Reason is Wrong: Austrian Economics Doesn’t Explain the NHL Lockout


Reason has a piece out ostensibly using Austrian economics to explain the NHL lockout. I love Reason, I really do, but this article is garbage. First, the fact that it quotes super-douche hockey agent cum wanna-be-twitter celebrity Alan Walsh almost immediately makes the rest of the article lack any real credibility. Quoting Alan Walsh on what Gary Bettman thinks makes less sense than quoting Paris Hilton on what Barack Obama thinks.

The article also cites Alex Ovechkin’s 13-year deal as an example of one of the “absurdly long deals that tailed off dramatically in the later years,” that owners were looking to protect themselves against. Yes, the owners were – ridiculously – looking to protect themselves against silly extra-long deals, especially back-diving contracts that pay almost nothing in the last few years. But of all the deals to point to as an example of a “bad deal” the author chooses Ovechkin’s deal? Since the writer is from Virginia, I can only assume that Ovechkin is one of only a handful of hockey players that S.M. Oliva has ever heard of. Want to reference an actual “absurdly long deal” that makes absolutely no sense? How about Ilya Kovalchuk’s 15-year deal he signed back in 2010. Kovalchuk isn’t half the player Ovechkin is, was older when he signed it, and signed a longer deal. It’s already a deal that the Devils regret, and is the gold standard for “bad deals.” Heck, the news the Kovalchuk may not return from the KHL might be great news for the Devils.

Beyond these two annoyances, the writer also operates under the premise that the problem with hockey is the salary cap and that is what will continue to drive labor strife.

According to the writer:

“Even folks not versed in Austrian economics seem to instinctively sense there is a business cycle, especially as it applies to the NHL. Much of the initial social media reaction to yesterday’s announced settlement was, “See you at the next lockout in 2020.” This isn’t cynicism. The 2012-2013 lockout marked the third consecutive occasion where the expiration of the NHL’s labor agreement resulted in a management lockout. After the prior lockout in 2004-2005, the NHL’s leaders claimed they finally had a rational system in place to “control costs” and maintain 30 competitive franchises. Yet eight years later, those same leaders claimed that system had failed and a new round of central planning was necessary.

The core of this central plan is of course the “salary cap,” a complex price-fixing scheme that proponents—including some libertarian sports fans, judging by my Twitter feed yesterday—argue creates a “level playing field” for all teams. As the theory goes, by eliminating the wide payroll disparity between wealthy, big-market teams and struggling small-market clubs, the cap creates a stable, more competitive league. The cap is, in effect, no different than playing rules or other joint policies adopted by the league for the mutual benefit of all member clubs.

What the salary cap fails to account for, however, is the role and importance of entrepreneurship. Just as players on the field exhibit different skill and experience levels, so too do general managers and team executives vary wildly in their abilities. The cap is based on the myth that given the right combination of rules and regulations, even the most ineptly managed club can field a potential championship team. (Other elements of collective bargaining, such as player drafts, actively subsidize mismanagement by rewarding poorly performing clubs with priority access to promising new talent.)”

A perfectly entertaining college faculty lounge argument about the theoretical rightness or wrongness of the salary cap, but a hackish attempt to explain what really has been driving labor unrest in the NHL.

The real problems with the NHL have nothing to do with the salary cap and it is the failure to address these bigger, structural problems that will keep the league constantly fighting like dogs over table scraps.

The biggest failure of the NHL – during this round of CBA talks in particular – is the refusal to actually deal with the underlying structural problems in the league, structural problems caused by too many teams and too many in the wrong places.

Salary cap numbers, share of hockey related revenues, back diving contracts, pensions, length of contracts, length of the collective bargaining agreement all pale in comparison to the fact that 2-5 teams in the league need to be contracted and/or relocated.

The league constantly, and rightfully, points out that a lot of NHL franchises lose money. The league is stretched thin and Bettman’s grand sun belt NHL expansion gambit has been a miserable failure.

The Florida Panthers, the Phoenix Coyotes, the Columbus Blue Jackets, the Mighty Ducks of Anaheim, and the Tampa Bay Lightning are all teams that should be considered for relocation or contraction. The Nashville Predators and the Carolina Hurricanes would be in the next tier – franchises that should be on a contraction/relocation watch list. [For the record - only the New York Islander’s move to Brooklyn spared them from my list].

These franchises are all in the bottom tier of franchise value according to Forbes (Anaheim is 21st, Tampa Bay 23rd, Florida 24th, Nashville 25th, Carolina 26th, Columbus 28th and Phoenix 29th). It is estimated that ALL of these teams lost money in 2011-2012, with the league-owned Coyotes losing a staggering $20 million – more than 1/7 of their total value!

The NHL wouldn’t need half of the parlor tricks it currently has in place to try to “level the playing field” if the league actually only had franchises in places that could compete on their own (without the need for salary caps, revenue sharing, etc).

Hockey in non-traditional cities has, by in large, been a complete and total failure. It should come as no surprise to anyone that it is difficult – at best – to build a fan base for a sport played on ice in a city where there is no ice!

It is time for hockey to get its financial house in order by cutting loose franchises with no hope of being profitable.

One franchise could be moved to Quebec City, another to Toronto (a city clearly capable of a second hockey franchise), and possibly a third to Seattle. The remaining franchises should be contracted.

The problem is that neither the players nor the owners actually want contraction or relocation. The players don’t want a team contracted because contracting a team costs players jobs. Owners don’t want teams relocated because they would prefer to expand to Quebec City, Toronto or Seattle so that owners can share in the hundreds of millions of dollars in expansion fees that the new franchise owners would have to pay. Naturally, players want expansion because new franchises mean new jobs for hockey players.

At the end of the day, Austrian economics does a pretty damn poor job of explaining hockey’s labor problems, something else does a damn fine job of explaining it: short-sighted greed. Both sides want to protect their short-term interests by protecting existing franchises and actually expanding the number of teams in the league. The failure to address the long-term structural problems within the NHL will guarantee that we will continue to have intense labor battles every single time a CBA expires.

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