UPDATE: This is part 1 of 2. Part 2 is immediately above.

A few days ago, Jerry Aldini argued against an NHL salary cap, and I responded. He has since replied:

It pains me slightly to do this to such an excellent blogger and kindred spirit. The Monger [...] has managed to articulate almost every common fallacy cited as evidence in support of a salary cap. As such, his post deserves a proper Fisking.

You see how he butters me up, just in time to eat my toast? :-) Jerry goes on to suggest that, in honour of its Canadian exemplar, Canucks ought to refer to Fisking as “bleeding”. As a physician I can tell Jerry that bleeding went out of fashion more than a century ago, so I’m not going to bleed his argument. I will instead attempt an autopsy (from the latin words meaning “to see for oneself”), so I can show him how and why his argument died.

After he finishes with his gentle “more in sorrow than in anger” introduction, Jerry gets down to brass tacks. He first addresses my assertion that, far from competing against each other in a business sense, the different NHL franchises are partners in a competition against the NFL, Major League Baseball, and a variety of other entertainment options. Jerry’s reply follows:

The argument is Dubious. First let’s ignore the near-invocation of the “pie” fallacy, where wealth is never created, just taken from somewhere else. I know The Monger doesn’t believe this, so we’ll just remind everyone else – there is not a fixed number of leisure dollars in North America.

Here Jerry avoids the “pie” fallacy, and instead runs headlong into the arms of the “straw man” fallacy. There is obviously not a fixed number of leisure dollars, in the sense that the pie fallacy demands. But each business (e.g. a hockey league, or a copier company) in an industry (e.g. entertainment, or business machines) must try to interest consumers in their particular product, instead of their competitors. There is not a fixed amount of business machine dollars in the economy, nor is there a fixed number of entertainment dollars. But a shop that buys a Xerox isn’t likely to go out and get a Canon as well, and a family that buys season tickets to the Bruins probably isn’t also going to get the same for the Celtics. This isn’t a pie fallacy: it’s business competition.

More importantly, we have the common misconception that [different NHL teams] are “in it together” when it comes to business. A large, large percentage of “NHL fans” are actually fans of a particular team, and an even greater percentage started out that way (generally the team in their area, sometimes “Dad’s team”). This is a critical point: most of the growth of the NHL comes via its teams. Put a different way, the Canucks and Senators are selling to essentially distinguishable sets of potential customers, and the success of the Canucks in doing so is pretty much entirely separable from the success of the Senators.

In the fashion of most errors in economic analysis, Jerry is partly right. Insofar as the better part of each NHL team’s revenues come from the gate, the ‘Nucks and the Sens are obviously selling to entirely distinguishable sets of customers, and (up to a certain limit) the success of the Canucks is clearly independent of the success of the Senators. But Jerry’s argument, like Newtonian physics, is only correct up to a certain point. Assume for the sake of argument that only 2 teams exist in the NHL, the V’s and the O’s. Assume also that the V’s have 10 times the budget of the O’s. Clearly they will over time be able to price all talent out of the reach of the O’s owners, and over time the O’s will find themselves utterly unable to field (ice?) a winning team. Because fans in general follow winners more than losers (although there are obvious exceptions in the world of sports), the discrepancy between the V’s budget and the O’s budget would clearly lead to a loss in fan support, a.k.a. revenue, for the O’s. And the O’s franchise will fail. Therefore the success of the V’s is not at all separable from the success of the O’s: in fact, the success of one causes the failure of another.

A team’s viability is almost entirely dependent on their ability to sell to their own market; moreover, the NHL’s viability is almost entirely dependent on the ability of 30 teams to sell to their respective markets.

Here Jerry seems to concede my point: that the NHL is an organization which can be, as a group, viable or nonviable. This viability is dependent on the individual financial success of its members. I believe, and I think the evidence supports the notion, that in general and over time, some teams can be so successful financially that they price other teams out of the market (and therefore into failure). I hasten to concede Jerry’s point that good management and bad management can affect these successes and failures to a very great degree. It should go without saying that a poor but well managed team can succeed, and a rich but poorly managed team can fail. But over time, the quality of management of each team will vary, just as the quality of its players will vary. Poor teams, in a league without a cap, must have good management every year or else they may fail; rich teams can afford to be managed by yahoos. While Jerry’s point re: management quality is, I think, obviously true for any given season, perhaps he may agree that on average, over time, relative financial security plays a larger role. Or maybe not…

The history of the NHL is rich with teams that have folded, moved, and merged. Today it’s a $2B industry. It is not self-evident that if the Canucks went bankrupt it would damage the industry as a whole. (And note: since 1987, when the NFL started the salary cap, more NFL franchises have relocated than NHL franchises, 5-4).

Again, Jerry’s partly right. It is not self-evident that moving the Canucks to Seattle or Portland or (given Gary Bettman’s sun-belt proclivities) Banjo Gulch, Mississippi, would damage the industry. But the point of the cap is not to save the Canucks (editor’s note: and would it be so terrible if it were?). It is to save the Flames, and the Oilers, and the Senators, and frankly every “small-market” team. It is to keep the Jets in Winnipeg and the Nordiques in Quebec City. It is to ensure the continued existence of franchises in cities where fan support cannot necessarily be counted upon to sell out every night (or, in the case of Edmonton, even where it can). I sense a whiff of Marie Antoinette in Jerry’s blase implication that failing teams should just move. To where, exactly? Where is the city that is desperately seeking an NHL franchise? Why are there no buyers for the Mighty Ducks? The answer is: the economics of the league are terrible. The richest owners (NY, Colorado, etc) can drive player prices up so high that the poorer teams cannot meet them. Then the poorer teams get the poorer players, and the fans stay away. Or: the management decides to try to meet these prices, and relies on long playoff runs to keep the team afloat from year to year. There is one word for that kind of league: unsustainable. This is not one hypothetical team, but several real ones.

Jerry may not believe that teams are losing money:

I realize I’m fighting both intuitive plausibility AND nearly 10 years of Canadian owner complaints here, but cripes, the evidence does not support this premise [that Cdn. NHL teams lose money]! In 2003-04, (at least) five of the six Canadian teams were profitable!

Here Jerry links to a reported remark made by NHLPA poodle Glenn Healy: that 5 of the 6 most profitable teams in the league are in Canada. Sorry, but I call b*llsh*t on that one. 2? 3? Maybe. But not 5 of 6. It strains credulity to suggest that either Calgary or Edmonton is more profitable than Colorado, or Detroit, or New York. But I am sure than Healy is accurately reflecting what the NHLPA believes to be true… which is why they refused to play this year.
But this is all appetizer to Jerry’s main course. His biggest disagreement with my pro-cap stance is this: he does not agree with my assertion that different NHL owners are “partners” in their mutual success.

The underlying [false] premise here is that, like the marketing & research divisions of a single company, the 30 NHL owners have identical financial interests. As much as the owners are trying to make us believe this right now, it is simply not true.

Jerry then gives 4 examples of owners whose financial interests would not be identical: the chronically successful team that looks for a profit every year, the looking-to-sell guy who may not care about a given year’s profits, the community owned team that wants to put every dollar back into the team, and the vampire who wants to suck every dollar out of the team. Forgive me for thinking we ought not to be too concerned about the wishes of Vampiro, which leaves us with Jerry’s other three: the guy who wants a profit, the guy who wants his team to look profitable, and the guy who wants to invest money in the success of the team. Again, forgive me, but… aren’t these three guys, er, the same guy? Every owner who is not a psychopath wants his team to make money. I don’t think Jerry is right that owners’ ultimate interests are all that different. Fortunately for both of us, this is not an important part of Jerry’s argument. The next bit is important… but it will have to wait until I take the kids to the grocery store.

And bring them back. I mean, jeez, what kind of dad do you take me for?

UPDATE: Conversation with my wife:
Wife: “So, are you done ‘blogging’?” [insert sarcastic laugh]
Me: “Yeah. I’m having a debate with a guy from Lethbridge about the NHL Salary Cap.”

pause

Me: “I’m trying to think of a sentence you would find more boring, and I’m not having any luck. ‘I’m having a debate with a guy from Lethbridge about the NHL Salary Cap.’ Pretty hard to top that.”
Wife: “You had me at ‘debate’.”

YET ANOTHER UPDATE: In the extremely unlikely (read: impossible) scenario that this blog is being perused by a pathologist, let me say: I know that an autopsy does not begin with a Y incision. It begins with a review of the autopsy consent or coroner’s order, and then proceeds to the external examination. The Y incision doesn’t happen until all that is done. But you have to admit–”Begin with a review of the autopsy consent” makes for an even crappier post header than this one.