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Tuesday, October 04, 2005
Hockey's (Purportedly) Hard Salary Cap
Tonight, as I was driving home, I was listening to Sportsnet's discussion of the "hard" salary cap. The participants all agreed that the contract has a definite, solid, hard cap. Their reason is that every transaction must be approved by the NHL league office, and the office will not approve any transaction that puts the team over the cap, no matter what!
What if everyone believes the league office really, really, truly will monitor every single contract and not allow teams to exceed the $39m salary cap. How else might teams spend more without exceeding the cap?
This question is no different from any other price-ceiling situation that we talk about in economics all the time: impose a price ceiling on a product, and people who really want to buy that product start figuring out how to get it. E.g., for gasoline price ceilings we have, in the past, seen long lineups, favouritism, hiring drivers to wait in line, and egregious tie-in sales (get an oil change and we'll move you to the head of the line).
How might a team exceed such a hard salary cap? Here is just one possibility that I thought of during the drive:
I might be able to sign the player to several contracts if I have some ancillary operations or arrangements.
- I could pay him a lot to model for the cover of the programmes.
- I could give him a huge endorsement contract for some firm (that I own) that may or may not advertise in the arena.
- I could induce advertisers to offer him large endorsement contracts and in return offer them lower advertising/sponsorship rates for the team's games.
I am sure there are many many other evasions that more creative minds than mine will discover.
No, the cap is NOT hard. People respond to incentives.
Posted by EclectEcon on October 4, 2005 in Sports | Permalink
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You could also offer the player a cabinet post, or maybe a Senate seat. You could appoint him head of some bloated crown corporation, and allow him to charge everything from golf club memberships to chewing gum to his expense account. You could award him millions of dollars in "advertising" contracts, and have the player funnel a certain percentage back to the club, while keeping a nice cut for himself. If the league turns up the heat a little too much, you could just name him ambassador to the Danish Hockey League during the off-season, and send him on his way. You see? There are numerous ways to get around the cap. But let's get serious. No organization could ever be that corrupt.
Posted by: Raging Ranter | 2005-10-04 10:48:58 PM
As long as the Habs don't win the cup.
Posted by: underemployed buddha | 2005-10-05 5:53:34 AM
For Raging Ranter:
Posted by: Ham | 2005-10-05 7:31:44 AM
- cue applause...now -
Posted by: Ham | 2005-10-05 7:36:18 AM
AdScam Martin, son of Chretien, says: Let me make this perfectly clear, fundamentally, as Gag, er Worn , er Ralff, said, fundamemntally, screw Canadian taxpayers, and in re Dangwall, Coughin, & the rest of my team... >>
"* I could pay him a lot to model for the cover of the programmes.
* I could give him a huge endorsement contract for some firm (that I own) that may or may not advertise in the arena.
* I could induce advertisers to offer him large endorsement contracts and in return offer them lower advertising/sponsorship rates for the team's games.">>>
>>>> Induce advertisers<<<<<<<< Induce... Induce advertisers<<<<<<<<<<<< Induce.. AdScam<<<<<
Posted by: maz2 | 2005-10-05 10:06:06 AM
The main problem with what you are suggesting is that you are dealing with a pretty limited universe of cases for the league to police- under a thousand players.
While your scenarios for skirting the cap are certainly feasible keep in mind that they also entail public business relationships. Any club trying such a scheme would run considerable risk in having their schemes exposed, if only be an entreprenurial writer
There are already a few leagues in North America with a cap. The NBA, while having a soft cap, slammed the Minnesota Timberwolves a few years ago for trying to circumvent the cap with a secret contract- the team had its top executives suspended for a year, lost the player in question, and lost 5 years worth of future first round picks. I would be interested to see how the NBA and NFL police the type of shennigans you propose
The type of stuff you are discussing might be better used in markets where the exchange of money is prohibited- US college football and basketball.
Posted by: Mike Emerson | 2005-10-06 10:53:51 PM
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