I’ve got a ton of different posts in the hopper that I’m going to try to pump out in the next few days. This one came about because of Pat LaForge’s comments in the Journal the other day, whining that the Oilers lost a bunch of money last year. There are a million things wrong with his complaints but one of the major factors is that the Oilers do a pretty terrible job as far as spending their money on players goes.
There was a fellow by the name of Doug Pappas who wrote for Baseball Prospectus before he passed away in 2004. He came up with a measure that he called Marginal Payroll/Marginal Wins that he used to measure how efficiently a front office spent its payroll. You should read the entire piece but the key is this:
The easiest way to measure front office efficiency is simply to divide a club’s payroll by its wins to come up with “dollars per win.” However, neither side of this equation reflects reality. The worst team a club can field won’t go 0-162, and despite some owners’ best efforts, it’s impossible to spend $0 on a major league roster. It’s then necessary to look at marginal wins and marginal payroll.
The Marginal Payroll/Marginal Wins (MP/MW) system evaluates the efficiency of a club’s front office by comparing its payroll and record to the performance it could expect to attain by fielding a roster of replacement-level players, all of whom are paid the major league minimum salary. The formula is:
(club payroll – (28 x major league minimum) / ((winning percentage – .300) x 162)
The left side of this formula assumes that a replacement-level club would play .300 ball. That translates to 48.6 wins in a 162-game season, which before the 2003 Tigers was worse than any actual major league club since the institution of the amateur draft. The previous low was the 52-110 (.321) record of the NL’s two 1969 expansion clubs, the Expos and Padres, who began play with no minor league system, no way to sign free agents, and no players any other NL club really wanted to keep. After subtracting the replacement-level .300 winning percentage from the club’s actual winning percentage, the resulting number is multiplied by 162 to calculate the number of marginal wins over a full 162-game season. This adjusts the formula for strike-shortened seasons and clubs which fail to make up a postponed game or two.
I’ve given some thought to adapting this to the NHL. On the basis of my own examination of the history of NHL records, I think that there’s a reasonable argument to be made that a replacement level NHL team would play .250 hockey – 41 points, with another couple of points earned through OTL – call it 45 points. The minimum salary in 2005-06 and 2006-07 was $450K and it bumped up to $475K for the past two seasons; assuming 23 players, that’s a minimum payroll of $10.35MM in 2005-06 and 2006-07 and $10.925MM during the past two seasons.
From there, the calculation is pretty easy. Using the Oilers as an example, they earned 95 points in 2005-06 on a payroll (cap hit) of $35.605MM. That’s 50 marginal points on $25.259MM in marginal spending, or $505,098 per marginal point.
The team totals since the lockout are posted at left. As we all know, the Oilers went on for years before and during the lockout about how they just needed a level playing field in order to compete. The evidence of the past four years does provide particularly compelling support to that argument. As you can see, the Oilers rank 22nd in the NHL during that time, spending nearly $120K more than the NHL average per marginal point in the standings.
Unsurprisingly, the Oilers look considerably worse if you take out 2005-06. There’s some argument in favour of doing that, I think – it was the first year of a new system and Edmonton benefitted from having a bunch of key players already signed to contracts who were then required to take a 24% rollback as well as being on the receiving end of some salary dumps. As mentioned above, they had a M$/MP of $505,098 in 2005-06. They followed this up with a M$/MP of $1.176MM in 2006-07, $902K in 2007-08 and $1.107MM last year.
If you figure that it takes 95 points to assure yourself of a playoff spot, you’ll need to have a M$/MP of $906K to achieve that, assuming a salary cap of $56.8 and that you’ve spent your entire budget. That’s considerably better than the Oilers have managed in any year but the first year following the lockout ($902K M$/MP occurred where a team spending the $50.3MM cap had to have a M$/MP of $799K or better to top 95 points).
I’m inclined to think that this method does tell us something about the calibre of a front office. Of the 13 teams below the NHL average, 11 of them have replaced their GM since the lockout. Only Larry Pleau in St. Louis and Don Waddell in Atlanta have managed to survive with M$/MP below the NHL average. By contrast, only 7 of the 17 teams with M$/MP better than the league average during that time have been replaced.
I’m interested in the thoughts on this as a metric. It’s a bit screwed up because the NHL doesn’t actually permit a team to be more than $8MM below the midpoint. With that said, the list does look to me like a reasonable list of how various front offices have performed. You can, as always, argue about whether it’s circumstance or skill that puts a team high on that list (One way to do well on a list like this is to have a bunch of young, cheap contributors who you draft with high picks: that doesn’t necessarily reflect managerial skill) but I think that most everyone would agree that it generally reflects how the various front offices have performed since the lockout.
I’m not particularly optimistic about the Oilers in the near to mid future and a big part of that is that I just don’t believe that the front office thinks in these terms. I know that Lowe is nominally no longer the GM, but he still seems to have a heck of a lot of influence and even though the guy with the title is new, it’s the same bunch of guys otherwise, minus Scott Howson and plus Rick Olczyck. Whether you think that Khabibulin is elite or not, this team just desperately needs guys to outperform their contracts and I haven’t really seen anyone arguing that Khabibulin will. Part of the reason I’m mildly bullish on the Comrie contract (I’ve got a post coming) is that I think he might outperform his deal.
Other than that, it’s hard to see how the Oilers can drop their M$/MP in the next little while. If Gagner and Cogliano step forward this season, they’re looking at big raises next year. Same goes for Denis Grebeshkov. Smid might be a candidate to provide some cheap value but he’s only signed for one more year. The guys who won’t realistically improve seem to be locked down; the ones who could well take the leap are due to get new pacts immediately thereafter. Realistically, any dreams about the Oilers getting enough out of Gagner and Cogliano to become one of the elite basically requires them to sign two or three year deals after this year and then make another leap. The way in which this team is structured kind of requires threading the needle as far as improving significantly goes.
So, to bring this back to my opening, when I hear Pat LaForge talk about the Oilers losing millions of dollars, one of the questions I’d like to see David Staples ask is whether, as president of the team, LaForge has gone to Darryl Katz and said something along the lines of “Over the past four years, our management has been amongst the worst groups in the league at turning marginal payroll dollars into points in the standings. We should look at identifying someone from a team that does this well and letting him rebuild the front office.” I’m pretty sure that the answer to that question would be no. I’m even more sure that Katz wouldn’t blow out the entire front office. With that said, if Katz is willing to let a bunch of old boys and cronies who aren’t particularly good at spending money efficiently run the show, how is it my problem if I’m a taxpayer in Edmonton? Let the Oilers leave town and have a fellow who wants to run a franchise properly and recognizes a good market when he sees it come in.