From everything we know, the NHL still expects to launch its 2021 season on Jan. 1; however, there is now a new wrinkle to those plans.
According to Sportnet’s Elliotte Friedman, the league has made two requests to the NHL Players’ Association to tweak the Memorandum of Understanding (MOU) that extended the Collective Bargaining Agreement (CBA) back in July. And the players aren’t too happy about it.
“We just signed a new CBA four months ago,” a player who has been on NHLPA calls told ESPN’s Emily Kaplan and Greg Wyshynski. “And in that agreement we accounted for this season being not a typical season. And now they’re trying to walk it back and change the structure on us. That’s bull. If we came to them and said we wanted to amend the terms, no way that would fly.”
While Friedman and The Athletic’s Pierre LeBrun are optimistic that things should work out in the end, it definitely puts a damper on things for now.
But what exactly was proposed? And what does it all mean?
NHL 2021: How alignment and schedule could look next season
Read below for a full explanation of Hockey-Related Revenue, escrow and deferred payments as it relates to the upcoming NHL season:
What is Hockey-Related Revenue (HRR)?
Just like some other terms you’ll encounter in this story, you’ve probably seen the acronym HRR quite a bit in the last few months. HRR stands for Hockey-Related Revenue, otherwise known as operating revenues derived from such things as concessions, merchandise, ticket sales, parking and TV revenue.
Independent accountants determine a preliminary HRR — what they expect the league’s revenue to be — and use that to determine a salary cap.
After accountants do their thing once the season is over, there’s an actual HRR that is supposed to be split 50-50 between the NHL (which then divides cash between the teams) and the NHLPA (which divides cash between the players).
If the players earn more than the 50-50 split due to their salaries, that’s where escrow comes into play.
What is escrow?
As Friedman wrote in his dissection of the issue on Thursday, “To understand the emotion, recognize that — to players — ‘escrow’ is the dirtiest word in the dictionary. There’s nothing else even close.”
But what does that actually mean? Per Escrow.com, it’s “a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.”
Basically, it’s a piggybank but it can only be broken open when certain measures are met. For the NHL, that means escrow is a safety net for when revenue forecasts are off and the players get larger than a 50-50 split because of their contract money due.
So every year players put a percentage of their salary into escrow, and every year how much they get back is determined by what’s needed to get to the 50-50 split.
Per the MOU, signing bonuses and player performance bonuses are not included when calculating escrow which is presently set at 20 percent of a player’s salary before taxes for the upcoming season.
A quick example:
Player A signs a deal for $1 million for the upcoming season. Based on the MOU, $200,000 (or 20 percent) of that goes into escrow and he will only be paid $800,000 over the course of the season.
If hypothetically, the final HRR is $3 billion (meaning each side gets $1.5 billion) and player salaries equal $2 billion across the league, then $500,000 comes out of escrow to pay the NHL so they hit that 50-50 split.
It’s expected a lot more would come out of escrow this season due to the huge hits the NHL is expected to take without fans in the stands for, at minimum, the start of the season.
What is deferred payment?
As LeBrun mentioned in his story ($), and it’s a key distinction, the NHL is not asking players to take pay cuts based on a less-than-82-game schedule that is expected to occur. Instead, they’re saying: how about we just pay you a percentage later when everything (fingers-crossed) gets back to normal and revenue is back up?
Deferred payments are guaranteed but are based on what the player is getting after escrow is lopped off the top. The MOU agreed that players will defer 10 percent of their salaries and signing bonuses (not including roster, reporting or performance bonuses) for 2020-21.
Ok, so will this impact the start of the 2021 NHL season?
As mentioned previously, the NHL went to the NHLPA with a few requests on Wednesday due to the ongoing pandemic’s strain on the league.
But why is escrow such a “dirty word” to the players? Well, it’s because there’s a chance — a good chance — the players won’t ever see that money back. And in theory, the players could owe the NHL money later on; as Friedman noted, there’s a possibility of a one-year extension added to the CBA — at a cap of nine percent — if the players owe the league between $125-$250 million after the 2024-25 season.
Friedman also provided in detail, the two plans on the table.
Per the MOU agreed to in July, escrow was supposed to go down each season: approximately 18 percent in 2021-22 (based on how things are looking to be trending), 10 percent in 2022-23 and six percent for the remaining three seasons (2023-24 to 2024-25).
So what does that all mean? Here’s how things shake out per plan:
Original agreement: $200,000 goes to escrow and then based of the remaining $800,000, $80,000 goes to deferral and the player is left with $720,000 before taxes.
Plan I (for 2020-21 season only): $250,000 goes to escrow, leaving $750,000 with $150,000 deferred. The player then takes home (for now), $600,000.
Plan II: $200,000 goes to escrow so $800,000 is left. Then, take 26 percent of that, which is $208,000, and pay it in the future, leaving $592,000 remaining before taxes.
Needless to say, that’s a stark difference between all the plans — but that’s not really what the issue is.
Everyone understands the league is in financial distress due to the pandemic. The players are annoyed because they thought all this was settled just four months ago when they begrudgingly agreed to take a 30 percent cut (20 percent to escrow and 10 percent deferred salary) and got escrow to dwindle each season. The NHL is saying, as LeBrun explained: well, you’re going to owe us money anyway so why not spread it out.
However, per ESPN, sources told them Plan I was a “non-starter” for the players and Plan II was “also not received well.”
Either way, the pandemic’s impact on the league is something everyone should have seen coming. In the end, regardless of who is happiest, Jan. 1, 2021, is fast approaching and this needs to be settled soon if hockey fans can expect to see their favorite sport return when we ring in the new year.
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