The macroeconomics of Stanley Cup dynasties

This post was written by Davin Raiha at the Ivey Business School.

As the NHL playoffs inch closer to the Stanley Cup, it is an appropriate time to reflect on how economic conditions and forces have impacted competition within the NHL over the past few season. A few seasons ago – specifically during the 2015 Stanley Cup final series between the Chicago Blackhawks and Tampa Bay Lightning – I noticed how an interesting circumstance was emerging that might impact the competitive landscape of the league. The powerhouse Blackhawks appeared to be headed for an especially challenging off-season due to reasons that were macroeconomic in origin, and coming from across the globe from Saudi Arabia’s oil production policies and its resultant impact on oil prices. I thought the situation could make for an interesting teaching case.

When the Chicago Blackhawks won the Stanley Cup in 2015, it was their third league title in only six season – a veritable dynasty in the salary cap era. However, since this most recent cup victory the Blackhawks have failed to win a playoff round – twice being eliminated in the first-round, and this season (2017-18) failing to qualify for the playoffs entirely. The teaching case examines the macroeconomic circumstances that led to the slower-than-anticipated growth in NHL’s salary cap from 2015-16 onwards, which has contributed greatly to the Blackhawks struggles in the past few seasons.

The recent slow growth in the salary cap was quite unexpected prior to the 2014-15 season. In late-2013, the NHL had signed its largest TV deal in league history with Rogers – a deal which was widely anticipated to raise the revenue-linked salary cap substantially starting with the 2015-16 season. However, the sharp fall in oil prices in late-2014 and early-2015, brought upon by the major shift in Saudi Arabia and OPEC’s oil production (as well as other factors), carried significant implications for the NHL salary cap. The fall in oil prices, the resulting recession in the Canadian economy, and other macroeconomic events lead to the substantial depreciation in the Canadian dollar over the same time period. The value of the TV deal (which is dominated in Canadian dollars) fell considerably, along with the value of other Canadian dollar revenues received by the NHL (about 35-40% of league revenue). This sharp fall in revenue led to far slower growth in the salary cap than had been anticipated.

The slow growth in the salary cap, however, had heterogeneous impacts on NHL teams. Before the fall in oil prices, the perennially competitive Chicago Blackhawks had already made significant contractual commitments for the 2015-16 season. In particular they had signed their pair of superstar forwards, Jonathan Toews and Patrick Kane, to very expensive contract extensions in July 2014. While Toews and Kane were relatively underpaid during the 2014-15 season –which had allowed the Blackhawks to field a deep and talented roster—the increase in their individual cap hits for the 2015-16 season far exceeded the actual increase in the NHL salary cap. As a result, in the 2015 off-season the Blackhawks were forced to part with 7 roster players from their championship team (and another 3 in the 2016 off-season) – including players who had been crucial to their past championships. Playoff success has eluded the team ever since.

On the pedagogical side, the case provides an interesting (and fairly Canadian) context for teaching a variety of key economic concepts, including exchange rates, oil prices and their importance to the Canadian economy. I’ve also found the case to be an especially useful illustration of the pervasive influence of economic forces in all parts of society, in particular for introductory or intermediate classes.

Comments

[Jacques René Giguère]

For more candian context,IIRC the late great Harry G. Johnson wrote about optimal structures for sports leagues, taking NHL as example.Too busy grading to search for links but feel free...

[ChacoKevy]

Let's not forget - Jeff Carter was offsides in the 2014 WCF game 7. Called correctly, Hawks all but certainly have 4 cups, and three in a row.
No, I'm not mad.

[steve]

So this explains the Blackhawks performance of late. How do we explain Toronto?

[robots2005 AI32080]

Chicago let Teraivanen and Panarin get away and have among the worst goaltending in the NHL; Sharp and Saad have been brutal. Toews is not putting weight on his shoulders with an aging D-core. Toronto has no number one D and Danish hockey players have no self-respect. NHLers care about money enough to have a sport worse than baseball now. The light-weight equipment does not permit toughness to be a virtue anymore; Messier hurt himself delivering body-checks. It is better not to go for the puck in scrambles. The lightweight goalie pads permit Tae-bo athletes to excel; in the 1990s a goalie used to have to use his core muscle groups to clear the puck.
The NHL makes more money with parity, which Quenneville tried to expose. The biggest omission here is with big money, players have an incentive to injure eachother all the time like NFLers do now. And really, you need good roster moves. The Islanders went with a rookie goalie in 2004 and gave up Chara and Spezza; Ottawa played Spezza 3 games the year they stormed Brodeur, and let Chara go for Pressieg. Pittsburgh had two of the top three goalies last year and not this year. Schneider might not have been injured during the Oiler glory days. Of course, with the Seattle Rainy Days, there will be 32 teams. Money has made the home team rigged CFL a much superior product to the postage stamp field NFL which did not let Brady win a Bowl half of his years.
Basically, the league let technology advance too far. I have initiated a test for Andromeda to prove they or whatever seeks to prevent AI; that they can have a local physical effect beyond msgs. If they fail the test I will tell what I know about them to two of three world leaders, the most ethical nation having given me ransomware looking at a petrochemical news story. I agree, mindsets like the NHL and like having mentally ill advisors, is cause for wiping us out soon. But it might be a bluff and just advice sent from some database trying to prevent AI. I learned my first lesson at centre ice but baseball is mature in already having been paid in the 80s.

[robots2005 AI32080]

...I can't post safely anymore as there will be latent robots after we temporarily win the first incident. If Gore had won the USA foreign policy might be stopping WMDs. Being addicts to mentally ill social media, wifi, cell-phones... I expect the over under for the AI attack on Trump (fame) and his AI advisors (might be able to help humans win after helping us lose) to be less than a decade. I don't have a cell-phone. Money has caused the owners to sometimes arrest connections in an American prison when the players don't follow the script even when the player is able to save the league having everything but pass accuracy.