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The Business of Hockey Discuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, NHL revenues, relocation and expansion.

Do we know if the cap has been rising since 2015-2016 on the escalator alone?

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07-14-2017, 03:29 PM
  #1
CrAzYNiNe
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Do we know if the cap has been rising since 2015-2016 on the escalator alone?

So some discussion about escrow showed up on the Habs board and I wanted to do my due diligence before I through my hat in this ring.

I have been trying to find any mention that the NHL has increased their PHRR since 2014-2015 (I believe the Rogers TV deal was the last time the NHL increased their PHRR). Can anyone confirm this?

Here is what I wrote on the Habs board:

Quote:
Originally Posted by CrAzYNiNe View Post
We have this article on TSN.ca that discusses how the cap may not have gone up because the NHL decided not to increase the PHRR and the players did not want to use their "escalator" which is essentially putting more money into escrow without any forecaster money being generating into the HRR.

In this article on sportsnet.ca it says the players used their escalator.

Let's do some Math, everything restarted after the lastest CBA signed in January 2013.
2013-2014 --> From 60M to 64.3M. I found nothing about the use of the 5% escalator, so this appears to be an increased generated by PHRR
2014-2015 --> From 64.3M to 69M This increase seems to have been generated by the Rogers TV deal. I see no mention of the NHLPA or owners wanting the use the escalator. Players lost 10% to escrow in 2013-2014.
2015-2016 --> From 69M to 71.4M which is an increase of 2.24%, which I believe indicates that HRR dropped (If the escalator is 5% or nothing)
2016-2017 --> From 71.4M to 73M which is an increase of 2.24%, players use the escalator. Same thing as the year before?
2017-2018 --> From 73M to 75M which is an increase of 2.74%, players use the escalator. Same thing as the year before?

From all accounts I read, I have no seen once that HRR is going up, or even that the NHL is going to forecast their PHRR as higher. The burden this whole time has been on the players.

On top of this, the cap ceiling is in fact "escrow territory". Without having information of what the NHL's HRR is, the 31 NHL teams are sharing 63.75M each, not 75M.

This means that if the NHL does not generate USD3.9525B, the players are paying significant escrow on their paychecks.

Using capfriendly, salaries of current players signed to rosters is USD2.022B. This is over USD1.97625B, half of the fake HRR I calculated above. This means every NHL player is paying 9.77% escrow out the gate, and this doesn't take into account that the previous 3 years the NHL has not projected higher revenues, therefore that 9.77% may even be 15-20%.

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07-14-2017, 03:54 PM
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CrAzYNiNe
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I found this link where it says that players in 14-15 lost 12.95% of their salaries. If the NHLPA has been voted by the players to use the escalator in the following two seasons, you would have to think, unless some huge cash cow dropped on the NHL, that they are paying more in escrow. Right?

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07-14-2017, 07:13 PM
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Let's back up a step, as I think you're basing your conclusions on the upper cap limit? The actual HRR is not the upper limit, but close to the midpoint of cap range.

If the players are paying more in escrow now than in some earlier years, it's due to more teams paying closer to the upper end of the range, and not the lower end. Since players can only garner 50% of that amount, as a group, they will have to pay the NHL back if they received more than 50%. Vice versa, if the NHL did not pay 50% of HRR to the players, they would have to make that money up to them.

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07-14-2017, 10:26 PM
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"Do we know if the cap has been rising since 2015-2016 on the escalator alone?"

I think you may be misunderstanding how the escalator works. The escalator does not compound its effects year over year. After every season the NHL tallies up the revenues, calculates a new cap for the next season, and the PA decide if they want to apply the 5% escalator to that new season.

If the season over season cap ceiling would decrease without the escalator it only means that year over year NHL revenue growth was less then 5%.


Last edited by mouser: 07-14-2017 at 10:32 PM.
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07-14-2017, 11:12 PM
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Quote:
Originally Posted by Fugu View Post
Let's back up a step, as I think you're basing your conclusions on the upper cap limit? The actual HRR is not the upper limit, but close to the midpoint of cap range.

If the players are paying more in escrow now than in some earlier years, it's due to more teams paying closer to the upper end of the range, and not the lower end. Since players can only garner 50% of that amount, as a group, they will have to pay the NHL back if they received more than 50%. Vice versa, if the NHL did not pay 50% of HRR to the players, they would have to make that money up to them.
This part I am fully aware. The last documented value of escrow retained was 12.95% inn 14-15, which I find is very high. Is it growing? I would think the use of the escalator is not helping in the last 3 years either.

Quote:
Originally Posted by mouser View Post
"Do we know if the cap has been rising since 2015-2016 on the escalator alone?"

I think you may be misunderstanding how the escalator works. The escalator does not compound its effects year over year. After every season the NHL tallies up the revenues, calculates a new cap for the next season, and the PA decide if they want to apply the 5% escalator to that new season.

If the season over season cap ceiling would decrease without the escalator it only means that year over year NHL revenue growth was less then 5%.
Is the escalator 5% or nothing?

I think I got it. Is it safe to assume that the HRR is not growing by a degree of 5%, thus the reason when the escalator is used, the growth of the cap is only 2.24-2.74% over the last 3 years instead of in increments of 5%?

I am very good with numbers, so if you have a good example, don't be shy to lay it on thick.

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07-15-2017, 09:28 AM
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Escalator can be any fraction of a number between 0 and 5%

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07-15-2017, 09:51 AM
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Quote:
Originally Posted by CrAzYNiNe View Post
This part I am fully aware. The last documented value of escrow retained was 12.95% inn 14-15, which I find is very high. Is it growing? I would think the use of the escalator is not helping in the last 3 years either.



Is the escalator 5% or nothing?

I think I got it. Is it safe to assume that the HRR is not growing by a degree of 5%, thus the reason when the escalator is used, the growth of the cap is only 2.24-2.74% over the last 3 years instead of in increments of 5%?

I am very good with numbers, so if you have a good example, don't be shy to lay it on thick.

OK....

Here we go....

The way the cap numbers are figured is like this:

1- NEVER MIND WHAT LAST YEAR'S CAP WAS. THAT HAS ABSOLUTELY NOTHING TO DO WITH THE ACTUAL CALCULATIONS.

2- When determining last year's escrow, the teams are required to report their HRR (whether they are honest or not is a sticking point with the PA, too, but that's not part of our discussion here). From this number, a league wide HRR is determined.
2a- For last year's escrow, all salaries are adjusted by the following number.....
[(Full-year calculated HRR league-wide) * 50%]/(Sum total of all players' salaries paid). But, again, that's not part of next year's cap floor/ceiling calculation... so....

2b- Since the league and the PA have last year's league-wide HRR calculated, they then determine this year's cap midpoint. (The floor and ceiling are determined by calculation after that). To do this, they ESTIMATE this year's revenues.

3- Here's where it gets a little complicated. In a growing league, the estimate will always be higher than last year's HRR. But, the NHL currently has media contracts locked in, and their revenue from outdoor games is close to maxed out, so there are many areas where HRR cannot grow. So, league-wide HRR might be estimated to grow by, say 1%.

4- With NO escalator, that would mean that the cap midpoint would be 1% greater than 50% of last year's league wide HRR. Please note that last year's salary midpoint has nothing to do with this. It's entirely based on last year's HRR.

5- At that point, the league and the PA have the right to instead increase that number by 5% or by some number in between. Again, last year's salary cap/floor/ceiling has nothing to do with this. In this way, there is NO compounding of the use of the escalator.

5a- The PA may choose to use the escalator because upcoming free agents will then be able to sign for higher contract numbers. The players won't actually cumulatively receive any more money with or without, but the contracts look better......

Thus, the reason for escrow being high is 2-fold.

1- The teams spend, on average, close to the cap ceiling rather than the midpoint. If the HRR estimate were exactly correct, this alone would create escrow of 15% if all teams spent to the ceiling.

2- Use of escalator on a yearly basis by players, which inflates the cap midpoint beyond the estimate. This is NOT compounded, but still can happen each year.

You want math... OK.

Let's say that 2016-17 had HRR of 4.2B. This is the actual calculation. Remember, last year's salary cap calculations have now been thrown away.

Let's say that the league guesses that HRR will increase 2%. PA says, "No we want 5%".

Thus, estimated HRR for 17-18 becomes 4.41B. For ease of math, let's ignore Vegas, and say that there are 30 teams.

Salary midpoint becomes: 4.41/30 *50%, or....73.5M. That creates a ceiling of about 84.5M (I think it's 15% to the ceiling....).

Now, let's say that teams spend on average 80M. That means a total of 2.4B in player costs. This would be covered by 4.8B in league wide HRR, if that was what came in.

Never mind what the end of the year HRR is going to be....

Without the escalator, there would have been 2.1B/30 in salary midpoint, or 70M.

Thus, the escalator increased the amount of salary by 3-4M, and the spending to the ceiling increased the amount of salary by about 6.5M in our example, where teams spent on average, more than the midpoint, but, not all to the ceiling.

That means that, if the salaries are an overspend by the owners, that about 1/3 of the escrow taken out is due to the escalator creating too high a midpoint in the first place. And, 2/3 is due to team spending being nearer to ceiling than midpoint.

Which is why many of us have said that the solution to the escrow problem is to move the ceiling closer to the midpoint.

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07-15-2017, 10:25 AM
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Quote:
Originally Posted by CrAzYNiNe View Post
So some discussion about escrow showed up on the Habs board and I wanted to do my due diligence before I through my hat in this ring.

I have been trying to find any mention that the NHL has increased their PHRR since 2014-2015 (I believe the Rogers TV deal was the last time the NHL increased their PHRR). Can anyone confirm this?

Here is what I wrote on the Habs board:
I thought the escalator was used every year since 06-07?

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07-15-2017, 11:22 AM
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CrAzYNiNe
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Quote:
Originally Posted by MNNumbers View Post
...
OK great that explains a lot.

The NHL did a great job with their math to put the burden of revenue on the players. Considering the midpoint is the revenues, therefore 15% is always escrow. Toss in the escalator and we are talking about potential 20%, if every team spent to the cap to be competitive, of the players salaries going back to the teams that gave out these contracts.

$10.5M turns into $8.4M. It gives me the impression of mini roll backs depending on the success of the NHL.

Thanks everyone for the information, I believe I have a much better handle on how this whole thing works.


Last edited by CrAzYNiNe: 07-15-2017 at 11:31 AM.
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07-15-2017, 02:43 PM
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Quote:
Originally Posted by CrAzYNiNe View Post
OK great that explains a lot.

The NHL did a great job with their math to put the burden of revenue on the players. Considering the midpoint is the revenues, therefore 15% is always escrow. Toss in the escalator and we are talking about potential 20%, if every team spent to the cap to be competitive, of the players salaries going back to the teams that gave out these contracts.

$10.5M turns into $8.4M. It gives me the impression of mini roll backs depending on the success of the NHL.

Thanks everyone for the information, I believe I have a much better handle on how this whole thing works.
Don't quite me on the 15%. But, that's the idea of how it works.

Glad it's more clear.

I see what you mean by mini rollbacks.

To correct this problem.....

Actual salary rollbacks would be tough to accept. Someone had suggested that the idea of incorporating Vegas would give the PA a chance to change to NOT using the escalator, and that would reduce the escrow by a good amount.

The real answer would be a change in the salary cap ceiling definition, phased in over a few years, with guarantees that the ceiling would not decrease.

Such as.....

Over 5 years, we reduce from 15% to 10 above the midpoint, while leaving the floor definition as it currently is. Change 1% each year. No escalator, but guarantee that the ceiling at least stays level until growth catches up with the new definition...

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07-15-2017, 02:50 PM
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Quote:
Originally Posted by CrAzYNiNe View Post
OK great that explains a lot.

The NHL did a great job with their math to put the burden of revenue on the players. Considering the midpoint is the revenues, therefore 15% is always escrow. Toss in the escalator and we are talking about potential 20%, if every team spent to the cap to be competitive, of the players salaries going back to the teams that gave out these contracts.

$10.5M turns into $8.4M. It gives me the impression of mini roll backs depending on the success of the NHL.

Thanks everyone for the information, I believe I have a much better handle on how this whole thing works.
Not exactly, since not every team spends straight up to the cap and there are even a few teams that spend below the midpoint.

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07-15-2017, 11:15 PM
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CrAzYNiNe
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Originally Posted by Tawnos View Post
Not exactly, since not every team spends straight up to the cap and there are even a few teams that spend below the midpoint.
Correct. I was using the 15% to explain the value above the cap midpoint and not the actual value that is achieved every year. I just explained myself poorly.

I still find it crazy that the players would accept this, although signing your name on a 10M contract must feel pretty good, but knowing maybe 1.5M is gone back to the owners, you must feel jipped.


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07-16-2017, 07:02 AM
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Quote:
Originally Posted by CrAzYNiNe View Post
Correct. I was using the 15% to explain the value above the cap midpoint and not the actual value that is achieved every year. I just explained myself poorly.

I still find it crazy that the players would accept this, although signing your name on a 10M contract must feel pretty good, but knowing maybe 1.5M is gone back to the owners, you must feel jipped.
They lost an entire season trying not to accept it. 8.5m > 0

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