Hockey Salary Caps and Performance

When I first started blogging I posted this chart showing 2003-04 season NHL team performance versus team salary, to show how spending more money (in hockey, anyway) doesn’t necessarily get you a better team.

Since then, the NHL has introduced a salary cap, with a minimum team salary of $24M and a maximum of $44M (compare that to some of the 2003-04 team salaries above!). Here’s what the above chart looks like for the 2006-07 season:

Remarkable how much has changed in three years (except for hapless Columbus, none of the top teams or bottom teams is the same), how the salary cap has actually increased minimum team salaries, how total NHL salaries have not changed at all, and how the trendline has hardly been affected at all by the caps. In 2003-04, an expected playoff position (above the yellow line) ‘cost’ about $40M in salary, while this year it only costs $30M – what Washington is paying. Even though the money is much more evenly distributed, it still has very little to do with team performance. In 2003-04 the average ‘point’ (you get 2 points for a win, 1 for an overtime loss) cost $490,000 in salaries; in 2005-06 it cost $460,000.

The difference between the top-performing teams and bottom-performing teams has modestly increased with the advent of salary caps. Since 2003-04 the game has become much faster, with more penalties for clutch-and-grab defence, so smaller, fitter players are doing much better; as a result the teams that have brought up small, fast players are dramatically outperforming those relying on older, bigger, slower players, and this, rather than salary, probably accounts for the widening performance gap between the best and the worst teams. The top-performing teams, as always, tend to have either exceptional goaltenders or great teamwork — unlike in other sports, balanced, spirited teams with no superstars tend to outperform.

As in 2003-04, the six teams based in Canada are neither under- or over-performers; they tend to be performing modestly above average for modestly below-average salaries. Some would say that’s typical of all Canadians, except the reality is that both US- and Canada-based teams are made up of a mix of Canadian and European players, with a few Americans thrown in for good measure.

What’s also interesting is there are individual salary minimums and caps of about $0.5M and $8.8M per year respectively (prior to caps, minimum salaries were only about $150k).

So in the unreal world of the NHL, there is what amounts to a 100% tax on salaries greater than 18 times the ‘minimum wage’. If this rule were applied nationwide, maximum salary would be about $150/hour or $300,000/year. If we had a decent minimum wage of, say, $25/hour, the CEO could then earn $450/hour, or $900,000/year. Nice idea, but of course it will never happen. Despite the fact that most industries are indeed oligopolies like professional hockey, they would never allow themselves to be regulated the same way, even if the result was good for everyone. A lot of CEOs and other execs earning obscene salaries on the backs of those lower in the hierarchy would not be ‘motivated’ towork for a mere $900,000. That’s the sad world we live in.