Thursday, July 21, 2005

Cap chat

So, I hear there's going to be NHL hockey next season! For this I am glad. I suspect I'll be getting back to my old routines as a Flames fan, although I can't be sure. I think the new CBA is bad for just about everyone, but it was a voluntary agreement, so they can live with it.

My respect for (Flames prez) Ken King and Darryl Sutter has gone down considerably as a result of their rhetoric during the lockout. Mercifully, they declined to demean the city of Calgary and its fans in the same fashion as (to state the obvious example) Cal Nichols and the gang up in Edmonchuk. The flip side of this is that it left them without any real argument, valid or not, as to why Flames fans should be happy about the whole lockout chain of events.

The day after the agreement was announced, I saw Ken King on TV saying that now it was up to the team to show the fans that the lost year was "worth the wait". I'm not sure what that means, because I don't know what possible future scenario could prove this. Seriously, anyone?

As the best commentators have noted, we can't really know how things will play out from here, in a number of ways. Will it improve the "competitive balance"? No idea, especially since I have yet to see an attempt anywhere to empirically define or measure what that means. If it does produce more "parity", will that be a good or a bad thing overall? I'm leaning towards "Bad", but I can't be sure.

Say the Senators win the Cup this season, then lose their 1st and 5th scorers, and 2nd and 4th defensemen, to free agency (i.e. cap considerations). Ottawa fans enthusiastic about competitive balance should in theory applaud this: "That's what's great about this league - talent is evenly distributed, everybody has a chance every year." In the immortal words of Edith Prickley, "ppp-HAH!" I've also yet to hear anyone argue that the fact that the Red Wings have been one of the Top 5 teams in the league for 10 straight years has been bad for the league.

Parity and other issues aside, there are some things that we KNOW will result from the new CBA.

1) The cap and revenue sharing will be bad for league growth.

Every innovation in the past 50 years of the NHL has been initiated by a team, not by the league as a whole. (I use innovation not in the sense of "new technology", but rather "new idea designed to extract money from fans voluntarily".) Many of these innovations have been widely adopted, or even uniformly adopted as NHL policy, but the fact remains that they all came from businesses seeking to grow, improve, and gain profit.

Third jerseys, seat licenses, Pizza Hut in the concourse, game packs, coaches' radio shows, reserved parking lots, etc. etc. etc...none of these things came as a result of a partnership committee in the NHL offices. Individual teams initiated these things to grow revenue, improve their teams, and/or make more profit.

Both a salary cap and revenue sharing act as disincentives for this kind of innovation. In the case of (say) the Leafs, it's a powerful one. Proponents of revenue sharing seem to take the pile of league revenues as a given, as if redistributing them won't change anyone's behaviour. This is economically illiterate. Here's Chris Selley from back in February:
The economic situation also means that revenue sharing makes no sense for the NHL. With no league-wide source of revenue independent of individual teams and their fans (that is, a television contract) to share, such a system would amount simply to redistributing money from the rich teams' fans to the poor teams' players. You'll need one hell of a PR firm to spin that to positive.

Add the fact that many of the will-be recipients of these redistributions (say Nashville) are playing in arenas built by the government, and paying less tax. Suddenly the Leafs are in a situation where their revenues far exceed what they are allowed to spend on players. What will they do?

- At the one extreme, they could maintain or raise ticket prices, and continue to take risks to develop new revenue streams, all so that a good portion of their excess revenue can be mailed to Nashville and Pittsburgh.

- At the other extreme, they could drop ticket and beer prices to a level where they spend the full cap, cover their other expenses, and make a tidy but not gaudy profit. Obviously much less, if any, revenue is available to redistribute in this case.

The reality will no doubt fall somewhere between these two extremes. But note that the first extreme is pleasing to people in Nashville, whereas the second is pleasing to people in Toronto. I'll leave it to you to determine how that might affect the Toronto Maple Leafs' planning.

When a team like the Leafs isn't even sure that they want to grab all the revenues that they know are available, they will absolutely not be risking anything on ventures where they don't know that money is available. This means zero growth.

2) The middle-class will be hollowed out of the player salary structure.

The superstars and the journeymen won't be much affected by the salary cap. It will be fantastic for the not-quite-superstars, and awful for the average to slightly-above-average players.

I posted (with research!) about this in January. The institution of a team cap, and an individual cap hurts average players. The superstars get paid the max. The near-superstars get paid the max. The players with expiring contracts (or one year remaining) who look like they are developing into superstars get the max. It just doesn't leave money for a healthy middle class.

Quiz: what do NBA players Allan Houston, Michael Finley, Keith Van Horn, Penny Hardaway, Jalen Rose, Shawn Marion, and Antawn Jamison have in common?

Answer: For the most part, they're nice players, comfortably above-average in talent, occasional All-Stars. They're also all signed to long-term contracts for the league maximum. Tom Benjamin argues here that NHL teams won't get into the same messes, because one top NHL player just can't have the same impact as one top NBA player.

Even setting aside goaltenders, my reaction to this is, "Wanna bet?" Take the Oilers (please..heheh). When they gave up Doug Weight a few years ago, they could plausibly argue to their fans that they simply could not afford to pay one player $7M USD (exact figure eludes me). (Also, whether it would have been wise to do so, especially with the benefit of hindsight, is another matter).

Under the same scenario today, Oiler fans would look around the league and see every other team with roughly the same amount of money to spend, many or most of which have a top player making the maximum. How could they say that they can't afford to sign their own best player, with the same resources everyone else has? It would look to fans like the Oilers are unwilling to seriously compete (or uninterested).

The Hawks' Bill Wirtz is the only owner I can think of who genuinely doesn't care if his fans think he's trying to win. Everyone else is going to feel the pressure to show that they are doing what they can. If you're an NHL GM, and you have (say) the 10th-best skater in the league, you'll be signing him to a max contract. Then you'll run around hoping that you can offer your 4th defenseman and 3rd line wingers fifty grand more than the other guy.

In 3 years, there will be 25-40 players making the maximum. That's my prediction. I'm not at all worried it'll come back to haunt. This post is too long to continue.


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