Paul Kelly Admits Escrow Payments to Rise

Last night between games on HNIC, NHLPA executive director Paul Kelly was interviewed by Ron MacLean (link to HD video of the entire interview). The first thing they discussed was the rumor that escrow payments made by the players would be rising from 13% of their pay to 17-20%. Kelly wouldn't say exactly how much the payment would rise, but he did answer in the affirmative that the 17-20% range was accurate.

It is the escrow system that allows for the NHL to have both guaranteed contracts and a Salary Cap tied to a percentage of revenues. What this rise in escrow means is that the players contracts in total will likely be much more than the 56.5% of league revenues for the year. It was already pretty much taken for granted from the beginning of the season that the 13% that was being taken out of their checks and held in escrow would be returned to the owners at year's end.
Now the NHLPA is admitting that even 13% is not enough. In the first three years of this CBA, the players had always gotten their escrow payments back, as revenues far exceeded the league's expectations each time. But, given the severe contraction takng place in the U.S. economy, that scenario seems like a distant memory. The recent release of the retail sales figures for December were abysmal, dropping nearly 10% year over year.

Why would anyone think that the NHL's revenues wouldn't be affected even more than Christmas sales? The latest statements by the NHL back in December were echoed by Kelly last night, saying that the Salary Cap will likely stay roughly the same next year with revenues only rising 2% in the aggregate, down from the original projection of 6-7% because of the dorp in the Canadian Dollar.

"Fortunately for us, a large portion of the revenue is contractual revenue," [Bill] Daly said.

Given that a ton of their contractural revenue comes from corporate sponsors that are getting hit really hard by the implosion of the banking industry I would expect 2009-10 to be the year where the cap really takes a nosedive. Savvy GM's beware, you can out-compete your rivals in the long-term by holding the lengths of the deals you offer this summer down. To me, this is only the beginning of this story.

Ta,