• Following the Money: The Effect of the 2005 CBA on Forward Salaries

    by Tyler Dellow • August 28, 2012 • Hockey • 20 Comments

    I’ve been on Lowetide’s show and a podcast, Toronto Sports Media Pressbox a bit lately and referenced how the salary structure has changed in the NHL since the lockout without really having yet backed it up in great detail. I thought I’d take a little time and do that.

    I’ve taken all of the forwards from 2003-04 and 2011-12 who played at least 40 games in that season and sorted them by TOI/G. I’ve then broken them into groups for comparison purposes – top 90 are “first liners”, second 90 are “second liners” etc. I’ve then dropped in their salary information, which permits me to prepare some graphs to illustrate which groups of players have made out well since the lockout and which haven’t done so well.

    A key piece of information that’s useful for contextual purposes. Since 2003-04, NHL revenues have increased at about 5.8% per season, even counting 2004-05, going from $2.1B to $3.3B. Let’s get into the graphs.

    Unsurprisingly, no group of forwards has experienced a collective annual increase in wages that matches the rate at which revenues grown. This is a reasonably sophisticated point and one that Greg Wyshynki’s “The Player” indicated that Don Fehr had been making to players as they prepared for this round of collective bargaining talks.

    In 2003-2004, the final season before the lockout, players’ salaries ate up about 74 percent of all the revenue generated by the NHL. In that year, the business was worth about $2 billion.

    As we know, in 2011-2012 players received 57 percent of the revenues, which are believed to be in the neighborhood of $3.3 billion. So, over the course of that time revenues have increased by over 50 percent while player costs have only increased by about 15 percent.

    Note as well that the increase in the median salary in the four groups that I’ve defined has been much more significant than the increase in the average salary. Now look at this:

    You can see that salaries have increased but that the standard deviation has gotten smaller. What’s happening, as you’ll see in the coming graphs, is that the various groups of players are becoming more tightly grouped in terms of how much money they earn. The spread in terms of first line incomes is smaller than it was in 2003-04 and so on.

    I wanted to dig a bit deeper into this, so I sliced my data some more. I took each group of players (first liners, second liners etc.) and sorted it by the salaries that those players received. I then looked at how that’s changed from 2003-04 to 2011-12. We’ll start with the first liners.

    The graph that you’re looking at graphs three separate things: how much the ten players in each group earned on average in 2003-04 and 2011-12 and how much they would have earned with 5.8% increases from the amount that they were earning in 2003-04. So, to illustrate, in 2003-04, the ten highest paid forwards with first line ice time were Jaromir Jagr ($11MM), Sergei Fedorov ($10MM), Keith Tkachuk ($10MM), Joe Sakic ($9.88MM), Mike Modano ($9MM), Mats Sundin ($9MM), Bill Guerin ($8.86MM), Bobby Holik ($8.85MM), Doug Weight ($8.5MM) and Jarome Iginla ($7.5MM). They earned an average of $9.26MM.

    Last year, the ten highest paid first line forwards in the NHL with at least 40GP were Brad Richards ($12MM), Vinny Lecavalier ($10MM), Evgeni Malkin ($9MM), Alex Ovechkin ($9MM), Steven Stamkos ($8MM), Dany Heatley ($8MM), Joe Thornton ($8MM), Jason Spezza ($8MM), Marian Hossa ($7.9MM) and Eric Staal ($7.75MM). That’s an average of $8.77MM. If the salaries of those ten players had grown at the same rate as NHL revenues since 2003-04, they would have earned an average salary north of $14MM.

    In fact, none of the thirty highest paid first liners have seen their salary increases keep pace with the NHL’s 5.8% growth rate. The 31st to 81st highest paid players however, all have had their salaries match that 5.8% growth rate. The 81st to 90th highest paid first liners haven’t, but then that group tends to consist of guys on entry level contracts. The takeaway? The first liners who have benefitted from this CBA tend to be guys who would have been towards the lower end of the first line pay scale pre-2005.

    Let’s talk about Taylor Hall for a second. As you’ll be aware, he’s just signed a contract for $6MM per for seven years. On last year’s numbers, that would put him in the top thirty in NHL salaries. We’ve just finished a CBA that seems to have imposed considerable restraint on the growth of the salaries of the highest paid (and, presumably, best) of the first line players. There are two things that I’m reasonably comfortable in thinking Taylor Hall will do over the next eight years: make hilarious #OHLeducation mistakes on Twitter and be one of the thirty best forwards in the NHL. For that reason, if I was the Oilers, I’d be pretty comfortable with his contract. Hall was tied for fifteenth in the league in G/G last year, playing on a bad team, driving the bus at ES and not getting the shelter that some of the other young Oilers got. He’s going to be a great player. Signing him during a period in which the really elite salaries aren’t growing makes great sense to me.

    Which leads to Jordan Eberle, a player I’m less comfortable with the Oilers signing long term. Let’s look at the second liner graphs before getting into that.

    In some ways, this is very similar to the first liners. The top twenty highest paid second liners haven’t seen growth matching that enjoyed by the league as a whole. As with the first liners, the highest paid second liners are actually now making less than they were in 2003-04. The 21st through 60th guys have done better than the league average growth since 2003-04.

    Look at that first chart, the salary growth chart. You can see that there aren’t a lot of second liners getting Taylor Hall money, which is presumed to be in the neighborhood of what Eberle’s people are hoping is Eberle money. A lot of the guys in the first group have contracts that are probably perceived of as being albatrosses by the teams that signed them: Danny Briere ($7MM), Alex Semin ($6.7MM), Mike Cammalleri ($6.6MM), Thomas Vanek ($6.4MM), Ville Leino ($6MM), Ryan Malone ($5.5MM), Tim Connolly ($5.5MM), Johan Franzen ($5.25MM), Ales Hemsky ($5MM) and RJ Umberger ($4.5MM). It’s probably not a coincidence that Semin moved on as a UFA, Vanek was an offer sheet and Cammalleri was traded during his contract. Nobody hopes to spend that sort of money on a second line player. You can look at all of those deals and understand how the team signing them hoped to be getting a first line player.

    Back to Eberle. What’s awkward about him is that there’s plenty of reason to think that he isn’t going to be able to get first line ice time in Edmonton in the future. Competition on the right side on the Oilers could be insane as early as 2013-14, with a hopefully healthy Hemsky, a sophomore Nail Yakupov and Eberle all fighting for minutes. Even if you look at the first line numbers, you can see that the big money, the $6MM type deals, is reserved for guys who teams think are going to be superstars, or who are superstars. If you pay a guy who can put up 50-60 points with first line ice time that sort of money, which is a more reasonable expectation for Eberle, the market says you’re doing it wrong.

    More broadly, again note the swell in salaries for the middle paid group here. Again, salaries have risen substantially but those benefits haven’t really been directed to the higher end second liners – it’s been that middle swell that has increased salaries.

    Of course, the price that the market puts on a player and the value of his actual contribution are not at all the same thing. With that said, as a fan of the Oilers and someone who wants them to do well, I am awfully concerned that the swell in the price of mid-priced (and by implication, middle of the road talent level) first and second liners is not due to the market concluding that it was previously pricing these players incorrectly but due to the need of all teams to spend within the salary range. In the pre-2005 NHL, teams could run with first and second lines made up of cheap young players and keep their payrolls down while wealthier teams spent way more money on older, more expensive players; as that’s no longer an option and teams have been forced to spend money on players, spending money on your top end players, regardless of whether they deserve it relative to other team’s top-end players seems like one semi-sensible approach.

    If that is what has happened, and the new system, whatever it might be, takes away those pressures, you might reasonably expect to see stagnation or decline in the price of those players. In those circumstances, I’d rather the Oilers weren’t locked into Eberle at 2012 prices for mid-level first line players or second line players.

    Third liners:

    Third liners haven’t really enjoyed the growth in the NHL’s revenues that’s been enjoyed by the mid-level first and second line players. The only sub-group of them that’s beat the 5.8% league growth number are the lowest paid, who have just barely beat it. Again, you see the highest paid third liners actually making less now than in 2003-04. It’s interesting to me how low the salaries of the mid-level group of them actually are – the 31st to 60th highest paid third liners are averaging $1.26MM compared to $2.45MM for the same group of second liners; they average about 84% of the TOI. 84% of the TOI for 51% of the money. When you consider that teams are locked in an efficiency contest, looking for ways to spend their money as efficient as possible, if you accept that the difference between second and third liners isn’t massive, you wonder if there’s an advantage to having slightly worse second liners to purchase slightly better third liners.

    Fourth liners:

    The fourth liners have really been ground down. The highest paid thirty of them have seen their salaries go backwards since 2003-04. None of them have matched the growth of league revenues. If we throw them into the mix of the middle group of second and third liners that I described above, you see that they’re getting about 65% of the money paid to third liners with about 71% of the TOI; when you consider that third liners are generally getting more in terms of responsibility and competition, that doesn’t seem unreasonable.

    What does it all mean? Well, as I’ve said before, there was no monolithic player loss in the last lockout. Certain groups of players have done much better than they might reasonably have expected to. In particular, this includes mid-level first and second line players. If I were to do this again by age, we’d likely see that many of those were guys who would have been RFAs under the old CBA. Their gains have been paid for by the better players on first/second/third/fourth lines, all of whom have seen their average salaries go down and by third and fourth lines more generally, who have not enjoyed salary appreciation in line with the league average.

    One final point I wanted to mention – this information makes what the Phoenix Coyotes have done all the more interesting. Their guys who played first line ice time by my definition – Shane Doan, Ray Whitney, Martin Hanzal and Radim Vrbata – were all really cheap first liners, with only Doan costing them more than $3MM per year. They had one very expensive second liner – Daymond Langkow – and then Boyd Gordon and Lauri Korpikoski, both of whom came from the lower end of the second line price range, costing $1.3MM and $1.75MM respectively. Their only player to play third line ice time fell in the middle of the salary range for third liners. Then they had Raffi Torres and Taylor Pyatt, both of whom played fourth line minutes (although it was close) and acquitted themselves well but who were pricy for bottom of the lineup players.

    In effect, the ‘Yotes picked their places to spend their money and seemed to focus more of their forward spending relative to their opponents at the bottom of the lineup. They should stand as an example to NHL teams as to what you can do if you devote yourself to finding ways to generate a competitive edge – there’s no reason teams with large budgets can’t ask themselves where they can get more bang for their buck rather than just throwing three years and $1.75MM per at Eric Belanger, just because the staticstial analysis says he’s good. Even if you can’t quantify it precisely, it still seems to me to be a healthy framework in which to think about these things.

    About Tyler Dellow

    20 Responses to Following the Money: The Effect of the 2005 CBA on Forward Salaries

    1. Triumph
      August 28, 2012 at

      Great work. If I sat down and thought about this for a bit, I imagine I’d come to a similar conclusion – the true ‘elites’ at their position got paid more under the old CBA because once a guy went UFA the big-market teams were there to throw him unfettered dollars.

      I am a little tired of the rhetoric that the players ‘lost’ the last negotiation – it sure seemed like they did, but the system in the CBA still rewarded them handsomely. If there had been a de-linked cap in the fashion of MLB’s luxury tax, where the thresholds are set in stone every year, the players would’ve lost much, much more.

      Curious where you got the 2003-04 salary data.

    2. Tom Benjamin
      August 28, 2012 at

      Interesting stuff, Tyler, but I think the distortion created by later free agency makes it difficult to really draw many conclusions. Age was more important in than the quality of the player in determining slary under the pre-lockout CBA.

      The best strategy for smaller markets under that CBA was to trade most older players as they approached age 30. Today I think the Phoenix-Nashville model is the way to go for the smaller markets. Go with the cheaper first liners and spend more to get better third and fourth liners.

      • Tyler Dellow
        August 29, 2012 at

        Tom -

        I’m gonna post a breakdown based on age shortly. I agree with you to an extent. If you look at my list of the ten highest paid 1F in 03-04, it was as follows: Jaromir Jagr ($11MM), Sergei Fedorov ($10MM), Keith Tkachuk ($10MM), Joe Sakic ($9.88MM), Mike Modano ($9MM), Mats Sundin ($9MM), Bill Guerin ($8.86MM), Bobby Holik ($8.85MM), Doug Weight ($8.5MM) and Jarome Iginla ($7.5MM).

        Lots of those guys started getting paid big bucks while still RFA age. Iginla was RFA age at the time. Jagr was making $10.4MM in 1999-00, when he would have been about 27. Fedorov got a $38MM/6 yr deal when he was 28 that paid him a guaranteed $14MM bonus, probably making it more like $7MM a year when the time value of money is taken into account. Tkachuk started making $8.3MM a year at 28. Sakic signed that 21MM/3yr deal with NYR in like 1997. Sundin was pulling down $7MM a year at 28. I note as well that Kariya would have been on that list but took a cut rate deal to go to COL – he was making big bucks from a young age under the old CBA.

        That leaves Guerin, Weight, Holik and, to a lesser extent, Modano (although he was doing pretty well, $5MM-$6MM a year) who didn’t really hit big until UFA. Modano aside, those guys are lesser players than the ones who were doing really well at RFA age. I think it’s more sensible to say that the truly elite players were getting paid under the old CBA, generally by their mid to late 20s. It was the guys a step back who were being held back more. That seems to be rectifying itself now.

        In any event, I’m going to do an analysis of F by age and post it too for people to look at.

        • Triumph
          August 30, 2012 at

          I think teams feared the holdout much more than they do now. Kariya had held out, as had Tkachuk (I think?), and Sakic and Fedorov had signed offer sheets (Fedorov after a lengthy holdout). It’s pretty easy to make an All-Star team out of guys who held out between 1995 and 2004, and lesser players tended not to do it.

    3. sacamano
      August 28, 2012 at

      Just because that’s the kinda jerk I am . . . dude, you really need to work on your graphs.

      Why would present the bars in reverse chronological order, which is not only backwards temporally but also gives the immediate visual impression of a decrease in salaries rather than an increase (for the first two graphs) and an increase in SD (for the 4th graph)?

      • Tyler Dellow
        August 28, 2012 at

        Those are excellent points. Graphing is not my strong suit. Comments noted and will be taken into consideration in the future.

    4. Lee
      August 28, 2012 at

      Interesting stuff.

      This link may lend some additional context as well.

      http://www.torontosun.com/2012/08/26/comparing-the-cbas

      I was surprised to see that the NHL has the highest minimum salary of the 4 Majors. The 4th liners might be going backwards but it appears that hockey is still an excellent sport for the prospective athlete particularly if you’re a fringe level talent.

      Astounding really to look at the NFL CBA as well. They truly have their union/players by the balls. The most profitable league AND the lowest labour costs. I wonder how much envy of that factors into the NHL CBA negotiations, particularly amongst some of the more ego-centric owners?

      Finally, given the increased awareness of concussion effects, the short career, and the lackluster compensation compared to the other majors, you have to wonder why any parent would put their kids into Pop Warner Football when little league or the hockey rink offers a potentially brighter future (unless their pituitary has gifted them with exceptional height obviously ;)

    5. Mark
      August 28, 2012 at

      Tyler,

      Loved the analysis but the one point I think may need some consideration is the length of contracts. Players may be earning less annually but contract length has grown, and maybe longer term earning is an incentive to take less cash now for employees in such an unpredictable industry.

      Anecdotally, I remember Jarome Iginla explaining that under the old CBA, a three year contract was the longest he’d ever signed. Would that be the case today? I don’t know if there is an answer to that question, but the effect of guarenteed long term contacts may give comfort to players not needing to earn as much as possible as quickly as possible.

      Unlike you, I don’t have any empirical evidence to back up this line of reasoning, but I’m thinking of a player like Wade Redden, who, under the old CBA would have much less earning potential if he wished to continue his career given what happened to him in NY. Even if his pride is tarnished by playing in the AHL, he can dry his tears with his $100 bills because he had a LONG TERM guaranteed contract.

      Just a thought.

    6. Art V
      August 28, 2012 at

      excellent piece.

    7. Tach
      August 28, 2012 at

      I feel like your top line guys analysis is missing something relating to signing bonuses and the long term contract cap circumvention nonsense.

      Your list of 2011-12′s top guys has the following guys who all got big time bonuses :

      Brad Richards $10MM on top $12MM salary in 2011-12 and another $8MM in 2012-13

      Steven Stamkos $4MM on top of $8MM salary in 2011-12 and another $3MM in 2012-13

      Joe Thornton $1MM on top of $8MM salary in 2011-12 and another $1MM in 2012-13

      Plus Ville Leino got $6MM plus $5MM for total 2011-12 compensation at $11MM. Erik Cole got $6MM plus $3MM for total compensation of $9MM.

      Add that $15MM in signing bonus money and replace Hossa and Staal with Leino and Cole, and your average salary number for those guys moves up to $11.9 million. I know you were showing guys at 40+ games, but missing Crosby from this analysis also makes it seem somehow incomplete.

      Plus look at how many years the top guys got on their contracts. The cap system essentially forced the top players to trade top dollar numbers for years, because teams could not pay what they were worth. It also forced players to trade off winning versus high salaries, because players knew that a dollar spent on them was a dollar the team couldn’t spend on another player to help win. I think that definitely influenced guys like Crosby and Iginla.

      I don’t disagree that the system started forcing instant salaries down on the top guys, but I think they made up for it in other ways that just don’t show up in these charts.

      • Triumph
        August 28, 2012 at

        I trust you’re getting this information from capgeek and capgeek, unless you read the FAQ, can be difficult to figure out. Bonuses are not ON TOP of salary, they are a form of salary. Brad Richards gets $12M this year – he got $10M on July 1, and he’ll get $2M spread out through the rest of the season.

        • Tach
          August 28, 2012 at

          [Facepalm] Oops. Thanks.

    8. Tach
      August 28, 2012 at

      Also, do you have the total player compensation for 2011-12? Was it over or under $1.88 billion? If there was a gross up necessary to match the 57% of HRR that would need to be included and it isn’t clear fi that is in here or not.

      • Adam
        August 29, 2012 at

        That’s what I was thinking…

        Before the lockout, players signed for $ values. After, they sign for a % of HRR. It’d be interesting to see these figures adjusted for actual $ after the escrow process was accounted for.

      • Tyler Dellow
        August 29, 2012 at

        I don’t think it’s going to be significant this year. Nothing’s been publicly released but I’ve done the math and I think it will end up being +/- 1%.

    9. daoust
      August 29, 2012 at

      Great stuff Tyler.

      Do you know what % 1st / 2nd / 3rd / 4th liners were making of the overall salary pool in 03/04 vs 11/12? And more granularly what % the top 10 in each were making in 03/04 vs 11/12?

      Also curious to know what defencemen salaries have done since 03/04. To me it seems like we’re seeing a lot more big $ contracts for defencemen now than before, I suspect their salaries have increased at a greater % than forwards.

    10. Fraser
      August 29, 2012 at

      The gluts of first line players in the 31-80 range and second line players in the 31-70 range is fascinating. An explanation for this could be the widespread use of long term contracts for first/second line players following the completion of their ELCs. The stars are getting long term and lucrative deals at a much younger age than they were under the old system.

      My hypothesis is that this phenomenon has held the salaries of elite first/second line players at levels lower than those that would exist if the players were signing these contracts as UFAs.

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