NHL CBA Negotiations: What Is Escrow, Anyway?

The NHL made yet another offer to the players’ association, as the two sides try to agree on a new collective bargaining agreement, and escrow is a part of it.

This latest offer from the NHL includes fixed salary caps for the next few seasons, with the proposed 2012 salary cap at $58 million. Currently, 16 teams are over the proposed 2012-13 salary cap.

With no salary cuts in the NHL’s latest proposal, the league would have to get creative to get teams under the salary cap. Apparently, the answer to this dilemma is escrow -- and the good folks over at Mile High Report have an explanation on how escrow works.

You can think of escrow like withholding taxes from your paycheck. As tax season ends, depending on what you were able to deduct for whatever reason, if you paid too much income tax, the US government and/or your state government gives you a tax refund. (I don’t know how Canadian tax works though.) Nobody knows what league revenues will be before the season, so nobody knows what cut players and owners are entitled to, but players have to get paid, right? So they project. Accountants work their fancy math and a certain percentage of player salaries go into an escrow account, and payments into it throughout the year are adjusted as projections get more accurate. Finally, in the offseason, the accountants are able to fancy-math us an answer for how many dollars of the revenue the owners were entitled to under the CBA. The owners take whatever they may still need to get them to that number out of the escrow account, and what’s left is given back to the players: a “tax refund,” if you will.

The problem here is that adding more to escrow is, in terms of real dollars, not different from a salary rollback. Keeping with the “tax return” theme, if suddenly you were having more of your check withheld every pay period, and your refund either stayed the same or decreased come tax time, how would that be different from just starting at a lower salary with the percentage being withheld staying the same?

Steve House, author of that fine explanation, doesn’t believe that this particular deal will be accepted because of escrow. Even if escrow isn’t in the final deal, at least you know what it is, as it’s now a part of the negotiations.

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