Wednesday, January 19, 2005

Hockey's answer to the Peter Principle

(Note: this whole post may be moot in hours, based on what I'm hearing on the radio, but what the hell)

Phil Esposito offers comment on the NHL contract dispute, and his two cents worth, well, isn't:
"I just do not understand what the big deal is with a salary cap," Esposito said. "I just don't understand it.

"(It's) not going to affect anybody. But it might take away the 10-11 million-dollar player – which there is no room for it anyway in the National Hockey League because the revenues just don't justify it."

Since the last time he banged home a rebound, Esposito's impact on the NHL and its teams has been entirely negative or inconsequential, so maybe I should be ranting about why anyone considers his comments "news", rather than the absence of sense in his comments.

For starters, there's the major accounting theory problem of claiming that revenues in some way dictate how they will spent. Phil, there's a line down the middle of that ledger for a reason. Even the Penguins can afford to pay one guy $11M and 22 others $300k if they so choose. The notion that total league revenues dictate the appropriate salary for the top players is arbitrary at best.

But this is mere theory! Before commenting on the effect (or lack thereof) of a salary cap on the salaries of both premium and average players, you might consider it relevant to look at the available evidence. (Like those ad wizards at the NFL I've been hearing so darn much about!).

Actually, let's start with the NBA - they have more "cost certainty" than the NHL at present. It's a soft salary cap: there are some exceptions for re-signing your own players and certain veterans. There is also no prohibition against going over the cap, but a fairly severe penalty for doing so: a dollar-for-dollar (100%) luxury tax, as well as a dollar-for-dollar deduction in the amount received for luxury tax redistributions. In short, every dollar you spend over the cap (apart from the Larry Bird, mid-level, and other specific exceptions) costs you $3. There is also a maximum player salary and contract length, which I think is intended not for cost control so much as avoiding holdouts and other disputes with the top players (i.e. keeping them on the court).

Anyway, let's see how these controls affect NBA players. Stats are courtesy of one Patricia Bender, whose site contains the level of detail generally reserved for baseball geeks. Here are 2004/05 NBA player salaries:
  • 1 players will earn $27 to 28 million
  • 0 players will earn $18 to 27 million
  • 2 players will earn $17 to 18 million
  • 1 players will earn $16 to 17 million
  • 0 players will earn $15 to 16 million
  • 18 players will earn $14 to 15 million
  • 2 players will earn $13 to 14 million
  • 12 players will earn $12 to 13 million
  • 1 players will earn $11 to 12 million
  • 5 players will earn $10 to 11 million
  • 7 players will earn $9 to 10 million
  • 8 players will earn $8 to 9 million
  • 14 players will earn $7 to 8 million
  • 18 players will earn $6 to 7 million
  • 36 players will earn $5 to 6 million
  • 39 players will earn $4 to 5 million
  • 34 players will earn $3 to 4 million
  • 41 players will earn $2 to 3 million
  • 101 players will earn $1 to 2 million
  • 128 players will earn less than $1 million

You can take these stats however you want, but what they show me is that a salary cap punishes everyone except the superstars.
- 36 players make over $12M/yr; 35 make $7M-$12M/yr
- 239 players make over $2M/yr; 228 make under $2M/yr

How about the NFL figures, where there is a hard cap? There is complications reading this data as well, thanks to how they account for signing bonuses, players who have been cut, etc., but take a look at the 2003 payroll for any team you choose.

1,2,3 players make great money. Another dozen make roughly "decent baseball money". And a solid half of every roster makes essentially the league minimum.

Again, you are free to interpret the data however you want. What it tells me is this: cap or no cap, the top players will continue to get paid well - a high proportion of available salary expenses. With a cap, the mid-level and marginal players become expendable, or rather, interchangeable.

I think it's interesting to consider the NHL contract dispute in this context. Everything I've read over the past few months is that the top players are most vehemently opposed to a hard cap, whereas the 4th-line wingers and healthy scratches are more inclined to accept one. This is understandable in the sense that, if eight teams go tits-up, they are destined for long and frustrating careers in the American Hockey League. However, I wonder if the 7th defenceman realizes that, under a cap, even if he were to raise his level of play to "solid 4th defenceman", he is unlikely to see much if any financial benefit. One thing you can say about the NHL salary structure right now is that it generally reflects the relative worth of the players - there's no gaping hole where you would expect to find the middle class.

Maybe Esposito is right - what's the big deal. But I'm inclined to see the most accurate sentence of his comments as, "I just don't understand it".


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