.

Selfishly speaking, players with contracts likely want the cap lower and players without them want it higher, making this another polarizing issue for the NHLPA to deal with.

Given how negotiations have gone, however, players appear to have settled on pushing for a higher cap in order to allow freedom of movement and higher salaries, with free agents better able to sign where (and for a salary) they want.

"It's not a great choice," one voice on the players' side said Friday. "But the best of the two choices is a higher cap."

What's difficult to determine is exactly how bad the escrow situation would be depending on how the cap shifts. Neither side has been willing to give an estimate publicly, but what's safe to say is that, based on what happened last season, we can presume that teams will spend right near the cap regardless of where it's set.

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So we can start there.

The players' share of revenues last season ended up being $1.883-billion, which works out to $62.8-million per team or 97.6 per cent of the $64.3-million salary cap.

With a slew of buyouts set to be added to that share this summer, we can expect that percentage to rise to even closer to 100 per cent with a $60-million cap.

Assuming hockey-related revenues are similar to the $3.3-billion of last season, the following chart gives a general sense of how escrow could look under different cap figures (all figures in millions):

Revenue

Player
share

Existing
salaries

Salary
cap

New
salaries

Total
salaries

Escrow

$3,303

$1,651

$1,246

$60.0

$545

$1,791

8.4%

$3,303

$1,651

$1,246

$62.5

$601

$1,847

11.8%

$3,303

$1,651

$1,246

$65.0

$665

$1,911

15.7%

$3,303

$1,651

$1,246

$67.5

$728

$1,974

19.6%

Keep in mind that these are merely projections, as it's impossible to know precisely how (or if) league revenues will rebound this fall and how the 30 NHL teams will all spend to fill out their rosters.

The general concept, however, is that every $2.5-million uptick in the cap likely brings another 3 or 4 per cent in escrow that would come off of paycheques.

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For a player with a $5-million salary, that would mean losing nearly $600,000 if the escrow withheld is 11.8 per cent or $1-million if it's 19.6 per cent.

Two things help diminish those losses for the players.

No. 1 is the make whole provision, which at this point is set at $300-million in transition payments to players in order to offset some of the pain created in moving from a 57 players' share down to a 50 per cent one.

While it's expected a lot of that make whole money will be dedicated to the partial 48-game season for 2012-13 – should there be one – there will also be money there that can ease the escrow hit.

No. 2 is that this escrow pain situation is likely temporary. The cap will rise from $60-million as revenues eventually go up, meaning even in the worst case scenarios it's approaching $70-million by 2017-18.

But for the first full season out of the lockout, the players will have to live with either a lower cap or a lower paycheque.

 

Revenue

Player
share

Existing
salaries

Salary
cap

New
salaries

Escrow*

'13-14

3303

1652

1246

60.0

545

8.4%

'14-15

3468

1734

746

60.1

1037

2.8%

'15-16

3642

1821

503

62.8

1353

1.9%

'16-17

3824

1912

286

65.7

1645

1.0%


*- all figures in above table are estimates and based on 5 per cent revenue growth

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About the Author
Hockey Reporter

James joined The Globe as an editor and reporter in the sports department in 2005 and now covers the NHL and the Toronto Maple Leafs. More

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