The Puck Stops Here

Most people assumed that a new NHL CBA meant that salaries in the NHL would go down. They thought that it would mean GMs would react with restraint in the free agent market. Clearly, this is not true. One week of free agent signings have proven this. There have been a lot of free agents signed for a lot of money in a lot of different markets. Here is a summary of the signings from Monday, Tuesday, Wednesday, Thursday and Friday.

The marketplace is clearly different. Some teams that knew they could not compete financially for a team of free agents with some of the bigger markets so they didn't try. They marketed the lockout as a chance to let them enter the free agent market and now that they got their CBA, for public relations reasons, they have to enter the market in a significant way even if it is not their best longterm plan. In many ways, buying free agents (at least when UFA age is 31) is a lazy quick fix. Its never as good as producing good new young talent because the guys you can buy are all passed their primes and into decline, but its easier to do and it produces a result much faster. The result often does not hold up in the long term, because the player ages badly and often gets injured. I think many teams will find that despite spending a good amount of money on free agents, they have not actually improved their teams. However, it is a new toy for some markets. It is a toy that many markets told their fan base that this CBA would let them play with and now that its in place they have to play with it even if their playing doesn't make much sense.

Economically, we were sold the lockout because the NHL was in financial trouble, how is it so many teams can afford to pay so much money to free agents? A partial answer to this question is that we were lied to. Some teams are actually growing their payrolls after losing a year to a lockout. The only logical conclusion is that they were always able to pay this and had no reason to, until now, their marketing scheme now includes selling the hope of new free agent signings that will turn the franchise around. Of course, it is not possible to turn most franchises around with free agent signings, most will fail, Most GMs must be smart enough to realize this. Either they believe that they are smart enough to beat the odds, or cynically, they are doing this mostly to placate fans and sell false hope.

How much money are the free agents actually signing for? Is it as much as is reported? The answer is not really. This is a consequence of the idiot proof NHL. Cost certainty means that some portion of players salaries is held in escrow and if the total player cost exceeds 54% of the total revenue (as these terms are defined in the CBA), the escrow money will be returned to the teams. Since this 54% number is totally arbitrary that teams can afford to exceed, they probably will exceed it. Except that they cannot, if it is exceeded, they get the escrow money. Teams know that if they sign a player to, for example, $4 million a year, they do not have to pay $4 million a year, they will get some of it back in escrow. Teams can sign players to contracts for more money then the player is worth knowing they will not ever actually have to pay them that money. Agents know it too. If you want to pay him $3 mill, sign him for closer to $4 mill and you will pay him $3 mill. All that really matters is the relative salary level, the exact numbers will be adjusted by escrow money. Since they are clearly too high for the CBA, it is clear that they will be reduced.

Teams have been forced into the free agent market because of the way they have marketed the lockout and because it provides (often false) hope to sign free agents. Many teams are forced to make moves that may not be in their best longterm hockey interest for public relations purposes. The salaries that players are being signed to are actually higher than the players will actually be paid. It is widely expected that salaries will not be as high as have been reported becuase of the "cost certainty" provisions written into the CBA.