It Takes Two To Reason
Over at CanucksCorner, Tom takes issue with my defence of the Richards signing, posted below.
I would have liked to comment, but Tom's spam filter didn't like my reply. And I wasn't even being nasty!
So for the sake of continuing the conversation, here's the comment I tried to post. And if anyone has some tips for me as to why this didn't get past the filter, I'd appreciate it if you'd pass them on.
You're correct that the projection is slightly out -- I inflated league revenues by 7.3% not the 7.8% the league actually achieved over the past five years. This is actually a bank error in my favour, but thanks for pointing it out.
However, it's not fair to assert, as you do, that: "The projection [of 7.8% revenue growth] is absurd...when expansion stopped...revenues were maxed out."
NHL revenues increased 6 and 6.4% in the 2002 and 2003 seasons, after expansion was done.
Early reports have already suggested that next year's cap could sit around $42 million, which implies league revenues are growing at a 7+% rate this year.
You don't say why you think the league is incapabable of growing revenues faster than inflation. Do you have a reason, or are you just pessimistic by nature?
A business whose growth fails to beat inflation is a business that's dying. Forget signing free agents: the owners should just cut and run.
My view is that the owners would have to be mildly -- or even extremely -- incompetent to botch the revenue piece. If they can't at least hit 5% revenue growth, they shouldn't be in this business, or any other.
MLB, for example, upped ticket prices an average 5.7% this year, and only once in the past ten years did they achieve year-over-year revenue growth of less than 7%. The NHL can do it too.
My underlying point, however, is not really rooted in the specific projection. The point I'm making is that the CBA formula inflates the salary cap and player maximum at a faster rate than revenue growth, and at a much faster rate than the salary minimums.
Under any scenario where revenues increase, that's going to mean a disproportionate increase to elite free agent prices.
Given that context, locking-in superior talent for five years worth of excess-salary-inflation is a sound strategy. Whether that gets you a 10% discount on the player's future value, or a 30% discount, is a something we'll find out in the future: but if revenues grow, the discount is guaranteed to appear.