Two dudes blogging and podcasting about the San Jose Sharks, straight from sunny California.

post More Kovy Talk, and Escrow- the Regressive Tax That Screws Scott Nichol

July 22nd, 2010, 8:48 am

Filed under: blog — Written by Mike

Now that the Kovy deal has been rejected, and no better description of the NHL’s flip-floppery exists than here, on Deadspin of all places, it’s basically impossible to predict what will happen next.  But my money is on the Devils  restructuring the deal slightly so that the NHL cap guys only chuckle to themselves instead of blow coffee out of their noses.  That appears to be the test that these contracts are subjected to.  A quirky smile means A-OK (Franzen, Ohlund), a girlish giggle will pass (Luongo, Zetterburg), and even a hearty laugh will squeak by (Pronger, Hossa, Lecavalier, Savard).  But a snarf on the keyboard?  Get that $%^! out of here.  As always, behindthenet puts the numbers behind the laughter quotient.

One interesting consequence of these contracts is what it does to the escrow situation, an obscure provision of the CBA, but one that affects all players.  For the ultra-mathy, dig deep into the details with this post by Tyler Dellow, but let me give you the quick-and-dirty.  The salary cap is a hard one- the owners will pay exactly 57% of revenues to the players this season.  However, they don’t know what the actual revenues will be until the season is over, so they do some estimations, and hold back a portion of every player’s salary in escrow accounts.  But here’s the needle- they will pay 57% of the actual salaries, not the cap hits.  So for all of those players that are actually making more than their cap hits (mostly superstars), that drives up the total salary number, which means the escrow withholding is bigger.  And even if the NHL was exactly correct in estimating revenues, the fact that these players made more than their cap hits (calculated based on estimated revenue), that means it’s likely that some or all of that escrow money will go back to the owners.

So the guys that are taking home their cap hit – middle and lower tier players like Scott Nichol – end up with a greater portion of their salary withheld.  These stars are feeding off of the collective, with the idea that they will give back when their salaries eventually are lower than their cap hits.  But we know that these players like Hossa, Luongo, and Kovy will likely retire before they fulfill that part of the contract.  They won’t have to pay the piper at the end, they’ll be on a beach somewhere.  I’ve read some stuff that the escrow number could be as high as 20% under some conditions, and that takes a whole hundred grand off of a guy that’s making the league minimum.  Not cool.