Tuesday, October 21, 2008

Short Term Gain, Long Term Pain

Post lockout the trend for NHL teams has been to sign players to long term contracts. The inherent risks in signing a player to a long term deal include:

  • Injury
  • Underperformance
  • Unforeseen market downturn – where the market in question (for our purposes the NHL) sees an unexpected decline in revenues or unexpected increase in costs. It is important to note that this has to be an unexpected change or the decline should be budgeted for in all decisions.

Here we will only focus on the effects of the third issue, unforeseen market downturn. Generally speaking the costs for NHL teams outside of player contracts remain fairly constant in real dollars, or put another way are expected to rise with the rate of inflation. Player Salaries, however, do not rise at the rate of inflation like the other costs of running an NHL franchise (this is why the NHLPA insisted that as the revenues of NHL clubs increased, the salary cap (which is a percentage of league revenues) also increases from 54% of league revenues to 55% and then 56% depending on how high league revenues go). Unexpected increases in costs which are unrelated to player salaries are not a problem that will hurt NHL teams if the economy takes a nosedive (which probably just happened) because they are flexible enough to account for lower revenue streams.

Therefore the biggest risk to both the economic feasibility of the NHL and of each individual franchise lies in having player costs which are too high and impossible to get rid of. Given this, it is safer for teams, especially in times of economic recession, to sign players to short term contracts so as to reduce their amount of risk.

Since the NHL operates under a cap, and we will assume for the sake of this argument that this will not change (economists are nothing without good assumptions anyways), player salaries should not become burdensome enough to risk the stability of franchises, at least not directly, but they could very well hurt the competitiveness of teams if they have players signed to long term deals and the revenues of the league turn south and the salary cap declines in value. There are several reasons for which the NHL could see a decline in revenues over the next few years, and as soon as this coming summer when they analyze league revenues again. The two most noteworthy reasons are listed here:

General market downturn: The NHL, as it is an entertainment good, is susceptible to recessions more than essential goods are. As average income decreases the amount of dollars spent on essential goods (food, housing, healthcare, etc) will experience declines which are much less severe than those experienced by any business which produces a product which is non-essential. All sports are subjected to this effect, and all should be affected, but the NHL is in rough shape relative to the other major sports in North America. The television deals which the NBA, NFL, and MLB have are worth much more than those which the NHL currently has. Since television deals are typically revenue streams which are signed for multiple years their revenue is known for all years until the contract expires, it is a much more stable and predictable revenue stream than gate revenues. Since the NHL relies so heavily on gate revenues their revenues will be hardest hit by any economic recession.

The value of the Canadian Dollar: Don’t quote me on this (general rule: don’t quote me ever, you’ll only get me in trouble) but if I recall correctly all six of the Canadian NHL teams were in the top 10 in league revenues last year. League revenues are counted in US dollars, as are player salaries. Last year (2007 calendar year) the Canadian Dollar reached exchange rates as high as 1.036 USD. The yearly average exchange rate was roughly 0.92 USD for 2007. This was an increase over the 2006 years average (roughly 0.88 USD) and the 2005 average exchange rate of roughly 0.82 USD. Currently the Canadian dollar is worth 0.846 USD, which is the lowest since November, 2005. Just looking at the change in value relative to 2007 (the Canadian Dollar remained high until very recently when it declined sharply to its current levels so the 2007 average is fairly close to the average for the 2007/2008 NHL season) the Canadian Dollar has seen a devaluation of 9%. The Canadian government wishes to keep the exchange rate lower than it was last year to help its export industry, at least that’s what I surmised from watching the leaders’ debate, so I don’t think we can expect any drastic increases in the value of the Canadian Dollar in the near future. So if no other factors came into play the value of the Canadian dollar would mean a decline in the revenues of Canadian teams by about 10%. Six of your highest revenue franchises losing ten percent of their revenues before the puck is dropped amounts to a serious problem if you’re a team which expected the NHL cap number to stay where it is, or even increase through the next couple of years.

We have seen many players signed to long term deals and for the most part these deals haven’t been albatrosses like they would have been if the cap had not risen every year since the lockout. When it takes four years for the cap ceiling to grow from 39M to 56M there will be a considerable amount of dollars available to unrestricted free agents. If it wasn’t for this rise we would probably be talking about how difficult it was for the Rangers to shore up their defense given the signings of Gomez and Drury.

This is a situation which probably won’t get too much consideration until summer comes around, but we’re already seeing a bit of hesitation by NHL teams to sign players to the types of deals we’ve seen over the last few years. For instance, Daniel Alfredsson has still not signed an extension in Ottawa, although I can only speculate as to why that might be, I would guess that the economy and uncertainty as to what the cap will look like might play into that. I for one am very curious to see what kind of money teams throw at Marian Hossa this summer or what kind of money Gaborik signs for. Keep in mind that if the salary cap does go down the Oilers could have serious trouble bringing back Garon, Grebeshkov, and Brodziak without having to cut loose other players.

Monday, October 13, 2008

Line Dancing – ON ICE!!!

After the first game of the season I’m fairly certain (as certain as you can be after one game) that we’re going to see MacT go down to the kitchen cupboards and come back with twelve hockey cards, a jar of honey, and a blender. Whatever sticks together plays together. Well probably not that severe, but we could be looking at something drastic which affects at least a couple of the three man units.

Penner had a great game on Sunday. He looked quicker, he seems more comfortable in the interviews this year and may be in line for another cameo on the top line. I think we’ll see Penner take a few regular shifts on the top line, and maybe even some first unit PP too. It’s a good bet that MacT won’t want to take him off of the PK given how he played in game 1 so I’m guessing he will end up with a lot of special teams minutes and Cole will take some first line minutes on the first line in games where there are a lot of penalties. Remember how MacT said last year that Penner had to work on his conditioning because he wasn’t used to playing as many minutes as they wanted him to play? Well in game 1 he only played about 15 minutes and was very effective, so they might not want to give him too many minutes lest he become less effective. We’ll see how this all plays out.

We might see Cole playing on the right side with Gagner and Nilsson if he isn’t effective on the top line in the next couple of games. Of course this depends on how well the kids are producing, but if the other lines aren’t working they might get split up anyways to shake up the other lines. Obviously Cogliano would slip down onto the third line and play center between Pisani and Moreau if that happened. This would result in more guys playing in their natural position.

The current roster looks like it has a lot of malleability and can be put together in more than a few ways and still work so its fun to think about. Feel free to leave your own ideas. I’ll wait until the next game before I guess at how we change the powerplay if it isn’t working.

Sunday, October 12, 2008

Game 1 Notes

Mathieu Garon was the best player on either team. He single handedly kept the Oilers in a game in which they were outplayed. On the other hand Peter Budaj was not particularly solid. Both third period goals were stoppable.


Penner bagged two, including the winner with 6 seconds left. He looks like he’s a lot quicker this year than he was last year.


Gilbert and Grebeshkov played a lot of minutes against Sakic’s line. There were a few giveaways and a decent amount of chaos when they had the puck in their own end but boy can they both move the puck well. Grebeshkov had 2 helpers and looked right at home when he filled in for Souray on the PP in the first period. I hope they move him up to the first unit to see how he looks. That way both Souray and Visnovsky can play on the right side on the PP and set up for one timers.


The fourth line didn’t do much of anything.


Ok most of the Oilers didn’t do much of anything at even strength.


Again with Penner, he looked great on the PK tonight with Pisani.


Through preseason and the first game Garon has had some trouble with right handed shooters going low blocker on him. It’s like how Jussi Jokinen would come down on a goalie that catches with his left and snap it low blocker, but reversed.


Faceoffs and time of possession were two glaring weaknesses for the Oilers. The two are closely linked statistically and the Oilers lost on both counts tonight.


The Oilers could really use a calming presence on their back end. I don’t think they have one right now, but maybe Gilbert turns into one sooner rather than later.


Just like the last few preseason games, the Oilers were badly outshot in the game. This is not a winning formula unless your goalie is the first star and the other team’s goalie is only starting because the guy hiding from Tony Granato on the bench is named Raycroft.


It was hard to see the players’ numbers on the third jerseys. Maybe it was just my TV, but something about the uniforms hurt my eyes.


Shawn Horcoff won 27% of his faceoffs. Cogliano was 1 for 7, good for a 14% rate. Pisani was twice as good at 2 for 7 and 29%, while Brodziak was 4 for 6. Pouliot was 1 for 2 and Gagner 0 for 3. Maybe the term work in progress is being optimistic. I seem to remember a while ago Moreau was one of our better faceoff guys on his strong side, and last year Penner took a few draws and didn’t fail so miserably. How often does a team go 14 for 50 in the dot and come out ahead in the game? Wow.


Ales Hemsky played less than 16 minutes. Did I miss something here?