In an article in PensionPlanPuppets, KatyaKnappe insightfully shared the impact that COVID-19 would likely have on shaping a new salary structure and changing contracts signed during the age of the flat-salary cap. That issue will be coming up over the next few days as NHL teams seek to find help on the free-agent market.
The article also discussed the nature of the signing bonuses the Toronto Maple Leafs regularly offer to top players as part of their contracts – players like John Tavares, Auston Matthews, Mitch Marner, and William Nylander.
The point of offering contracts with signing bonuses has been to attract players by paying them a higher percentage of their contract’s payout very early in the contract rather than later in the contract. In other words, signing bonuses allow players to get more money sooner.
That way, players gain a huge financial advantage from a team. Players are also protected against a lockout by owners or any other end of the actual playing of hockey. In short, it’s a very good deal for players.
How the Pandemic Changed Things
COVID-19 has changed everything. Within the context of this pandemic and without regular income from fans who attend games, owners and organizations are losing a great deal of money. Some of the poorer teams might even risk not being able to pay their players.
What Is Escrow?
Because the NHL’s collective bargaining agreement (CBA) is built upon a labor philosophy that players and owners will share both costs and risks, a mechanism is built into the CBA includes to ensure teams and players achieve a 50-50 split of hockey-related revenue. That mechanism is called escrow.
Escrow means that a percentage of players’ salaries are withheld from their paycheques during the season and put into an account that is measured against actual hockey revenue. If hockey owners have lost too much money, the amount required to catch them up to where they “should be” is taken from that escrow account, and the remainder is returned to the players. That allows owners and players to achieve the agreed-upon revenue-splitting.
How Does Escrow Impact Salaries?
What interested me when I read this article was a small section of the article that showed the impact of escrow on Maple Leafs players’ salaries. Specifically, Knappe’s article outlined how the Maple Leafs’ high-salaried players were impacted by escrow financially.
In no way can these players be said as “hurting” financially. However, I was surprised about how little of their announced contract payout these players would be receiving this season. That payout impacts the upcoming 2020-21 salaries they receive in bonuses, and to wrap up the players’ final 2019-2020 payment was paid in full in a paycheque issued in July, even before the NHL’s Return-to-Play.
The problem with that paycheque for all NHL players was that all of it – every cent – went right into the NHL’s escrow account. That was a condition the National Hockey League Player Association (NHLPA) signed in the new CBA Memo of Understanding (MOU) in early July. It called for the entire escrow account to be paid in full to the owners.
A Final Accounting, But …
Usually, during a final accounting, players are given back most of the money they put into this escrow account. This season, however, because NHL’s organizations lost so much money, the expectation is that, when a final accounting is done on this season as it always is, players would owe even more than the already-paid-out 20% of their salaries. That’s because NHL revenues completely bottomed out due to the COVID-19 regular-season suspension.
What Happens In 2020-21?
For 2020-2021, escrow is again set in the MOU at 20% of salaries. In addition, all NHL players are called to defer another 10% of their salaries to owners. Although that 10% has been agreed to be repaid over three years, it still erodes the value of front-loaded, signing-bonus-laden contracts in the short term.
The Maple Leafs Big Four’s Real Take-Home Pay
So here are the specific numbers of Maple Leafs’ highest-paid players. These numbers were taken right from the Knappe article. Note that the salary deferral for 2020-21 is planned to be paid back to players over the coming years of their contracts.
Here’s what it looks like for the big-four salaried Maple Leafs players; however, such payments also impact other players, who will also lose similar percentages of their salaries.
Salary lost to escrow and deferral and take home
|Player||Annual Salary||Salary Lost to Escrow in 2019-20||Salary Deferral in 2020-2021||Actual Take Home Salary|
As a note, both escrow and the salary deferral are calculated on Total Salary, not the Base Salary after signing bonuses have been paid. These payments don’t count income taxes paid. As well, financial experts suggest that, because of the difficult financial situations of NHL’s teams, the escrow amount for the 2020-2021 season (not the deferral) will likely never be repaid to players. Thus, most of the escrow paid during this coming season will never return.
Further Information About Taxes on NHL Players Playing in the USA and Canada
As an aside, for anyone who’s a geek like me and might be interested in knowing more about the taxes hockey players pay, Kevin McGran wrote a nice article in The Star just over a year ago explaining the income tax situation for players who play for Toronto teams. If you’re interested, you can find it by searching by title. (from “For Marner and Leonard, it pays to know a few contract shortcuts,” Kevin McGran, The Star, 29/06/19)
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