Escrow vs. Rollback

Allan Walsh went on a Twitter spree over the past couple of days, railing against Bill Daly’s comments to Michael Russo of the Minnesota Star Tribune.  Specifically, he took issue with Daly’s explanation for why the NHL is “[demanding] a decrease in player contract prices”

“Our system contemplates the fact that in certain years there may be a reduction on contract value [anyway],” Daly said. “In fact, under those seven years operated under this CBA, there have been contract reductions in five of those years [because of escrow]. It’s not a feature of our system that every player is guaranteed every dollar he contracts for.”

The simple answer is player contracts are already decreased via their escrow payments during the year.  In any given year since 2004-05 players have paid 8-12% of their salaries toward an escrow account.  At the end of each fiscal year, HRR is calculated and the money in the escrow account is paid to whichever side is short of their required share.

Normally, the owners receive the majority of these escrow payments.  Since salary cap hits are an average of the entire salary, what a player is actually receiving might not match his cap hit.  Additionally, the NHLPA has opted to raise the midpoint (set at 57% of estimated HRR) by 5%.  These two factors generally lead to the players actual revenue exceeding the 57% share they are suppose to receive per the terms of the CBA.  As a result, the escrow payments are given to the owners.

This is different from the salary rollbacks players underwent before the 2005-06 season.  A rollback altered the existing standard player contract and decreased the total value, in this case by 24%.  This was a permanent, ONE TIME, change to the value of a contract which is not revisited again for the duration of the CBA.  I can’t stress the “one time” aspect of a rollback enough.

An escrow payment is deducted from the player’s regular paycheck, much like FICA, social security, or any other standard tax you might pay.  The difference is, the escrow payment is reevaluated throughout the season.  The initial estimation for the escrow percentage is set prior to the start of the season.  It is then recalculated 3 times during the season, following each of the first three quarters.  Then, once the fiscal year is completed, independent accountants review league revenue and determine whether owners or players are due additional escrow payments.

Are they both methods to reduce the players’ share of revenue?  To a certain extent, yes.  But just because two things can accomplish similar goals does not make them the same.  While the NHL’s proposal reportedly calls for a 19.3% escrow payment in 2012-13, that is based on current revenue and payment projections.  If amnesties occur and those payments do not count or are considered deferred payments, that percentage could easily drop.  If revenue projections end up being below actual revenue, the players will receive a portion of those payments back.  That’s the key aspect of escrow, it adjusts as necessary to ensure both parties meet their mandated share of revenue.  A salary rollback’s goal is not to meet a fixed percentage point.  It is solely to reduce the value of an existing contract in a single action.

Escrow is constantly being evaluated and adjusted to ensure the CBA mandated revenue split is met.  It is in no way a permanent change in the value of an existing player contract.

Salary rollbacks are a one time decrease to the value of a player’s contract.  It is never evaluated after the rollback is done and any money a player loses due to a rollback is gone forever, with absolutely no chance of seeing it returned to him.

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