Hockey's complicated payroll plan

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NHL deputy commissioner Bill Daly (THE ASSOCIATED PRESS ARCHIVES)

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Blackhawks captain Jonathan Toews will be getting between 8 and 8.5 per cent of his 2011-12 salary returned when calculations are finalized next month. (NAM Y. HUH / THE ASSOCIATED PRESS ARCHIVES)

When is a US$6-million contract not worth $6 million?

That was just the case for star Chicago Blackhawks centre Jonathan Toews last season.

Under the terms of the NHL's old collective bargaining agreement, the league withheld 8.5 per cent of Toews' salary and and the salaries of hundreds of his union brethren.

The provision, called escrow, is one of the most misunderstood items in the CBA.

Simply put, it is the mechanism put into the 2005 agreement that ensures the players are paid exactly their portion (57 per cent in the deal just expired) of the NHL's hockey-related revenue.

An escrow deduction of 8.5 per cent was withheld from all players but actual calculations of league revenues/player salaries came out slightly favouring the league, and players will be getting between 8 and 8.5 per cent back, all to ensure they received their 57 per cent of revenues.

That "final accounting" payout to Toews and other NHLers for 2011-12 will come some time next month.

To some, the system is a punishment. Others view it as a Ponzi scheme used to prop up the Phoenix Coyotes or a mechanism for the league to pad its own pockets or a variety of other conspiracy theories.

Givebacks, involving more than 10 per cent in each of 2008-09 and 2009-10 mostly due to the global financial slump, were real and made according to the CBA.

"The primary part of this deal is that we won't pay more than a certain percentage and we won't pay less than a certain percentage," said NHL deputy commissioner Bill Daly. "The escrow is kind of a true-up formula, a way for us to be protected if we overpay and if we underpay... we top up the players salaries."

But players, generally, don't care for it, just like anyone who receives a paycheque doesn't really care for all the regular deductions.

"Players see their contract value as what it is and they (don't think) they should have to accept anything less," said Glenn Healy, the CBC analyst and former NHL goalie who once worked for the NHLPA. "Escrow is a necessary, unfortunately, system for the NHL because they have cost certainty. They know a certain percentage will be paid to the players, not a penny more, not a penny less."

Many problems and misperceptions of escrow come from not understanding how it worked, said Ron Hainsey, the Winnipeg Jets defenceman who's a key member of the NHLPA's bargaining committee.

"Everyone wants to get paid their full pay; but this system can only work with some way to make sure (the players) only get 57 per cent.

"Players see the deduction and want to know, 'Why don't I have it?' But once it's explained, I think most players understand it."

Though the overall concept isn't that difficult, there are a host of items that affect escrow and some of them are not exact science.

Injuries also have an impact on escrow.

A large number of injuries will send total NHL salaries higher and possibly higher than the 57 per cent of revenues. In that case, it costs every player.

"When Sidney Crosby is out for a long time, you have to have a player to replace him and that costs money and that affects escrow," Healy explained. "How do you predict that? You can't."

As for the nuts and bolts, the actual escrow holdback percentage is set by the NHL and the NHLPA at the start of every season and adjusted quarterly.

"We do our best projections on what revenues are going to be and what year-end player costs are going to be and we arrive at an escrow rate," Daly said.

The fluctuations and guesswork involved cry out for a better way.

"Brighter minds might be able to figure out a way to eliminate it," Healy said. "Maybe they could go off last year's number."

It would be a certain, audited number and any growth in revenues could be settled up later during the next season.

"It could work," Daly said. "Absolutely. But it doesn't necessarily preclude the need for escrow, depending on what you do with the range. But it would be much more certain.

"If you could hold it flat and calculate the range off a flat number, the PA's argument seven or eight years ago when we negotiated it was that your revenues are going to grow year over year and the players should be compensated in the year you're generating those revenues on a basis that is reflective of those revenues.

"Setting the cap at the mid-point, that's another possibility, then you don't need escrow. But it goes back to the players wanting the clubs to have the ability to spend and have a little more flexibility."

Of course, the NHLPA wants teams to have the flexibility to spend. That benefits the players.

The future of escrow is less cut and dried.

The NHL has already proposed changes to escrow, Daly said, trying to recognize some of the concerns the players have had.

"We made proposals this summer that were intended to minimize the impact of escrow over time," Daly said. "One of the responses we got across the table, because we understood escrow was a problem for the players, was that 'We've never told you escrow was a problem and you'd be best inclined not to address problems we don't raise with you.' "

What could well aggravate the players, he said, was that the NHL's current proposal to shrink the players' share of revenues will not come by simply reducing value of contracts by using escrow.

Which could mean big deductions, likely double-digit percentages to start, if the league gets its way.

And now you can see why the fight is on.

tim.campbell@freepress.mb.ca

How does

it work?

WITH each player's paycheque, a deduction is made and held aside in an interest-bearing escrow account. The deduction is based on projections of aggregate payroll amounts across the NHL, as well as revenues. At the end of each season, the actual calculations of payrolls and revenues are done to determine the exact dollar amount the players should have received. That's compared to what they actually received, and then their escrow payments are returned with either a top-up from the league because too little was paid in salaries or a deduction because overall player costs turned out to be greater than the proper share.

Republished from the Winnipeg Free Press print edition September 26, 2012 C3