Contradictions and other nonsense
(UPDATE: Good stuff in the comments.)
It pains me slightly to do this to such an excellent blogger and kindred spirit. The Monger has written a rejoinder to my previous post on Capitalism & the NHL. I should probably thank him - he has managed to articulate almost every common fallacy cited as evidence in support of a salary cap.
As such, his post deserves a proper Fisking. (Sidebar: I propose that the Canadian term for this be a Bleeding, in honour of its national champion. I intend to repeat it until it becomes common usage.)
Point (1) of 2 is readily conceded - the CBA does define the rules under which the owners field their teams. Once the owners and players agree on something, so it will be.
The problem is Point (2), virtually in its entirety. Let's go through it in parts:
Because it is a competitive sports league, it seems as if (for example) the Vancouver Canucks and the Ottawa Senators are in competition with one another. However, as far as the business is concerned, the entire NHL is one industry, which is in competition (for fan interest) with the NFL, Major League Baseball, and for that matter movies and television and musical entertainment.
Dubious. First let's ignore the near-invocation of the "pie" fallacy, where wealth is never created, just taken from somewhere else. I know The Monger doesn't believe this, so we'll just remind everyone else - there is not a fixed number of leisure dollars in North America.
More importantly, we have the common misconception that the Canucks and Senators are "in it together" when it comes to business. A large, large percentage of "NHL fans" are actually fans of a particular team, and an even greater percentage started out that way (generally the team in their area, sometimes "Dad's team"). This is a critical point: most of the growth of the NHL comes via its teams. Put a different way, the Canucks and Senators are selling to essentially distinguishable sets of potential customers, and the success of the Canucks in doing so is pretty much entirely separable from the success of the Senators.
A team's viability is almost entirely dependent on their ability to sell to their own market; moreover, the NHL's viability is almost entirely dependent on the ability of 30 teams to sell to their respective markets.
(This may also be an opportune time to point out that Major League Baseball is the only one of the four major team sports exempted from U.S. antitrust law. It's widely acknowledged now that even this exemption is an anachronism - it was granted in 1922 not because the SCOTUS considered MLB "one business", but because they ruled it wasn't a business at all.)
If the Canucks or the Senators sink under the waves because they are operating under unfavourable economic rules (e.g. other teams have payrolls twice as large), this hurts the whole industry.
First of all, the history of the NHL is rich with teams that have folded, moved, and merged. Today it's a $2B industry. It is not self-evident that if the Canucks went bankrupt it would damage the industry as a whole. (And note: since 1987, when the NFL started the salary cap, more NFL franchises have relocated than NHL franchises, 5-4).
Secondly, we have the statement that existing discrepancies in team payrolls are an example of "unfavourable economic rules". Since the whole root of this dispute is that there are no rules restricting total payroll, I'll assume he means "unfavourable market conditions", which by the way I don't accept either.
The third problem with this sentence is that the survival of the Canucks and Senators is threatened by payroll discrepancies. I realize I'm fighting both intuitive plausibility AND nearly 10 years of Canadian owner complaints here, but cripes, the evidence does not support this premise! In 2003-04, (at least) five of the six Canadian teams were profitable!
And I'm told I'm supposed to treat this like some kind of fluke, but:
- Ottawa has made the playoffs for 8 consecutive years (and were recently purchased by a Mr. Steve Melnyk, presumably of his own free will)
- Vancouver has made the playoffs for 4 consecutive years (and then let their GM go - gee, you mean the owner doesn't see this as flat-out overachieving?)
All that said, the biggest fallacy in The Monger's piece is trotted out here:
As a business, the Canucks and each of the 29 other teams are partners--perhaps the way that the marketing division and the research division of a large tech firm are partners, or maybe the way Radiology and the Emergency Department in a hospital are partners.
False. The underlying premise here is that, like the marketing & research divisions of a single company, the 30 NHL owners have identical financial interests. As much as the owners are trying to make us believe this right now, it is simply not true. Four off the top of my head:
- An owner in a proven, traditional market (say the Leafs) may wish to make a certain decent operating profit every year.
- An owner in a new market (say, Dallas) may not be concerned with year-to-year profits & losses, but wishes to sell the team for a large profit down the road, as he has created an NHL market where none was before.
- Another owner (say Edmonton) may bring in lots of community leaders as partners, and wish to run the team as virtually non-profit, with all extra revenues being reinvested in the team, arena, or whatever.
- Yet another owner may be unconcerned with the future selling price of his team, as he plans to bleed it dry in the meantime.
If ABC Tech Firm decides, as an industry, that its marketing and research divisions should each share X% of the budget, we don't get our knickers in a twist about the free market, crying "each division should sink or swim on its own!" If the Radiology Department and the Emergency Department have to share a defined fraction of the budget, the Emerg docs don't whine that there's no free market, and that their department is managed better so they should get more cash. Well, actually, they do, but that's another story...
I suppose the fact that The Monger has debunked his own analogy by the end of this graf should suffice, but let's follow this through (and note, again, that a Firm is not an Industry). If ABC Tech Firm were structured like a pro sports league with a salary cap (say the NFL):
- The value of X% and Y% of the budget assigned to Research (Hardware) and Research (Software) would never change, regardless of the relative accomplishments of the divisions.
- Much of the ability of R-H to grow would be directly tied to the success (or lack thereof) R-S, in perpetuity.
- ABC's Board of Directors could not fire the Head of R-S for consistently poor performance - they'd have to wait until he died, or got interested in something else. Oh, and even if the Head DID die, the Board might be forced to hire his wife, son, or daughter.
- Talented employees of R-H would have to accept that their compensation would be limited, again in perpetuity, by the poor performance of R-S.
- R-S would have little concern for its own talented employees, as competitors are prohibited from hiring them away at a better wage, even if they could do so profitably.
It is no more a constraint on the free market for the owners to "collude" in setting a salary cap than it is a constraint on the free market for the Board of Directors of IBM to set the budgets for each of its divisions.
Yes, it is. (I love the italic decisive!) IBM's board is running one business, i.e. there is only one relevant bottom line, and no shareholder's financial interest in tied solely to the performance of any particular IBM division. The NHL owners are running 30 businesses. If IBM and 29 other top tech firms colluded to cap salaries (in the absence of a collective bargaining agreement with a very large Computer Geeks' Union), the consequences would include large fines and jail time.
I am therefore a strong supporter of the salary cap, and an equally strong supporter of the free market. There's no contradiction.
Another italic decisive is tempting here. Dr. Monger would be free to state that he is, as I am, a strong supporter of the right of two or more parties to freely enter into a contract. This right, however, has never been in dispute here or anywhere else - indeed, if the NHL and the PA would just freakin' do so, I'd have nothing more to say.
The question here has always been the fairness and advisability of a salary cap, and if it's good for the league, owners, players, and fans. And since the market for players' services under a salary cap is not at all free, then there bloody well is a contradiction between support for a salary cap and support for free markets.
I would like to conclude (permanently, I hope) by revisiting the last part of the ABC Tech Firm analogy above - specifically, the part about interested third parties.
Your basic NHL fan in Canada has been conned by the owners, with the media's help, into thinking that under a salary cap, their team will be competing for the Stanley Cup every year (whereas all present success should be regarded as fortunate and/or fleeting).
I wonder how a fan of the Chicago Cubs feels about this assertion, or the Arizona Cardinals, or Cincinnati Bengals, or the L.A. Clippers, or the Chicago Blackhawks, or the Boston Bruins. These are all teams operating above the safety net of profitability, and they all enjoy good seasons about as often as you would predict with a random number generator, if that.
The unintended, but not unforeseeable, consequence of assured profitability is the entrenchment of disinterested, incompetent, and/or lazy owners. This tradeoff is only a positive one (arguably) for fans in the absolute worst markets, where the alternative might be their team moving away.
In sum, it continues to boggle my mind that Canadian NHL fans, having regularly witnessed the benefits of great ownership towards on-ice success, are so eagerly supporting a structure which promotes exactly the opposite.