It is being reported that the escrow fund that retains a percentage of player salaries is set to be returned to them once the league's financial audits are done later this month.
As far as overall CBA negotiating goes, this story is probably not that big of a deal. It might be used for some posturing, but for the most part it offers us a nice little review for how the NBA uses an escrow account to maintain its balance between what players receive from the league as payment and what the owners keep.
- Basketball Related Income (BRI) is divided between the owners and players. In the current CBA deal for which the players are now locked out, players receive 57% of the total BRI, with the teams keeping the rest.
- In order to maintain this balance perfectly, each player under an NBA contract sees 8% of his paycheck held in an escrow account, which is essentially a holding tank where the money sits for a contractually obligated amount of time. It is much like how we pay our taxes to the federal government. The place where we work withholds federal income tax from our paycheck, and that amount goes to the IRS. At the end of the year, you compare what should have gone to the IRS to what actually did. If they withheld too much, they return the amount to you that causes your tax payment to equal the proper tax rate.
- The 8% of the players' incomes is held in escrow until the season is over, at which point the league conducts its year-end audit to determine what its total BRI was. Players' total salaries and benefits are compared to the 57% of BRI to determine whether they fell short of or exceeded their allotted percentage.
- If the salaries exceed the 57% of BRI, then the owners get to keep as much of the escrow funds as necessary to meet the proper percentage. If the player compensation falls below 57%, they receive back the entire amount that was held in escrow.
- According to the story above, this year is the first time since the current CBA was created that the players are due to receive the entire escrow amount, which is $160 million. According to this NBA salary FAQ, in past years they have received a percentage, but not all of the escrow amount.
- If we do some back of the envelope calculations, we can see that, based on the escrow amount withheld, players earned in total salaries and benefits about $2 billion this past season ($2B * 8% = $160M). Furthermore, based on the 57%, total league BRI was about $3.5 billion ($3.5B * 57% = $2B)
Let's jump back a few weeks where, as a part of the negotiation process, the owners demanded to keep the $160 million in escrow. In other words, even though the player salaries fell so far below the 57% that they were due to receive it all back, the owners wanted to violate the CBA contract that requires them to return the money.
If I may be so bold...this was not a negotiation demand but rather an attempt at theft. According to the terms of the CBA, the money does not belong to the owners, but rather it belongs to the players. It is akin to the federal government saying, "We know you overpaid on your taxes, but we've had a rough year. We're going to keep the extra money to help out our fiscal situation." It isn't their money, so they don't have a right to it. So it was with the league.
Kurt Helin thinks that the league will try to treat this escrow release as a concession, but of course it isn't. You can't call something a concession when you're legally bound to do it. It was negotiation demand in bad faith, and hopefully the return of the players' money will further help to continue to level the bargaining playing field.