Thursday, September 01, 2005

 

More on the Escrow Fears

Andy Bernstein,from Street and Smith's Sports Business Journal, emailed me this,

"What most people seem to miss is that there are TWO variables. One is revenue, the other is average salary. So the league can be 100% right about the revenue projection of $1.7 billion, but if clubs, on average, spend more than the midpoint, the escrow will still kick in.

And anyone who ever claimed the escrow wasn't likely to kick in either didn't understand it or was lying, because there is absolutely no question whatsoever, and never has been, that clubs will spend more than the midpoint on average.

Without any luxury tax, there is nothing to stop clubs from spending at or near the cap (other than revenue sharing eligibility, but that only effects half the clubs and it stops them at the midpoint, not below).

It's been very clear to me from the outset that you're going to have 3 or 4 clubs well below 31, a handful at 31, and at least half the league, maybe 20, clubs up near the cap.

In that case, the escrow will definitely kick in regardless of revenues. The revenue thing is a red herring on escrow, and won't even be a factor next season when they work off real numbers, not projections.

The escrow is an equalizer when clubs inevitably spend over the midpoint (on average)."

Another anonymous source sent this to me regarding the escrow situation,
"The league-wide payroll (after all anticipated signings) should be $1.0 billion. In addition, for escrow purposes and the 54% calculation, you have to add $66 million for benefits into the payroll calculation. So, total compensation for the league is $1.066 billion. Subtract $852 million (54% of $1.7B -$66M) and you have $208M over the linkage cap, or 24%! All the players better hope that the $1.7B revenue target is low."



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