Stacey Brook on salary caps and competitive balance
You'd think that when a sport introduces a salary cap, it would lead to greater competitive balance in the league. That would make sense; with a cap, you won't have teams like the Yankees, who spend two-and-a-half times as much on players as the average team, and about five times as much as the Marlins. If you forced the Yankees to spend only the league average, they would have to get rid of many of their expensive star players, and they'd win fewer games.
In theory, if every team had to spend the same amount, they'd all start the year with equal expectations. I say "in theory" because, in practice, different teams would have different philosophies, some of which might work better than others. Certain teams might spend more on scouting, wind up drafting better, and win more games with the same payroll (at least until the draftees reach free agency). But, generally, you'd expect more balance among teams.
It seems that Stacey Brook, co-author of "The Wages of Wins," doesn't think that's true. He thinks that the salary cap (and floor) the NHL instituted in 2005 has had no effect on competitive balance.
Here are Brook's "Noll-Scully" measures of competitive balance for the last few years of the NHL (lower numbers = more balance):
salary cap begins
It does seem, Brook acknowledges, that competitive balance has improved the last couple of years. But, he says, that's part of a trend that's been going on for a long time. For one thing, there was virtually no change in the Noll-Scully the first two years after the cap. For another, balance has been improving since at least the 1970s:
Since competitive balance has been increasing even through most of hockey history that had no salary cap, he argues, it's just a continuation of the trend, and the salary cap doesn't have anything to do with the recent decline. He writes,
"As we argue in The Wages of Wins, and detail in our paper - The Short Supply of Tall People - competitive balance is declining not because of changes in league institutional rules - such as payroll caps - but rather due to the increasing pool of talent to play sports, such as hockey."
But that doesn't make logical sense. Sure, there's already a decreasing trend, for whatever reason, but that doesn't mean a change to the rules can't contribute to the trend. Does having the ability to send text messages lead to people using their phone more? Of course it does! But if you apply the same argument, you get something like, "well, cell phones were becoming more and more popular even before text messaging, so text messaging can't have anything to do with it." That's not right.
And, indeed, it contradicts their own findings in "The Wages of Wins" itself. The authors found that there was an r-squared of .16 between salary and performance in MLB. Which means that if you were to flatten out salaries, so that each team paid an equal amount, it would reduce the variance of wins by 16%. So, absent any compensating factors, "The Wages of Wins" is argues a salary cap MUST reduce the Noll-Scully measure!
By the way, take a look at the value of 1.037 for 2007-08. That's really, really low; the lowest you can expect Noll-Scully to be is 1.000, and that's when every team is of exactly equal talent. A value so close to 1 suggests a combination of (a) the league being really balanced that year, and (b) teams, by luck, playing closer to .500 than their talent suggested.
If you look at the standings, you see the usual suspects at the top of the conferences, so it doesn't really seem like all the teams were equal that year. Could it be that Brook used a formula for Noll-Scully that didn't consider the extra point for an overtime loss?
But what about Brook's (and Berri's) argument that balance has increased because players' skills are becoming more equal? Well, sure, that's been part of it, no question. But effects often have more than one cause. You may be earning more money because you're working overtime, but that doesn't mean winning the office hockey pool will *also* make you richer. Whatever was causing the levelling of team talent before might still be there ... but, now, there's an additional effect, the salary cap effect.
Now, maybe I'm not interpreting Brook's argument correctly. Maybe he's thinking that the salary cap does contribute to balance, but so much less than the other effect (players getting more equally talented) that it's not worth considering. But I think it's the other way around. With a salary cap, it doesn't matter much how the players' talent is distributed.
Suppose players vary a lot in talent, 100 players equally spaced from 0 to 100, with an average of 50. A team that has lots of money might buy players with an average of 70, and a team owned by Harold Ballard might buy players with an average of 30. Big difference.
Now, suppose the talent pool gets bigger, and competition gets tougher, and now the players are all spaced between 40 and 60. Now, no matter how much you want to spend, you can't get above 60. And no matter how cheap you are, you can't get below 40. But the league average is still 50.
So, yes, Brook is correct, a narrower range of talent leads to more competitive balance.
But, now, suppose that every team has a salary cap and a floor: they all have to spend exactly the same amount of money. Now, it doesn't matter how the talent is distributed: assuming every team is equally good at evaluating players, they'll all sign a team with an average of 50. Even if the distribution of talent is like it was in the 1970s, with lots of spread, it doesn't matter -- because even if there are lots of players in the 90s and 100s, no team can afford to sign more than one or two. The more talented the player, the more likely a team who signs him will have to sign *less* talented players to stay within the cap.
Even if you have the Babe Ruth of hockey, a player who's (say) a 500 when the other players top out at 100, it won't matter, because the teams will bid up the price of his services until they pay him what he's worth. The team who gets him will have less money to spend on other players, and it all evens out in the end.
What's happening is this: in the past decades, competitive balance decreased steadily for many reasons, including the increase of the talent pool that Brook cites. But, now, with a salary cap and floor, most of that stuff doesn't matter much any more!
It matters a bit, because not everyone is a free agent. The distribution of talent does matter for draft choices, because the top draft choice doesn't cost that much more than the others (but can be a whole lot better, as in Sidney Crosby).
Of course, NHL hockey teams are more than collections of free agents priced at market value, so we shouldn't expect competitive balance to be perfectly level. There are some factors that might cause the Noll-Scully to actually rise a bit from the theoretical bottom created by the salary cap.
For instance: the first draft choice goes to a team near the bottom of the standings. Back in the days of less competitive balance, that went to a team that was probably legitimately awful. Now, with teams closer in talent, it could go to a team that was just unlucky. If the team that gets the next Sidney Crosby is an average team, rather than a bad team, that won't reduce competitive balance the way it used to.
Also, scouting: an investment in scouting now pays off more than it used to. Before, if you were a low-spending team, maybe a better draft choice might move you from .400 to .450. Now, if all teams are medium-spending, maybe it'll move you from .500 to .550, and give you a legitimate shot at the Stanley Cup. So more teams should be willing to spend the money to improve their drafting. And so, the rich teams could "buy" better players, not by spending to pay them, but by spending to identify them better.
And there are probably other ways to get around the cap: didn't companies introduce employee health plans to get around wage controls in World War II? If a superstar free agent has knee problems, and I wanted to sign that player, I'd offer to hire the best knee doctor in the business and keep him on staff. Whatever he costs, it's not going to count against my cap. That may not actually be practical, but I'm sure rich teams will figure out ways to buy better teams, one way or another.
My point is not to say that these factors will push inequality back to where it was when teams could sign all the free agents they were willing to pay for, just that there may be other theoretical reasons that Noll-Scully may bounce back up a little bit. I think all those factors will be minor, and as long as the salary cap and floor stay within roughly the same range of each other, we'll continue to see a balanced league, regardless of how the talent pool changes.
Hat tip: The Wages of Wins