Tuesday, July 25, 2006

Woe is the arbitrator

I'm still tied up, but Matt Fenwick at the Battle of Alberta has the angles covered on all the recent arbitration bellyaching that's been going on:
... [Toronto Sun columnist Steve Simmons] appears to be lamenting the fact that a team that drafts (or otherwise acquires) a lot of young players who make The Leap at the same time cannot afford to keep them all, and keep their roster intact. Fans of many teams will sympathize with this general statement (Edmonton c. 87-91, Calgary c. 91-96, Ottawa c. 2006, etc.). These same fans were allowed (or encouraged) to think, during the lockout, that a salary cap would mean this would never be a problem.

But the only way to accomplish this business of protecting roster makeup is to divorce player compensation from performance, past and anticipated. The system that allows a team to keep a host of players who perform well is the system that does not reward those good performances.
As I said yesterday, the Daniel Brière arbitration award isn't some sort of apocalypic sign that the new CBA has foresaken us: The Buffalo Sabres have choices here, and like every other team, they aren't easy ones.

I can't say I've heard many complaints about the Colorado Avalanche having to deal Alex Tanguay.

16 Comments:

At 7:06 PM, July 25, 2006, Blogger mike w said...

I dunno.

The reduced age of free agency at 27 thing still seems dumb, moreso than anything else in the new CBA.

Unlike the old days, teams that invest time and development on a player end up losing the guy when he enters his prime. Now everone loses players and teams see even more turnover in a summer, leaving fans to cheer for nothing more than laundry.

 
At 7:09 PM, July 25, 2006, Blogger James Mirtle said...

I'll agree with that Mike, but making this arbitration business out to be some sort of boogeyman is going a little far.

 
At 8:53 PM, July 25, 2006, Anonymous David Johnson said...

Steve Simmons will always find something to whine and complain about. That's just what he does.

The reduction in free agency to 27 was pretty much the lone concession the owners made for getting the players to accept the 'guaranteed profit' clause also known as the linkage of salaries to revenues. What it means is that no one will be able to keep their team together for more than a few years. We've seen Ottawa forced to let quality players go (Havlat, Chara this summer and maybe Phillips next summer) and Buffalo will probably have to do the same. The end result is that there will be no elite teams in the NHL, just a whole lot of good teams. Calgary, Edmonton, Vancouver, Minnesota, Anaheim, Dallas, San Jose, Colorado, Phoenix, Detroit and Nashville are all pretty even teams. Each have their strengths and weaknesses but I can't say that anyone of them is clearly better or clearly worse than any of the rest. In the east things are going to be much closer as well. Ottawa and Buffalo probably won't be as good while non-playoff teams like Toronto, Boston and Florida are all likely to be better. It'll make for tight playoff races but I am not sure it is good for hockey as I think it is good to have a few elite teams that everyone is chasing.

 
At 12:09 AM, July 26, 2006, Blogger J. Michael Neal said...

The reduced age of free agency at 27 thing still seems dumb, moreso than anything else in the new CBA.

Welcome to the real world. Teams still have the right to pay less than market rates for their players for a long time after drafting them.

 
At 10:51 AM, July 26, 2006, Blogger E Colquhoun said...

"The system that allows a team to keep a host of players who perform well is the system that does not reward those good performances."

Sounds kinda socialist!

 
At 12:56 PM, July 26, 2006, Blogger mike w said...

>Welcome to the real world.

Dude, for your sake, I really hope you don't go around in your daily life using the expression "welcome to the real world" to win arguments.

We're hardly talking about the old reserve clause in the MLB. Players are well compensated past their rookie year, and restricted free agents generally get their value in the market (just ask Daniel Briere).

My problem is that for team that does a good job of investing resources in drafting and development, they lose players as UFAs the moment they hit their prime and are actually worth something. How can a team that is well-run and sensible with its payroll actually create a consistently winning team?

And for the record, I was pretty pro-player during the lockout and I'm still pissed at the owners for erasing a season over this CBA.

 
At 1:01 PM, July 26, 2006, Anonymous The Panther said...

j. micheal neal said;

"Welcome to the real world. Teams still have the right to pay less than market rates for their players for a long time after drafting them."


OK, this is one thing that bugs me. When a player reaches free agency, it does not mean that he will now be paid the market rate. Their salaries are in fact inflated because almost all development costs have been removed or paid for by someone else.

What a company pays it's employees is divided into two basic parts; The employees salary and the employees hidden costs incl. training costs, taxes due (EI, etc...), benefits, etc... This is an employees 'labour burden'.

When a player becomes a UFA, most of these hidden costs have already been paid for, so they are removed from the equation, artificially inflating his salary. If Jack Johnson were suddenly a UFA, you would not see his salary climb to that of Chara because of the associated hidden costs that come with developing the guy.

Now that teams have 4 less years than they previously had to recoupe these costs we should see RFA's salaries drop accordingly. Unfortunately, the arbitration system agreed to does not take this into account. A shame.

 
At 2:45 PM, July 26, 2006, Anonymous Dennis Prouse said...

Mike W. talks about players "hitting their prime" when "they are actually worth something". I have a slightly different take. I think players are most valuable to a team when they are young, i.e. early 20s, and outperforming their rookie contract.

I would argue that by the time they hit free agency, they are going to be slightly overvalued by the market. The way you get ahead in business, be it hockey or anything else, is by identifying and benefitting from undervalued assets. High profile UFAs are not undervalued assets -- you have to pay full ticket for them and then some. Mid range free agents whom you think were undervalued by their old clubs, and young players you can develop in your own system are the new keys to success in a capped world.

 
At 7:29 PM, July 26, 2006, Blogger Pleasure Motors said...

Ottawa and Buffalo probably won't be as good while non-playoff teams like Toronto, Boston and Florida are all likely to be better.

If there's one thing I think we can all agree on, it's that Toronto will not be better next year. At least I hope not.

 
At 8:46 PM, July 26, 2006, Blogger PPP said...

Sorry pleasure motors. The Leafs will be much better than last year's sorry team. Hopefully, those arrogant sens and sabres will take a bit of a dip.

As an aside, Dennis Prouse's point is very well taken.

 
At 11:48 PM, July 26, 2006, Anonymous KevinP said...

Unlike the ever-so-humble Leafs?

 
At 12:55 AM, July 27, 2006, Blogger J. Michael Neal said...

My problem is that for team that does a good job of investing resources in drafting and development, they lose players as UFAs the moment they hit their prime and are actually worth something. How can a team that is well-run and sensible with its payroll actually create a consistently winning team?

This is not true; up to the point of unrestricted free agency, teams have been compensated by the performance of the player. If you look overall, I would bet a significant amount of money that development costs plus the salaries of pre-free agent players is less than the amount saved by having those players locked up at less cost than they would as free agents.

I absolutely disagree with you that Daniel Briere received a contract equivalent to what he would have gotten as an unrestricted free agent. He may not have gotten any more money per year, but the contract would have been a lot longer than one year. This means that Briere is assuming the risk to his future earnings of an injury and the Sabres are protected against a regression of his production. Risk is just as important in evaluating the worth of a contract as the actual salary. We haven't even gtten to the value of being able to choose who your employer is; that's an intangible that is worth different amounts to different players, but it does matter.

A far better argument than saying that pre-UFA players operate in any sort of free market, is to argue that UFAs don't either. The presence of all of those pre-UFA players means that the pool of unrestricted free agents is artificially small, which drives up the salaries they command. A lot of times, the money that teams save on young players is simply spent on different players. The easiest way to drive down the price tag of UFAs is to do away with the reserve clause altogether. Go the route that Charlie Finley advocated, and make 'em all free agents.

I use the sentence, "Welcome to the real world," because the whining about this that I hear inevitably leads to the conclusion that the sky is falling unless we prevent players from having control over their own careers until as late as possible. Starting with the draft, professional sports teams are protected from a real labor market like no other industry in North America. They live in their own little universe, which does not resemble the real world that other businesses face.

 
At 3:03 AM, July 27, 2006, Blogger Earl Sleek said...

Starting with the draft, professional sports teams are protected from a real labor market like no other industry in North America.

Does that count the U.S. government?

 
At 3:08 AM, July 27, 2006, Blogger mike w said...

>I use the sentence, "Welcome to the real world," because the whining about this that I hear inevitably leads to the conclusion that the sky is falling unless we prevent players from having control over their own careers until as late as possible

You make it sound like players have no control over their careers. Then what is restricted free agency? Arbitration? Trade "requests"? Players simply holding out?

Daniel Briere got 5 million for one year out of arbitration, a stop-gap mediation, but you'd be hard pressed to say this guy didn't get his market value for 2006.

>This is not true; up to the point of unrestricted free agency, teams have been compensated by the performance of the player

Can you prove this? Most Oilers fans are willing to bet that Matt Greene will be a good defencman one day, but as a 21 year-old he sure the hell seemed to be on the ice for every one of Caorlina's goals in the Finals. Like most defenceman, he'll probably a lot better by the time he's in his mid-20s, just in time for Columbus to blow an insensibly giant wad on the guy. Why should we waste AHL space on this dude, along with a raise every 2-3 years based on his potential to be a good player one day? (Come to think of it: Didn't Todd Bertuzzi blow chunks until he was 26?)

>The presence of all of those pre-UFA players means that the pool of unrestricted free agents is artificially small, which drives up the salaries they command

Salaries go up because GMS are idiots, no? The ratio between supply and demand generally remains stable because the same teams that lose players are buying them back again, the only difference being panicky GMs that are incapable of thinking long-term in the market.

Moreover to your "real world" solution: there's a reason the NHLPA has never even broached the idea of disbanding the union and dropping the reserve clause althogether: the off-season would be chaos, fans would hate it, and players might likely be permanent nomads with even less connection to their team's city. That and there's plenty of evidence that players think they're
well paid as it is (the CBA paycut, etc).

 
At 11:16 PM, July 27, 2006, Blogger J. Michael Neal said...

I'm not saying that making everyone a free agent would be a good idea; I'm just pointing out that the idea exists.

I disagree with your argument that salaries keep going up because GMs are stupid. This completely ignores the fact that owners have to sign off on the overall budget. Consider the possibility that it is, in fact, profitable for the owner to pay these salaries in the attempt to win.

Let us take a look at a team that has 3,000 empty seats in its building on average, because they consistently aren't a very good team. If you could fill those seats on a nightly basis by being a better team, at an average of $40 a piece, that's $4.8 million before you add in things like concessions, added TV revenue and the possibility of playoff money. If the average ticket price doubles in the playoffs, you're looking at about $1.6 million in tickets for each home game.

That's a lot of potential profit if you make your team better. Therefore, the financial incentive to sign $5-$6 million contracts for players who can put you over the top is pretty strong. It's those potential profits that lead to the higher salaries, and unless they go away, that incentive will be there. Salaries aren't coming down. Not all teams will be a success at this, but the all see the allure, and all of them think that they have a GM capable of figuring out which players will put them over the top.

Now, I've never made any bones about the fact that I think a lot of NHL GMs really aren't very good at figuring out which players will help them do that. I think that, in a lot of cases, they are giving out big contracts to the wrong guys. They are going to give out big contracts, though.

Yes, I would argue that players lack control over their careers prior to unrestricted free agency. To start with, they have no ability to choose their employer. Further, restricted free agency should, if GMs have any brains at all, come in at significantly less than what the same player would get as an unrestricted free agent. If not, that means that GMs are valuing draft picks as worth nothing.

Arbitration will similarly lead to lower salaries, because contracts signed by unrestricted free agents are not admissible as comparables. Thus, they are judged against the salaries being awarded to other players who are still under the reserve clause.

Your example of Matt Greene is incomplete. I never said that a team will necessarily be sufficiently rewarded by any individual player so as to justify developmental costs. I said that, in aggregate, they would make back in play by players under the reserve clause in aggregate what they spent on aggregate developmental costs. If, in the end, that turns out not to be true, then the NHL will have to find another way to develop players. I'm pretty confident that they will, though I can't prove it.

Which brings us to my other complaint about these rants. I would very much like to see some actual research into what age a hockey player's talent peaks at. For years, the argument was made in baseball that players peaked around the age of 30, so the same thing was going to happen in MLB as you are arguing here. One of the single most important pieces of research that Bill James ever did was demonstrating that this was wrong; the peak of the aggregation of players' abilities comes at the age of 27. So, until there is some research done for hockey, I don't trust any assertions about what age a player's value peaks at. It could be 30. It could be 27. It could be 25. Who knows?

 
At 2:32 AM, July 28, 2006, Blogger mike w said...

>I disagree with your argument that salaries keep going up because GMs are stupid. This completely ignores the fact that owners have to sign off on the overall budget.

And yet we have owners like Charles Wang. Sports ownership is apparently a weird, vanity-driven bag. Indeed, there seems to be nothing rational about running a sports team at all, really. Being an entertainment-based industry, we're probably closer to WWE than anyone would care to admit.

I think you have a point about when players actually peak, however, especially for forwards. I'll admit that I can't say for sure. But the fan-centred point of view would argue that having a player around - when he's good - for more than a couple of years makes watching the game much more enjoyable. That's a subjective opinion, of course.

 

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