In my earlier post, I began my response to Jerry Aldini’s anti-salary-cap analysis. This is part two, which (as David Letterman once said of the movie Kickboxer 2) won’t make sense unless you’re familiar with part one. (Of course, as Lettermen went on to say, maybe the solution would be to “kick me a couple of times to put me in the mood.” Which, who knows, may also be appropriate here.)

My central position has been that the 30 NHL team owners are functionally partners in the mutual success of their enterprise. I had analogized to different departments within a large tech firm or a large hospital. Jerry quotes my argument here:

If ABC Tech Firm decides, as an industry, that its marketing and research divisions should each share X% of the budget, we don’t get our knickers in a twist about the free market, crying “each division should sink or swim on its own!” If the Radiology Department and the Emergency Department have to share a defined fraction of the budget, the Emerg docs don’t whine that there’s no free market, and that their department is managed better so they should get more cash. Well, actually, they do, but that’s another story…

His response is, first, to suggest that I had “debunked” my own analogy with the final comment. Jerry, Jerry, Jerry: it’s not a “debunking”, it’s a “joke”, although I happily offer that it’s a “crummy joke” because it’s “not funny”. However, even if taken literally, the comment is not a debunkifier (said the octopodes to the hippopotamuses). Note the change in verb subject: if departments M and N share X% of a firm’s budget, “we” (meaning you and I) don’t get our knickers in a twist; if Radiology and Emerg have to share a budget, “the Emerg docs” (neither you nor I) might whine.

This is turning into the kind of silly terminology-obsessed argument one can have with a spouse (”I didn’t say you were silly, I said that sounded silly!”). And, for all that I respect Monsieur Aldini, I already have one person in my life with whom I can have boring misunderstandings. Let’s return to the main thrust of Jerry’s dispute with my partnership analogy. After listing a number of specific ways in which even a salary cap league like the NFL does not REALLY run like different divisions of the same firm (which I am happy to stipulate–it’s an imperfect analogy), Jerry quotes my table-thumping final summary:

It is no more a constraint on the free market for the owners to “collude” in setting a salary cap than it is a constraint on the free market for the Board of Directors of IBM to set the budgets for each of its divisions.

His verbatim response:

Yes, it is. (I love the italic decisive!) IBM’s board is running one business, i.e. there is only one relevant bottom line, and no shareholder’s financial interest in tied solely to the performance of any particular IBM division. The NHL owners are running 30 businesses. If IBM and 29 other top tech firms colluded to cap salaries (in the absence of a collective bargaining agreement with a very large Computer Geeks’ Union), the consequences would include large fines and jail time.

There are two problems with Jerry’s position. The first is moral: even assuming he is absolutely correct about a salary cap being equivalent to collusion, does he really mean to argue in favour of anti-trust legislation? It may be the case that it would be illegal in the US for IBM and HP to collude to set salaries at a certain point, but for a libertarian it ought not be good enough to say “it’s illegal” when what you really want to say is “it’s wrong”. I mean, if IBM started giving away marijuana with its PCs, hell, that would be illegal too. My point here is that the illegality of collusion does not for me equate with its immorality. But: I am not really trying to make the case that a salary cap is collusion, AND THAT’S OKAY. I am saying: a salary cap is not collusion.

In the computer hardware industry, the different firms are all trying to out-do one another in producing the best, cheapest personal computer. There are no “rules” limiting this process, in the way there are rules about hockey teams in the NHL. If IBM uses more engineers than HP, or operates in more than one centre, or works longer hours, or uses a different kind of plastic for its boxes, or a different keyboard layout, it’s up to the market to decide if those decisions are right. But the Canucks and the Senators are engaged in a type of competition which is fundamentally different. The Canucks cannot ice more skaters, or play in two rinks at once, or use smaller pucks, or play with circular nets, or play for longer than 60 minutes. The best hope of IBM is to put HP out of business. The best hope of the Canucks is to defeat the Sens in a game. Do you see the difference? The Nucks v. Sens is all about the process; IBM v. HP is all about the end result. The Canucks are not trying to develop a better way of playing the game of hockey, not really, or to the extent they are, they operate under pre-arranged rules that limit their ability to compete (number of skaters, time on the ice, etc.) True business competitors (IBM v HP, etc) operate under no such restrictions, because it is not the competition per se that matters. If IBM utterly defeats HP, and the latter goes out of business, frankly the consumer can end up the winner. If the Canucks utterly defeat the Sens in a business sense, and the Sens go out of business, the fans lose. The NHL is not in the business of trying to take hockey to the next level, the way IBM is trying to make a better PC. The NHL is in the business of entertaining fans, and the way they do that is to provide a good game. A good game presupposes that the competitors are somewhat equal: same number of skaters, same type of equipment, etc. A salary cap is part of this equality. It is clearly not the only way to achieve some kind of inter-team parity, but it is one way. And it is a perfectly justifiable way of limiting the ability of any single team to overwhelm its on-ice foes. The Canucks and the Sens may oppose one another on the ice, but in a business sense they are partners, trying to sell a common product: a game. Jerry quickly brushed past the first of my original two arguments–that a salary cap is just another rule, like every other rule in the NHL rulebook, which exists to provide a fair and enjoyable game for the fans. He has too quickly moved past my central point.

The NHL is not about trying to invent the best hockey team: if it were, a salary cap would be counterproductive. It is about trying to invent the best game for fans to watch. A salary cap is one of the ways to achieve this. And, so long as individual investors agree to limit their own behaviour in a way they themselves deem to be mutually beneficial, it is entirely consistent with a free market.

Jerry concludes by saying that an “unintended, but not unforeseeable, consequence of assured profitability is the entrenchment of disinterested, incompetent, and/or lazy owners. This tradeoff is only a positive one (arguably) for fans in the absolute worst markets, where the alternative might be their team moving away.” Nothing could be further from the truth. Well, okay, the hyperbole alert is going off: anything out of the pen of Heather Mallick is further from the truth. BUT, Jerry is still wrong. First, a salary cap does not assure profitability, although it does make it considerably more likely. Second, my issue is not with “the worst markets”, which I take to mean all of the various examples of Bettman’s Folly: Anaheim, Nashville, Port au Prince (what? no franchise? just give Bettman a chance!), etc. I don’t care about them. I care only about the Canadian markets, including Winnipeg. Canada has been governed into relative poverty, t
o the point that a midsize US city may be more able financially to support a hockey team than a midsize Canadian city. I consider myself pretty pro-USA (witness my motto at the top), but I care about Canada, and I enjoy watching hockey. I want the Canadian hockey teams to stay where they are, and frankly I would love to see a few more added. Canadian markets are “better hockey markets” in an emotional sense, even though they may be poorer markets in a financial sense. A salary cap puts a mutually-agreed-upon limit on the role of dollars in influencing where the game is played, allowing a poorer but more devoted fan base equal footing with a richer but disinterested foe. Having no salary cap permits wealthy non-fans to dictate to poor fans how professional hockey should be played.

If we were talking about government intervention here, I can tell you I would be on Jerry’s side of the argument. I don’t think it would be right for a government to ensure we could shoot our own pucks to ourselves, any more than it should ensure we can “tell each other our own stories,” to quote Sheila Copps’ execrable defense of the ridiculous CBC. But this is not about government. This is about a group of investors agreeing on their own behaviour. Nothing could be more free market than that.

Ultimately Jerry, and the NHLPA, may still disagree with my argument. Hey, it’s a free country. So go and do what those with a better idea have always done in free countries: go and do it better. Start a better league: player-owned, no cap, better commissioner (insert cow pattie joke here). Or patronize a league that lacks a cap: MLB, NASCAR, whatever. I don’t mean that to sound flip, but isn’t that always the best response to a complaint about the behaviour of a private business? If you don’t want smoking in the restaurant, go and open a non-smoking restaurant. If you don’t like the way the NHL does business, buy tickets to the CFL. At some point, after everyone is exhausted with the whole good cap / bad cap argument, doesn’t it come down to the basis of the free market? It’s the owners’ money. It’s their right to make their own decisions about how they want to run their businesses.

At the end of his analysis, Jerry states that “it continues to boggle [his] mind that Canadian NHL fans, having regularly witnessed the benefits of great ownership towards on-ice success, are so eagerly supporting a structure which promotes exactly the opposite.” Of course, what the fans think has had little to no effect on the failed negotiations between Gary “My Way Or The Highway” Bettman and Bob “Dimbulb” Goodenow. What boggles MY mind is this: the players offered a cap of about 49 mill, and rejected one of about 42 mill. 7 million bucks. An NHL roster is 23 players. Assume for the sake of argument that the 7 million per team is divided equally among all 23 players (when, in fact, we know it would be felt primarily by the elite high-earners, and it would really only affect maybe a dozen teams…). That’s just over $300 thousand per player. Which means: the NHLPA rejected an offer which AT WORST would have cost each member, on average, about 300 grand per year. I haven’t been able to find a good reference for how long the average NHL career is, but this site suggests a median career of 5 years for a defenceman. This means that the NHLPA rejected a plan which would have cost, on average, $1.5 million per player. What is the average NHL player’s salary? It has been widely reported at $1.8 million. What this proves is that the NHLPA has no concept of opportunity cost. They have on average sacrificed $1.8 million for this season, because they were afraid of losing $1.5 million over a career.

I acknowledge this back-of-the-envelope sort of calculation is so full of half-wit assumptions it might as well be a Liberal budget. But it’s probably within an order of magnitude of being correct. So why did the NHLPA jump off the cliff? Are they as dumb as they look? Maybe, after so many interviews in which they claimed to have given 110%, they thought that 110% was what they deserve to be paid.

I appreciate Jerry’s carefully argued position. I just happen to think that he and the NHLPA are utterly, totally, and apocalyptically wrong.

So there!

I do so love the italics decisive…