Total Salary Cap Spending by Position 2007/08 – 2010/11

March 6, 2012 by Leave a Comment

To ground everything, let’s look at the basics of how big the pot of NHL compensation dollars was for each of the last four seasons segmented into three buckets:  forwards, defensemen and goalies.

The numbers above are the starting point of our analysis. We take the totals for each type of player and divide them between all the players based on their REGULAR SEASON performance.  For more details on about these calculation, please read our Puckonomics methodology.

Here are some key assumptions that went into these numbers:

1) Two-Way contract players needed to play a material number of games to be included in the analysis. If a 2-way non-goalie player played less than 15 games they were probably not included.  There are about  150 forwards, 50 defensmen and 15 goalies who had a cup of coffee in the big leagues each year who did not play enough games, generated sufficient statistical value or earn enough salary to be included in our analysis.

2) One-way contract players are included in the analysis even if they were hurt and only played a small number of games during the season.  The exception to this assumption are players who did not play a single game all year and were on Long Term Injured Reserved the entire season. Example of players who missed a full year are Mike Rathje in 07/08 and 08/09 or Mark Streit in 2010/11. Salaries for these types of situations are not included. However, Marc Savard who only played 25 games in 2011 had his full $4M  cap hit included. Savard’s 2011-12 $4M cap hit will not be included since it does not look he will play this year.

At this high-level there are a couple of interesting points of note:

– Average salaries seen above are pretty similar between the three groups, but not all that meaningful given it would just be an average and includes a wide range of player quality and number of games played.

– It seems the trend to paying goalies a smaller percentage of overall salary cap is indeed reflected in the numbers.

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The Puckonomics Methodology

March 6, 2012 by Leave a Comment

Our entire analysis is based on relative value.  We normalize the REGULAR SEASON statistics with total salaries which are paid based on revenue sharing of both REGULAR SEASON and PLAYOFF revenue.  We divide the entire pool of revenues (which is a function of the annual Salary Cap) into three buckets:

1)      Total salary cap hit for Forwards

2)      Total salary cap hit for Defensemen

3)      Total salary cap hit for Goaltenders

We look at key statistics for each of the 3 types of players, normalize and weight them differently based on a statistical analysis of their importance and correlation to the total pool of dollars. In the end what we should now be able to see is a player’s value relative to another.  For example, all other statistics being equal, a player with half the statistical performance of another (goals, assists, plus/minus, time on ice, etc.) should see that their compensation is about half of that other player.

Since 14 out of 30 teams in the league do not participate in the playoffs and the wide range of outcomes for teams and players in the playoffs, it is very difficult to normalize for both REGULAR SEASON and PLAYOFF results. As a result, some judgment is required in assessing the true value of a player taking their normalized REGULAR SEASON calculation and adjusting up or down based on PLAYOFF appearance and performance.  Therefore, we recognize that not including Playoff performance does not give the complete picture on individual players. Our assumption is that player playoff performance is a continuation of their regular season  performance and solely adjusted based on the number of games they played in the playoffs (since the number of games played drives how much revenue a team/player generates), which may or may not be true.

Please keep in mind that this analysis is intended to look at players over several years rather than a single year, since many players can be injured or have career/off years which can be looked at as outliers.

Salary compensation is not an exact science. We fully recognize that statistics do not fully represent the value a player brings to a team.  For example a talented scorer on a weak team will not have as great numbers compared to an equally talented forward with a highly talented team. Or an average goaltender on a great team like the Detroit Red Wings will put up exaggerated results despite themselves not really being at the elite level.

Also, there are two key elements that will never be reflected in a player’s statistics:

  • The impact veteran players have in a locker room. For example, Hal Gill mentoring P.K. Subban over the course of two seasons or a Stanley Cup winner helping a young team learn how to play in the playoffs.
  • How much revenue an individual superstar like Sidney Crosby or Alexander Ovechkin generates on their own.

Almost all players should be paid based on their on-ice performance.  However, there are a handful of players that are the primary reason fans buy tickets to a game or watch on TV.  These elite individuals are clearly worth more to their franchises than just the numbers they put up on the ice.  These superstars actually put butts in the seats and eyeballs in front of the television. For example if Sidney Crosby attracts 1000 more people to half the games he plays in (assuming the other games were already sold out, so he did not contribute to those incremental sales). That’s 41x1000x$100 (avg. ticket price) = $4.1 million in revenue directly tied to Sidney playing in those games. Sidney Crosby’s total compensation should be higher than just based on the number he puts up.

As mentioned above, compesation is not an exact science with many factors to consider.  We openly acknowledge that we do not reflect all the factors that go into a player’s true value.  The purpose of this analysis is to show relative value and not exact salary expectations.   We hope to get within 10% of what a player’s preformance truly earned him during a particular year and then look at their body of work to compare their contract to their actual performance earnings.

 

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Why I Started Puckonomics

January 31, 2012 by Leave a Comment

The NHL is not an efficient market.  There are players being paid $5 million who are really worth half that and vice versa.  I wanted to see if I could come up with an analysis which gave a more accurate reflection of what a player really ‘earned’ in a given year based solely on their performance.  There are a number of drivers of this efficient market, just like any other capital market or professional sports league.  Some of the drivers include contract restrictions from the CBA such as entry-level contracts,   Restricted Free Agents and the Salary Cap. As well, other traditional economics factors such as the supply and demand of Unrestricted Free Agents play a big role in player salaries.  This analysis will ignore contract status and other off-ice factors and solely look at regular-season on-ice performance to assess a player’s value.

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