Monday, August 18, 2008

The NHL's salary structure
Part 4: Distributing the wealth

I appreciate all of the feedback the salary structure series has gotten. Parts one, two and three can be found here, here and here.

On the weekend, blogger Tom Benjamin sent me a good suggestion related to wealth distribution, the topic that makes up the fourth (and final) instalment and measures how the players' share of revenues is divided.

Not surprisingly, the highest paid players take the biggest chunk.

There's a statistic out there that's often recited when it comes to wealth distribution in the United States, and it basically states that the wealthiest 1 per cent of the population has more wealth than the bottom 95 per cent. The NHL is a bit more equitable than that, however, as the wealthiest 25 per cent of the league takes about a 60-per-cent share of player revenues.

(In the CBA, the players' share is roughly 56 per cent of total NHL revenues on an annual basis, which means, based on recent history, the richest 185 or so players take home about one-third of all hockey-related revenue.)

Benjamin's idea was to split the entire league into quarters, separating the richest 25 per cent, the poorest 25 per cent and two other blocks inbetween.

For 2008-09, this would be the breakdown:

1st quarter: $3.5-million and up
2nd quarter: $1.4-million to $3.49-million
3rd quarter: $725,000 to $1.4-million
4th quarter: $475,000 to $725,000

How much of the players' revenue share does each group get? Here's a look, graphically (mmmm pie):

Benjamin mused that breaking the information down in this manner may show that players in the middle were, in fact, getting squeezed — unlike what I wrote in this post last week — but that's simply not the case. The wealth distribution pie charts look remarkably similar in all four postlockout seasons, with the largest segment of growth coming among the second quarter players.

Since 2005-06, the players' share of revenues has risen from about $1.1-billion to a projected $1.5-billion next season (before escrow), and the league's highest paid players have received the lion's share of those increases in terms of a total dollar figure.

On the flipside, if a player has stayed in the bottom quarter in terms of salary, it's unlikely he's received much of a raise since 2005-06.

Here are the rough numbers on where that $400-million increase has gone:

1st quarter: $200-million
2nd quarter: $160-million
3rd quarter: $35-million
4th quarter: $10-million

First quarter players have seen their salaries rise by more than $1-million on average since 2005-06, while second quarter players aren't far behind at $865,000 per player.

Third and fourth quarter players' salaries, meanwhile, have risen an average of about $200,000 and $50,000.

In terms of on a percentage basis, salaries have risen:

1st quarter: 30 per cent
2nd quarter: 70 per cent
3rd quarter: 30 per cent
4th quarter: 10 per cent

Whew, a lot of numbers, I know.

Perhaps the easiest way to think of the breakdowns is in terms of an average team, where the top six players are in quarter one of the salary scale, the next six in quarter two, and so on. The six players on this hypothetical team making $3.5-million or more certainly eat up the majority of the team's salary, but it's been the second tier, percentage wise, that has nabbed a lot of the NHL's new revenue.

I think that comes down to two things:
  1. The realization that teams need to pay for quality depth and the resultant competition for those mid-level players

  2. The push to pay young players more and more
I'm a bit loathe to point out examples, but there are a ton of $2- and $3-million players out there that you wouldn't expect:
  • Randy Jones, for instance, makes $2.75-million;
  • Bryce Salvador was given a $2.9-million per year deal;
  • Dustin Byfuglien and Valtteri Filppula both signed $3-million deals after 36-point seasons;
  • Rostislav Olesz makes $3.125-million;
Etc., etc.

And that doesn't even include some surprising players who are now in the top 25 per cent of NHL salaries: Jeff Finger, Brett Clark, Kevin Bieksa, Mike Commodore, R.J. Umberger, Derek Morris, etc.

The one constant in all of this, barring a raise of the league minimum salary, is that the bottom six or so players on teams' rosters are unlikely to ever get a bigger slice of the pie.

It'll be interesting to see where the money goes in the future — especially if the cap's rise slows.
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5 Comments:

At 8:51 AM, August 18, 2008, Anonymous snafu said...

James,

TB has the right idea, but your data is being skewed by the fact that the cap has been rising the entire time. You're using a static breakdown, the 4 quarters, but each year not only have the players received more just due to revenue increases, their share of the pie due to linkage has increased.

Would the numbers look different if you adjusted for annual cap increases?

 
At 11:19 AM, August 18, 2008, Blogger HockeyTownTodd said...

Good post, James,
I think what is needed now is a spreadsheet with the same breakdowns, team by team.

 
At 12:52 PM, August 18, 2008, Anonymous Sheldon said...

No pressure or anything James:)

 
At 2:25 PM, August 18, 2008, Anonymous Ryan said...

The NHL minimum salary is probably high enough that the bottom quartile is already overpaid. They chew up very little ice time and are generally ineffective while doing it. Most of them don't put any butts in the seats. And the pay difference between those players and the good minor leaguers probably dwarfs the skill difference. That's why they haven't seen much of a pay raise, even as the minimum salary crept up the last few years.

It'd be interesting to see if the second quartile has started playing more time or more effectively as their pay has gone up, or if the raises came mostly as a result of the new CBA (younger free agency + offer sheets). With absolutely no data whatsoever, I'd bet that the average team gives more and more valuable ice time to their second liners than they did four or six years ago.

Actually, you could split players into quartiles based on points and compare each quartile's average to get a pretty good idea.

And sorry for being a stickler, but you're actually looking at income distribution here, not wealth.

 
At 5:32 PM, August 18, 2008, Anonymous Anonymous said...

And sorry for being a stickler, but you're actually looking at income distribution here, not wealth.

As a fan of the dismal science, that gave me a good chuckle.

Also agree with your point, Ryan, that if anything the plugs are being paid disproportionate to their point-producing and seat-selling contribution.

Minimum-wage critics suggest it thwarts new entrants into the workplace (stifles opportunity). Could we extend your observation and say those AHL players whose talent levels are close to the Bottom 6 NHLers are being denied an NHL shot (at least mid-season) because the union-negotiated salary minimum (and I'm assuming a one-way contract) makes it cost-prohibitive to demote a non-performer and replace him with an AHLer? And could we further argue that such a barrier means fans are stuck paying NHL prices to watch players who are, in effect, in no danger of losing their jobs or salaries? And should we then act surprised when guys look like they're going through the motions?

 

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