Courtesy of Point Park University

Primer: Understanding the NHL’s escrow system

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Penguins NHLPA representative Kris Letang. -- MATT SUNDAY / DKPS

There are a couple of issues that will be major talking points in the next collective bargaining agreement negotiations between the NHL and NHLPA.

One of them is escrow. What is it, and what are the issues? Let's take a look.

WHAT IS ESCROW?

The players and league divide all hockey-related revenue evenly, 50-50. Sometimes, the combined salaries of all players exceeds their 50 percent share of revenue that season.

In anticipation of this, the league withholds a certain percentage of their salaries during the year, which is put into escrow.

The money taken from salaries throughout the year is pooled together in its own bank account. If the league's share of revenue is below 50 percent at the end of the year, they take from the escrow pool to make up the difference, and anything leftover is returned to the players.

The same works in reverse, too. If it works out at the end of the year that the league's share of revenue is more than 50 percent, bonus money is given to the players to balance things out.

WHY DON'T SHARES ALWAYS EQUAL 50 PERCENT?

The salary cap is set based on the previous season's revenue. The league decides the midpoint first, and the cap is always 15 percent higher than the midpoint, and the floor is always 15 percent lower than the midpoint. If all team's payrolls averaged out to be the midpoint, then the player's share and league's shares would be equal.

The more teams that spend up to the cap, the more the league will need to take out of escrow. If the league on average spent closer to the cap floor, then the league would owe the players money at the end of the season. Teams tend to spend over the midpoint though, and closer to the cap, so the league ends up dipping into the escrow pool at the end of the year.

HOW MUCH IS WITHHELD FROM SALARIES?

The percentage fluctuates during the season, and is adjusted four times per year based on projected hockey-related revenue. This fluctuation is another issue. Not only do players not actually receive their full salaries, they can't even fully predict how much they will make because the escrow amount is always changing.

In the 2018-19 season, escrow payments to the league averaged out to be 9.5 percent of a player's salary.

WHAT COUNTS AS HOCKEY-RELATED REVENUE?

This is going to be another topic of discussion in negotiations.

"Hockey-related revenue" is a term that encompasses direct or indirect ways the league earns money. This can include ticket sales, concessions and merchandise sales, broadcasting agreements, sponsorships, and parking.

Income from interest, relocation or sale of an existing team, or loans do not count as hockey-related revenue.

“We were not that far from losing the entire season,” NHLPA executive director Donald Fehr said of the last lockout. “Part of what was on the table was substantial revisions to rewrite the current (hockey-related revenue) rules. We didn’t have the opportunity to digest, much less, counter the rules, and we said, ‘No, the rules are going to remain the same.’”

SO, WHAT DO PLAYERS WANT?

Eliminating escrow isn't necessarily the answer here. Players are getting their 50 percent share no matter what. If they don't get there through escrow, the alternative would be a lower salary cap guaranteeing lower salaries. What many players want is more predictability throughout the year.

”I don’t know if we’re going to eliminate it," said Devils NHLPA representative Cory Schneider. "Obviously we’ll figure that part out. But at least some way to mitigate it or control it better for us, just to know what to expect.”

IS ESCROW THE ONLY MONEY TAKEN OUT OF A PLAYER'S SALARY?

No. Players also pay union dues, which are $30 per day that a player is on a team's NHL roster.

A percentage of a player's salary also goes towards paying their agents, usually three to six percent. Then there's also taxes, of course.

DO OTHER LEAGUES HAVE ESCROW SYSTEMS?

MLB doesn't even have a salary cap or floor, so there's no reason or any way to have a revenue sharing system like this between the league and players when the league doesn't control a team's payroll.

The NFL doesn't have an escrow system akin to the NHL's, where money is taken out of players' paychecks to potentially be paid out to the owners.

The NBA employs a similar system to the NHL's, but they withhold a consistent amount of 10 percent from salaries during the year. Like the NHL, they may return any potential overage money to the players to make the shares equal.

For more hockey-related primers like this one, click here.

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