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Escrow Will Still Be An Issue For The Players

from James Mirtle of the Globe and Mail,

The players will not be accepting the league’s 50-50 proposal that was released in full on Wednesday morning.

And it’s not so much the final number they’re opposed to.

Instead, it comes back to a familiar topic: escrow.

As we’ve heard all along, players want to receive the full value for their 2012-13 (and presumably 2013-14) salaries, something that will not be possible under a 50-50 split.

According to the league, players earned roughly $1.883-billion as their share last season. In order to maintain that level of salary, they would need to receive 54.3 per cent of revenues (after accounting for 5 per cent revenue growth leaguewide).

There are two things of vital importance here, however:

read on

Filed in: NHL Talk, NHLPA, | KK Hockey | Permalink
 

Comments

gowings's avatar

I like the fact that a visual aid is provided in the article. I find it easier to understand when I see the numbers on a chart

Posted by gowings from MTL on 10/17/12 at 03:15 PM ET

phillyd's avatar

Can I ask a really dumb question. Money that goes into escrow, doesn’t that eventually make it back into the players hands as income or is it just a big pool of money that grows that’s never really returned to the players at any future time?

Posted by phillyd from Southern New Jersey on 10/17/12 at 03:33 PM ET

J.J. from Kansas's avatar

Money that goes into escrow, doesn’t that eventually make it back into the players hands as income or is it just a big pool of money that grows that’s never really returned to the players at any future time?

It kind of depends.

They set up Escrow as a safeguard to make sure the players aren’t paid more than their fair share after the season is over (since the salary cap is set prior to the season based on revenue projections).

With every check, the players have a bit of their salaries put into the Escrow account and several times per year, they do some accounting to figure out whether they think there’s going to be enough in that account to cover any shortfalls that are necessary.

If they do the end-of-year math and the players were collectively paid too much, then the money they owe back is taken out of the escrow savings they’ve been creating all year. Whatever’s left over after the players were paid back is returned to them with their applicable payment deducted.

Technically, every year the players get SOME money back out of their escrow account whether or not they ended up having to return salaries to the league (5/7 years the players had to give back salary and 2/7 the players got back all of their escrow withholdings PLUS extra dollars created from revenues exceeding expectations). This is because the escrow deductions are customized through those various accountings to ensure that there will be more money in the escrow fund than needed.

Think of it this way:

You’re paid $100,000 in your job, but part of the contract says that if your company doesn’t do as well as expected, you’ll be expected to give some back. If the time comes to give some back and you don’t have it handy, you’re in pretty big trouble.  Just to be safe, you put $1,000 per month away into a savings account.

In March, your company tells you “hey, we’re right on track for our goals!” - you relax a bit and cut that savings amount down to $500.  Unfortunately, the next quarter isn’t so kind and you get a July Newsletter that says your company has fallen a bit behind in production. Wanting to be safe, you bump it back up to $1,000.  Nothing changes for future cycles, so by the end of the year, you’ve put away $10,500 ($1,000 for every month except April, May & June, where you put away $500).

The year ends and your company’s report comes through auditing and the news is that the 2nd quarter problems left them short on their goals and that you’ll have to give back $8,000. You cut a check from your savings (escrow) account and then cash out the other $2,500 to use for yourself.  At the end of the year, you’ve technically gotten back money from your escrow account, but you really only made $92,000 in salary.

——-

It gets more complicated than that when you throw in things like you voting to give yourself a raise despite your company telling you that they don’t expect their revenues to go up to support that raise and that you’re just going to end up giving it back anyway (like what happened in 2009), but that’s the basics.

Posted by J.J. from Kansas on 10/17/12 at 04:11 PM ET

gowings's avatar

Wow, thank you J.J for that explanation! I think I have a better understanding now

Posted by gowings from MTL on 10/17/12 at 05:42 PM ET

phillyd's avatar

Thanks for the explanation JJ. Escrow in this context has a totally different meaning then I thought. Yeah, I can definitely see how escrow irks the players now.

Posted by phillyd from Southern New Jersey on 10/18/12 at 12:18 AM ET

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Paul Kukla founded Kukla’s Korner in 2005 and the site has since become the must-read site on the ‘net for all the latest happenings around the NHL.

From breaking news to in-depth stories around the league, KK Hockey is updated with fresh stories all day long and will bring you the latest news as quickly as possible.

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