October 27, 2010

The Failed NHL Salary Cap

In 2005, the NHL joined the NBA and the NFL in instituting a salary cap system into the sport. From an economics standpoint, a salary cap is an enforced price ceiling on total team salary that teams are forbidden from exceeding. The intended purpose of this, like many real world government enforced price ceilings, was to promote parity within the league. To some extent, this has worked. But with all price ceilings, there are unintended consequences that have hurt the league as a whole.
While it’s true that in the age of the salary cap there has been more opportunity for the historically weaker teams to have a shot, over the last few years, as teams have grown familiar with the cap and how to manipulate it, the same few teams have begun to dominate year in and year out. Comparing the division leaders from the 08-09 season with the 09-10 season, many of the same teams continued to dominate. This is because these teams have horded their star players on team friendly contracts, and other teams less fortuitous have found themselves forced to overpay free agents. In the end, this all comes at the expense of young, B-level players. Many teams are frontloaded with star players, and it leaves less opportunity for the middling players. This has caused them to either wallow in the minors, where they do not count against the salary cap, or to seek employment overseas, particularly in Russia. To quote Flyers defenseman Chris Pronger, "Who it affects is the young player who wants to get an opportunity. Maybe a young player could have come up for that game and helped them win and he never got that chance."

Compare this to the housing example given in class. Ultimately, the price ceiling creates an excess demand. Teams are not able to supply the appropriate amount of money to meet the demands of the players, so they are finding work elsewhere. Like the housing example, those who are worst off for this are the poor, in the case of the NHL, the marginal players. These are the non-stars and journeymen type players. Also like the housing example, the teams that are benefiting are those that lucked out into buying the ‘cheap apartment,’ or locking down their star player for cap friendly terms (Detroit’s Henrik Zetterberg for $6 million per, Chicago’s Marian Hossa for $5.2 million per, Vancouver’s Robert Luongo for $5.3 per).
In the end, teams have to all field the same 20 man roster. The cap’s intended purpose, in making the 20 man rosters of all the teams in the league more even, is failing. With teams circumventing the cap with long-term deals and hiding players in the minors, the richer teams still have the advantage and are still winning. All the cap has succeeding in doing is forcing the marginal players out of the league, and this is why the salary cap should be significantly examined during the next CBA discussion.

1 comment:

Larry Eubanks said...

Seems to me a salary cap is more like a budget constraint than a price ceiling.