NHL / NHLPA Escrow Agreement, Penguins Stars Get Back $$

The NHL will give Pittsburgh Penguins stars Sidney Crosby and Evgeni Malkin checks for nearly a quarter of a million dollars later this month as part of the NHL-NHLPA’s escrow agreement for the 2018-19 season.

All players will get about 3% of their salaries returned to them. According to reports, the players paid nearly 13% in escrow last season. The owners will keep nearly 10% of the escrow payments.

Players groused last season because the NHLPA elected to base the salary cap on very conservative revenue growth with significant escrow withholdings in an to balance future projections. Per the CBA, players do have the right to chose more aggressive projections but leave them at risk for larger escrows in the future.

The 3% giveback means for every million dollars in salary, players will receive $30,000. So, Sidney Crosby will receive about $261,000. Evgeni Malkin will receive a tidy sum of $285,000.

NHL and NHLPA have recently reached agreement on final numbers for Hockey Related Revenue (HRR) for the 2018-19 NHL season. Players paid 12.9% escrow for 18-19. They’ll be getting back a little more than 3%. The owners will get the balance of slightly less than 10%.

— Bob McKenzie (@TSNBobMcKenzie) March 31, 2020

Escrow Explained:

Escrow is a little-discussed part of the current CBA, but one which the players would very much like to eliminate. It’s probably the biggest sticking point between the players and owners at the current bargaining table.

The players and owners agreed to split hockey-related revenues 50/50, but the salary cap is based on revenue projections. So, the escrow withholdings were created to ensure the owners don’t take a financial hit if revenues don’t meet projections.

What happens to salaries, escrow, and the salary cap if the season is canceled due to the coronavirus (COVID-19) pandemic will be a serious discussion, but one for another day.

After each season, the NHLPA and NHL complete their accounting, compare it to projects, and estimate the revenues for next season. For the past few years, 5% has been the expected growth. In past seasons, owners withheld about 15% of players salaries to ensure the players wouldn’t get more than 50% of hockey-related revenues and owners wouldn’t get less.

If the NHL makes a boatload of money, all escrow payments are returned to the players. That hasn’t yet happened. When the projections fail to meet reality, the owners make themselves whole by keeping what’s needed from the escrow account and the players get the rest.

For 2018-19, players got 3% back. Owners got 10%. It may not be surprising that projections missed so greatly for 2018-19, as the St. Louis Blues vs. the Boston Bruins for the Stanley Cup wasn’t the most attractive matchup, and popular teams such as the Pittsburgh Penguins and Tampa Bay Lightning were quickly ousted in Round One.

This marks the seventh straight year the owners received about 10% of the escrow payments. Perhaps you can see why the players want a remedy. A $10 million contract isn’t worth 10 million. It is worth about $8.5 million, then maybe the player will get a few hundred thousand back next year.

Or, using smaller numbers, a player like Zach Aston-Reese who makes an even $1 million, grosses $850,000 before agents, taxes (federal, states, every local municipality), and expenses. It’s not a bad living, and Aston-Reese will get $30,000 back later this month, but some of you will net the same money as a young player.

Escrow has been the sticking point in labor negotiations, though it does not appear it will be a hill on which either side chooses to die. Expect more conservative revenue projections, but also a stagnant salary cap. Compliance buyouts with the inevitable revenue shrinkage are also possible, next season.