Retrospectacus III: Parity Up in Here!

Over the coming weeks, The Production Line will be publishing guest posts from our very favorite readers, commenters, and Tweeps — those that don’t have a blog to call their own, and might appreciate a place to vent, praise, bitch, or jailsex it up. We’re proud to offer up this space to some good friends, great writers, and incredible hockey fans.

For the third installment, we received a hell of a well-thought out post from a man we’ve never met — but feel is an honorary member of our troop. If you’ve been around TPL since the beginning, you know how much we love J.J. — so without further ado: 

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A great man once told me “Ya’ll bout to make me lose my mind, up in here, up in here.” That great man went on to get arrested for impersonating a federal officer and…oh shit, I’m off track already. I’m sorry, it’s just that this topic is kind of dry and trying to wrap my head around it has been a test of sanity (but more a “running down main street naked with an ear of corn stuck in my ass” crazy than “old rapper releasing song after song which is the equivalent of telling young rappers to get off his lawn” like DMX crazy.)

Ya damn whippersnappers!

Sara set the bar high a few days ago when she posted her thoughts on the league as a business and how much business decisions impact the sport. As a companion to that, I’ve been trying to learn the Collective Bargaining Agreement and what exactly it means to everybody involved. Not surprisingly, my findings pretty closely mirror what we all already know and the scope leaves big questions as to whether the framers of the current CBA are hopeful yet careful bastards or devious and cunning evil geniuses.

Invisible nun-grope

You see, Gary doesn’t actually want parity, at least not in the way we’ve said all along. Sara hinted at this in her post, but I think it bears saying in plain English. The Commish only wants parity among the teams with the largest fanbases. Gary wants the large markets competing year in and year out for the Cup; he doesn’t want a level playing field where teams like Carolina or Nashville have the same power to compete as Chicago or Los Angeles. So, how do you set it up to give a small, but important advantage to large market teams while getting the smaller guys to sign on? Well, you create a salary-capped system where revenue sharing brings the promise of everybody rolling in dough, but actually serves to create a system of two salary caps.

Still with me? Good. Everybody knows that there’s a maximum cap on spending, so when a team like Atlanta doesn’t nearly approach that, it must be their own damn fault for not having the commitment to spend enough to ice a winning squad. Those jerks are ruining the competitive spirit of our sport! Well, yeah, in a way they kind of are doing that, but I think you’d find it pretty convincing for the sole purpose of the integrity of the game.

INTEGRITY!

The biggest myth going is that the CBA and salary cap is designed to keep teams from spending more than 57% of their revenues on players. It’s a small, but important distinction to point out that the reality is that it’s designed to keep the LEAGUE from spending more than 57% of their revenues on players. An individual small market team is more than welcome to bankrupt themselves spending on talent, but has very strong reasons to spend less (and therefore compete less).

Taking a quick detour here (sorry, I promise I’ll jailsex you with some exciting numbers and percentages in a bit where I explain the dual-cap), but there’s a counter here that I want to nip in the bud (the best of all possible places for nipping, except at a wet t-shirt contest). The argument is that you can’t tie payroll to success. Teams have tried that and it doesn’t work. My point is that the cap has created a very tight range for players’ and GMs’ choices are how to play around with the combinations, rather than how to get the best guys to come play for you. Before the cap, nobody had any idea what a top-level defenseman is worth. Now, everybody knows that $7.5M should land you a Norris Candidate (insert Brian Campbell schadenfreude joke here). Known talent is at a known salary plateau and therefore you have to spend near the cap for a better chance at winning. Sure, there are still overpaid guys, but the formula is the same for success throughout the league. You have to pay relatively big money for your core, about half that for 2nd-tier guys and get good performance out of criminally underpaid players who later move onto the 2nd-tier level pay.

and tell their national team’s leadership to fornicate themselves

Here’s where it gets goofy; the way the cap is set. You’d figure that if the league wants players’ salaries to be no more than 57% of revenues, then they’d set the cap at what they figured 57% of their revenues would be. Well, my friend, you fail tricky math. Instead, they set the cap $8 million over what they figure the league average revenue for a team will be and call the assumed revenue limit the salary midpoint. Detroit’s cap is $56.7 million because they figure the average club will only be able to spend $48.7 million on talent. This gives the Wings some leeway to approach spending up to their 57%. This seems pretty reasonable, and it is, until you look at what that means for a team that’s on the lower end of what the average assumed revenue will be and what revenue sharing gives them incentive to spend.

A team on the lower end of the earnings scale (provided they’re not in a large market like L.A., Chicago, or Anaheim) can qualify for revenue sharing which will cover their salary spending, but not their earnings defecit, up to the midpoint, which is still one Norris Trophy candidate defenseman under the cap (or three 2nd-tier players, an entire line). After they’re revenue-shared to the midpoint, the rest of the league sharing is split among all the teams. The dollars go to the teams whether they spent the  money or not, so there’s not proper incentive to actually spend it. The only way a small-market team can spend to the cap and still make profit is if the league has an insanely high-earning year where the early share gets them to the midpoint and the league share makes up the rest of the difference. Of course, this would mean that the cap would also go up an insane amount the next year and put that team right back where they started relative to the rest of the league. Of course, there’s also a part of the CBA where 50% of every dollar that the league makes over $300 million goes into the revenue sharing pool (as a note, the league has not once made this threshold… they need a large and lucrative national television contract to make this possible… big television markets demand large and and lucrative television contracts).

It’s OK, we got a 10 share in Raleigh-Durham, we can afford it!

On top of that, if the league makes less money than expected, the big-market teams catch a break. They’ve spent over 57% of the league average, but not necessarily over 57% of their own profits, but they’re not the ones who foot the bill for revenue sharing that the smaller teams demand. In rare cases like that (you know, like last year), the players’ escrow covers most of that. Yes, you read that right, the players are the ones who prop up small-market struggling teams. On a long enough timeline of this, the players get tired of footing the bill, the small-market owners get tired of not making profits, and the league is maybe forced to relocate to a market that makes sense, just to appease all of the whiners who aren’t rolling in more dough than the Pilsbury spokesman during an orgy. The league can slyly force these bottom-feeders and profit anchors into relocation and it won’t be the league’s fault, it will be their own for not having the desire to field a winning team (despite that they can’t realistically afford one) for long enough to drive off their fanbase. This is basically the line that Nashville Predators ownership toes. If you moved that same franchise to Los Angeles or Anaheim, I guarantee you that with management and coaching in place there, that team would have a cup by now and I’d be happier for them than I am for th shitsacks in Chicago.

“But Nashville would possibly stand to increase their market share and make enough profits to actually spend tot he cap if they had playoff success, so they should spend to the cap” you say? Well, that’s a long sentence and oddly fits perfectly Mr. Straw Man, and you might be right. It’s possible that Nashville with some long playoff runs would make a ton of money AND not need to rely on big club handouts, but why the hell should they? Thanks to the big clubs (Detroit being one of them) who wanted to make it so they didn’t have to rely on long playoff runs for financial success, playoff games are worth less to a club than they used to be. A big part of what goes into the revenue sharing pot is taken from a tax on all playoff tickets sold. Large-earning clubs pay 50%, middle clubs pay 40%, and small clubs pay 30% into the revenue-sharing pool. So, the Preds now keep only 70% of the money from long playoff runs that they otherwise would have and would disqualify themselves from a portion of their revenue-sharing dollars. For that to work, they have to cap their overhead, which is exactly what they do.

Oh, I see!

This whole system in place gives the big market guys the means to buy what is now generally known quantities of talent in ways that their smaller competitors can’t. Random fluctuations among players, bad coaching, management decisions, and the generally unpredictable nature of sports creates for some unique results, but on the average, it means that parity will exist where the league wants it to and will not bother the large clubs where the league doesn’t want it to. The salary cap creates smaller salaries and salary ranges for a wide range of skills, while the escrow makes the players a de facto insurance policy against falling league profits. My favorite part of the revenue sharing wording is that, in trying to create a system significantly different from MLB’s system where a team can intentionally tank and still remain profitable, they’ve enacted rules that take away dollars from small-market teams who don’t outpace the NHL average for revenue growth (which must be really easy to do as the bandwagon of the 3rd largest city in America fills up) or who can’t sell enough seats in their arena. Unfortunately, in punishing the ones who aren’t trying, you’re also unfairly punishing those who are trying but failing thanks to the unfair limitations you’ve set on them. They shouldn’t even call it revenue sharing, they should call it No Team Left Behind.

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To get a dose of J.J. from Kansas more often, following him on Twitter by following this link. Thursday, the second half of his manifesto will be up gracing TPL’s pages. 

6 thoughts on “Retrospectacus III: Parity Up in Here!”

  1. JJ, I think I may actually be smarter for having read that. I can honestly say that I thought I understood the nuances of the CBA, but clearly there is still much to learn.

    Obviously the NHL can not come right out and say they want parity. They will use terms like "competitive balance", which is a fancy term for parity, but as you point out, it's hard to believe the NHL wants that. Look at the 2 SCF just before and after the lockout: Tampa-Calgary and Carolina-Edmonton. Not surprisingly, neither was very highly-rated, even if both were pretty good series.

    There's not a sports league in North America that doesn't want to see their big market teams succeed except maybe the NFL, which so big it doesn't matter. For a league like the NHL, where revenues are based off of ticket and merchandise sales, this is even more true. There is no big TV deal to add revenue to the league, so the league needs to tap into the large markets to increase sales of everything: tickets, clothing, bobbleheads, video games, you name it.

    However, the league can only set up the rules; it's up to the owners of each of the 30 teams to play by them as they see fit. That's why we can point to a team like Carolina, who says they will only spend approx $45M, or just above the cap floor, and say that they have been given the tools (the cap) to compete with the Caps and Pens and Wings but they are choosing not to, so that is their fault. It's one of the main reasons why the Hawks have risen to prominence in the last couple of years: they have taken the shackles off their GM and allowed him to spend some money to bring in talent.

    Unfortunately, nothing is going to change. It will be interesting to see how the vote with the NHLPA goes to see if they institute the 5% increase again as they have in the past. I have a bad feeling we are headed towards another stoppage, in which case you may need to learn a whole new CBA. Great stuff!

  2. Graham,

    The Carolina situation, as well as Nashville (which is kind of funny to me, considering I wrote about this before they traded their captain and the rights to Dan Hamhuis) is exactly the sly reason why I'm kind of in awe at the way the CBA was set up. Chicago had the means to take the shackles off as the 3rd-largest city in the U.S. It's a lot less of a gamble, considering they're selling to a population base almost 5 times larger than Nashville's. Since the lockout, the Preds have earned 55 more points in the standings than the Hawks but have never posted an operating profit, despite having relatively low salary hits. It's much less risky for the Hawks to start spending (after tanking for the draft picks which would become their core) than it would be for the Preds. They would have to commit to losing money in the eight figures for a couple of years to build a team successful enough to maybe make money after winning a cup and would probably still not make as much as the Hawks, Wings, Rangers, or Leafs.

    This lets fans and pundits say that its these teams' choice to not compete, when really their choice is to not compete or lose millions of dollars. I didn't really post a solution to this issue in the article, because I'm not really sure what the right solution is (aside from relocation)

  3. JJ, I know you were worried about achieving an appropriate jailsex-to-content ratio, but you really hit this one out of the park (to use a completely unrelated sports metaphor.) I'm anxiously awaiting CBA Post II: Electric Boogaloo.

  4. Exactly. The teams have the choice whether they want to spend money, but as Nashville has shown, there's a difference between competing and spending a ton of money. Pre-cap we could point to the Rangers as a team that spent a lot of money but did not achieve any on-ice success. Other teams chose not to spend at all, even though they had the means to (Chicago).

    The other thing to consider is that by tanking, high draft picks can be earned to point the team in the right direction. The best part about this from the team's perspective is twofold: they can show their fans that they are trying to "build from within" and create what they hope will be long-term success, and while these players are young and still under their entry-level contracts, they are inexpensive. No real hard decisions have to be made until their rookie contracts are up, and owners can assess how much of an impact their "direction" has had on their revenues. If it's little, then you sell off your soon-to-be high priced players and start over. The thinking is that maybe one year, you can hit upon that magical formula for either a Cup or a very deep run, creating a buzz around the team that increases revenues while keeping overhead down. My guess is that type of scenario would be the exception rather than the rule.

  5. JJ, this is an incredible post. I'll give you $1 a day if you post manifestos like this on the regular.

    Also, kudos to TPL for featuring blog-less fans' writing. It's awesome reading everybody's perspectives.

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