Thursday, August 14, 2008

The NHL's salary structure
Part 2: The rise of the middle class

"What we are talking about is the elimination of the middle class. It's a concern, but if you look at every single cap system, that has happened. But that's the system we have, and that's no choice."
With player payrolls maxed at $50 million per season, salary cap hockey is slowly squeezing out the NHL's hardworking middle class. It's a system that encourages general managers to throw big bucks at their stars, then try to fill the third scoring line with cheap spare parts or kids from the farm.
That's the line on how a salary cap affects "the middle class," and it's honestly what I expected to find in crunching the numbers. It makes sense that, with all the big deals we've seen thrown around the past three years, that someone is being squeezed.

Here's a question, however, before we get going: What exactly is the NHL's middle class? The average salary? The median salary? Or the chunk of players between pluggers and superstars?

I'd say Option 3, pegging "middle class" to be anywhere from $2.5-million to $5-million, but I might be aiming high. The truth is, half of the NHL — 48 per cent — makes less than $1-million.

Using cap hits for salary figures and including about 750 players as full-time NHLers, this is what the NHL's salary structure looked like last season:

It's a heckuva steep curve.

Only 20 per cent of the NHL made $3-million or more last year, and only 4 per cent made $6-million or more. There were seven players that made $7-million plus in 2007-08, a figure that will double to 14 in 2008-09 (not counting Mats Sundin's potential new deal).

How do those figures compare to the first season coming out of the lockout (2005-06)? And how about to an uncapped NHL, way back in 2000-01?

On the high side of things, there were some big-time contracts out there seven years ago. Sixteen players made $7-million or more, including Peter Forsberg and Paul Kariya at $10-million apiece, back when teams averaged only $33-million a season in salary.

Kariya's Ducks, for instance, spent just $28-million on salaries that year, meaning their star made 36 per cent of the team's salary up on his own. Talk about a lack of a middle class.

The notion of a disappearing middle-tier of salaries for players comes right out of the NBA and NFL, where high-end players have, to a certain extent, received big dollars and left scraps for a lot of their teammates. Basketball, in particular, which had a few players getting the lion's share of the compensation, counteracted the trend by introducing a 'Middle Class Exemption' to its salary cap.

But the NHL's a different beast — and in more ways than one.

What we've really seen over the past few years, as salaries have risen along with the cap, is that more and more players are falling into that $2.5- to $5-million range. The giant cluster of players within the $1.5-million-and-under group, meanwhile, has shrunk.

Keep in mind that the 2008-09 figures are projections and will change as more contracts are signed once the season starts. Even still, the trend is there:

Note just how similar 2000-01 and 2005-06 are here.

If we pull out all players under $1.5-million, where the big bubble is, it gives a better idea of the shifting price points for players in various years. Here are all four seasons that I've culled data for:

(The way to read this, by the way, is that players making $3.5- to $3.99-million in 2008-09 will make up about 7 per cent of the league — a considerable increase over previous seasons.)

Why the bulge?

This coming season, there will essentially be 100 or so fewer players making under $1-million than there were in 2005-06, while the number of players making between $2.5-million and $4.5-million will go from just 69 to more than 160.

Tyler Dellow wrote a bit about all of the new contracts for youngsters back in February, and said he foresaw the league eliminating a lot of those middling deals. What he also noted, however, was that there are teams like Edmonton and Toronto that are primarily "middle class" and without the huge ticket players.

There's a ton of variation in that regard around the league. Vancouver and Carolina are two more teams with a lot of contracts in the $3-million range, while Detroit won the Stanley Cup with only three players making more than that much.

Perhaps the best example last season of a team without a middle class was Tampa Bay — and we all know how that turned out.

It's also worth noting that, at the moment, no one's truly getting squeezed because the getting's good. The cap has continued to rise, along with the average salary, meaning there are simply more dollars to spread around.

Trends may change quickly as they dry up.

That said, what this data speaks to in my mind is the fact NHL teams, unlike in other sports, need more than two or three heavy lifters to build a successful team. Rather than have two $9-million snipers, it makes sense, for instance, to sign two $6-million scorers (deals still in the 96th percentile) and add in two $3-million defencemen.

Given that even your best forwards can only play about one-third of a game, depth matters in hockey. The league may go to a more top-heavy salary model in the future if it's proven that that's what works, but for the moment, the middle class isn't going anywhere.

2000-01 2005-06 2007-08 2008-09 (est.)
Under $1-mil 56.3% 57.1% 47.4% 40%
$1-million+ 43.7% 42.9% 52.6% 60%
$2-million+ 20.8% 20.6% 32.6% 40%
$3-million+ 10.8% 11.0% 20.3% 30%
$4-million+ 6.8% 6.1% 12.6% 15%
$5-million+ 4.7% 3.2% 6.9% 10%
$6-million+ 2.8% 2.0% 4.0% 5%



At 8:16 a.m., August 14, 2008, Blogger Andrew said...

Thanks, James, for your refreshing insight into hockey. Few sports writers actually understanding anything about science or statistics, and it's nice to read someone who does. As for how to define the NHL's middle class of salaries, did you try the Inter-Quartile Range? It's the middle 50% of all salaries, and in this case the IQR might be a good estimate of the middle class.

At 9:03 a.m., August 14, 2008, Blogger Dirk Hoag said...

Dynamite stuff, James; knocking down a piece of common wisdom by actually looking at the facts is a great service...

At 9:15 a.m., August 14, 2008, Anonymous Anonymous said...

you really should consider getting a book out ... hey, if the baseball stat guys can do it....

At 11:36 a.m., August 14, 2008, Blogger Adam C said...

It's a dramatic contrast, isn't it? Three maximum salary players and a bunch of young guys and pluggers made up a championship team in the NBA. In the NHL, the same approach was last overall.

At 12:15 p.m., August 14, 2008, Blogger slopitch said...

Interesting stuff.

The only thing about trending towards NFL or NBA is that our game is totally different. Even the best stars only play half the game. You need to have useful players around you or your team is no good.

I realize the trend is natural in a cap world. You cant win without stars or sell tickets without them but at some point it will level out because hockey is more of a team game that requires a balanced lineup.

At 2:34 p.m., August 14, 2008, Blogger James Mirtle said...

The inter-quartile range for last season was $650,000 to $2.5-million. About 30 per cent of the league made less than $700,000.

At 4:12 p.m., August 14, 2008, Anonymous Anonymous said...

I find it pretty hilarious that, due to their lack of original material, the NYT Hockey blog (slap shot) basically just poaches Mirtle every day. The posts from the last two days:

The Morning Skate: The Young get richer

The Morning Skate: NHL's middle class thrives

At 12:34 a.m., August 15, 2008, Anonymous Anonymous said...

Your middle class growth is most likely, if not entirely, fueled by young elite RFAs getting paid early as a result of offer sheets. I'd also expect a matching drop in salary to older UFAs but I'm too lazy to look for it.


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