Thursday, March 05, 2009

It's the Economy, Stupid

The downward spiraling economy and the shrinking cap is the big story of trade deadline day.

As the Globe and Mail noted back on February 12:

At this point, it looks as if the salary cap for next season will be within a million dollars of 2008-09's $56.7-million. That is because the NHL collected the bulk of its major revenue — season tickets, luxury suites and sponsorships — before the economy collapsed last fall. The cap is based on revenue from the previous season.
Of most concern to NHL GMs is the salary cap for the 2010-11 season. It will be based on revenue from next season, which is expected to be down considerably. (Well, expected by everyone except NHL commissioner Gary Bettman.) That is why GMs may be slow to make deals this March. If you are expecting the cap to fall to $46-million, say, then you do not want to take on a big long-term contract that will eat up a lot of your potentially shrunken budget in 2010-11.
There are two essential points here, one that's explicit - the shrinking cap; and one that's glossed-over - draft picks are the sole cost containment option for GMs.

A $50M salary cap in 2010-11 would severely constrict many clubs based on their current salary commitments, never mind taking on any additional salary via trade. Consider:

Philadelphia has $42M committed to 12 players, leaving $8M to sign 10 starters
Pittsburgh has $38M committed to 11 players, leaving $12M to sign 12 starters
Edmonton has $38M committed to 11 players, leaving $12M to sign 12 starters
Ottawa has $38M committed to 10 players, leaving $12M to sign 13 starters
Calgary has $37M committed to 11 players, leaving $13M to sign 12 starters
Detroit has $36M committed to 11 players, leaving $14M to sign 12 starters (including deals for Hossa, Samuelsson, Lidstrom).

And on and on...

While waivers are an option to clear cap space for those teams lucky enough to have strong revenues and owners with deep pockets, not every team will be able to bury $10M in salary with their AHL affiliate.

As the cap shrinks, salary containment becomes ever more important. Drafting and developing young talent is really the sole option for GMs to restrict salary pressures. With entry level deals capped at $1M, players have to spend approximately three seasons (depending on their age at the time of signing) in the bigs before they qualify for RFA status/arbitration rights. UFA status kicks in when a player is 27 or has accrued seven seasons in the NHL. That's not a big window to accrue talent and make a run for the Cup. The key ingredients going foward will be a strong collection of cost-contained youth and players outperforming their contracts.

Summing Up

When you combine a shrinking cap and a crumbling economy with numerous teams already in cap trouble what you get is a trade deadline day where few multi-year contracts are dealt and first round draft picks are a scarcity. In fact, only a single first round draft pick changed hands at the trade deadline this year compared to three in 2008 and seven in 2007.

While some may suggest Burke was a bust or didn't live up to the wish list of Leafs Nation, the economy is the big story here. Just as it likely will be again at the draft and then next September when teams maneuver to get under a shrinking cap.

2 comments:

  1. Paul Steckley6:02 pm

    This was easily the quietest deadline day in recent memory. Yes, there were 20 trades but how many were of any substance? I suspect that next year's deadline will be worse as the GMs collectively get into a bunker mentality and prepare for "Armageddon" in 2010/11. Picks and young players are going to be even harder to come by.

    All of which leads me to conclude that Burke actually did very well with his trades. He traded two players whose value to the Leafs far outweighed their value to virtually any other team in the league (how many teams would realistically have Antropov on their first line, or Moore on their second line, after all) for two 2nd round picks. Then, in a stoke of genius, Burke used his greatest asset at the deadline, cap room, to temporarily take on some of Tampa's mistakes and grab another 4th round pick. That is the kind of imagination and ingenuity that we haven't seen from the Leaf front office in decades.

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  2. Excellent post, MF.

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