Today, Bob McKenzie revealed the share of escrow returned to players for the 2018-2019 season:
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
This story is always presented as one of escrow deductions, unhappy players and contracts that never pay out at face value. That’s just the effect, though; the cause is bad guessing by the league on future earnings. And the guess on the 2018-2019 revenue was a whopper of a bad one.
Here’s how the NHL works regarding the 50-50 split and the salary cap:
- Sometime in June, the NHL sets a cap for each team based on their estimate of expected revenue growth over the current year’s actual figures, which they have in draft form by the summer. The NHL year is July 1 to June 30.
- The NHLPA votes to inflate that salary cap by an amount up to 5%. The bigger the cap, the bigger the free agent signings, and this vote is usually a few weeks before July 1.
- The final cap number is announced and then, before the new season starts, an escrow % is agreed upon between the NHL and the NHLPA.
- Escrow comes off of every NHL players’ salary cheques for the entire season, and then it sits in a bank account, idling away, usually for almost a full calendar year.
- After June 30, the NHL teams have to report their Hockey Related Revenue (HRR), as outlined in the NHL CBA to the league. The league assembles all those figures, confirms the various teams are doing it accurately and correctly (glances at Detroit), and figures out the total HRR that was actually earned. This legitimately takes a lot of time. And the NHLPA has to sign off on all of this as well.
- The full HRR number is split 50-50, and if that 50% number is at or more than the salary cap projection, everyone is thrilled, and the players get all of their escrow back. Not only that, the owners have to top that up with some extra money. If the 50% number is less than the revenue estimate, only some of the escrow goes to the players with the rest going to the owners.
- A full year after the hockey season ends, everyone has in their hands their fair share of their earnings from that year.
The players haven’t received more than their escrow amount back in ten years, and they have actually received very little of it lately. Travis Yost covered this last summer, and included this chart:
For 2019, then, that number is just under 10%, according to McKenzie. Not as terrible as some years, but still a far cry from the more reasonable numbers pre-lockout. This means that the guess the NHL made on the 2018-2019 salary cap was overly optimistic.
That season saw the NHLPA draw back from applying a big inflator as they had previously. Once bitten, twice shy:
#NHL and #NHLPA announce next season’s salary cap is set at $79.5 million. Could have gone up to as much as $82 million, players opted for 1.25% growth inflator this season.— Frank Seravalli (@frank_seravalli) June 21, 2018
So this bad guess is almost entirely on the NHL itself. No one can ever accurately predict the future, as we have now all learned in the hardest way, but the NHL has been giving glowing predictions for years, and failing to meet them.
Commissioner Bettman said the League is projecting revenue growth to be between 7 percent and 8.5 percent from last season to this season.
”We’re having healthy growth,” Commissioner Bettman said.
Bettman said that in June 2018, but just three months into the 2018-2019 season, that was already understood to be overly optimistic:
Second quarter escrow withholding rate increases from 11.5 to 13.5% in response to NHL’s downward adjustment of second quarter HRR, Post has learned.— Larry Brooks (@NYP_Brooksie) December 10, 2018
It now seems that if they’d stuck with the 11.5% number, they would have just squeaked through without the players ending up owing back salary at the end of the season, but only just.
Players express their displeasure with this state of affairs by attacking escrow itself, not the revenue projections and the attendant poor growth in the NHL’s product that are the real culprits. Like most of us, they see the world through their own lens. GMs of wealthy teams chafe at the restrictions of the salary cap and want to spend, spend, spend. Fans want the cap abolished, and enthusiasts will tell you about luxury taxes for hours.
Everyone just handwaves away the reality that many NHL teams aren’t profitable with a salary cap, and could be totally nonviable without it. A reduced NHL makes less HRR, the cap goes down, the players make less, and teams struggle harder to pay for the players they want.
But underlying all of that is that Gary Bettman, in the Hockey Hall of Fame as a Builder, has been guessing wrong on how healthy the NHL’s growth is for a long time. No one is going to blame him for not foreseeing the asteroid that smashed a hole in the 2019-2020 HRR. Even if there is a resumption and a playoffs, the final accounting on this season won’t be pretty. But soon, the NHL’s job, in concert with the NHLPA, will be to guess about next year.
The ground they’re building from to make that guess has a big crater in it, and they have to largely disregard that. The other asteroid, the one labelled “severe economic recession”, hasn’t hit yet, but that will also make guessing next year’s revenue a difficult task.
Teams have players under multi-year contracts, and that entire system is built around the expectation that the salary cap won’t fall year over year. But what if it does? There’s a widespread, yet false belief that next year’s salary cap must be tied to this season’s real revenues. The reality is, the NHL will need to come up with a number that they have some legitimate hope of hitting, that won’t require an escrow of astronomical proportions, but will allow teams with a lot of salary already committed to keep operating successfully.
All the teams that make up the NHL need to be able to put the most exciting product on the ice next season they’ve ever produced. They need the biggest bounce-back year since that team came last, drafted first overall and made the playoffs the next season.
The NBC TV rights deal is up for renewal at the end of next season in the summer of 2021, and the NHL has been banking on that deal going way up. They expect the revenue jump to start a period of even healthier growth while the salary cap surges. So have individual players. All these short-term RFA deals happened last season for a reason. Their agents all expect the year after next to be the golden year with huge money for everyone and a big jump in the cap.
To get that golden year, the 2020-2021 season needs to be one where more goes right than goes wrong. If it doesn’t, the escrow bugbear will only get bigger in the players’ minds, and the next CBA might not appear quite as painlessly as it has seemed it might up until now.
No pressure, Gary, you just need to do a better job of setting the revenue projection and actually growing the NHL to achieve it than you’ve ever done before. Earn that spot in the Hall.