If an upper spending limit were no object, how much money could Sidney Crosby possibly make in a true free market system?

In the summer of 2002, Bill Guerin signed a 5-year contract worth $40M. Guerin at the time was a 32-year old forward who had managed 41 goals with the Boston Bruins the previous year. Still, a $9M contract to a player on the wrong side of 30 is ludicrous now ten years later.

Bobby Holik, going into his 32-year old year, is coming off a 25-goal campaign in New Jersey. His stature as a star player in New Jersey during their recent Stanley Cup runs makes him worth far more on the open market. He signs a 5-year deal worth $45M with the New York Rangers.

The free agent market exploded in the early part of the 2000s. The system still wasn’t a true free market system. Players were under team control until they were 31 years of age. Once they hit that age, removed from their primes, they cashed in.

Earlier this summer, Sidney Crosby signed his lifetime guarantee contract in Pittsburgh. He’s under contract for $8.7M of a cap hit until the summer of 2025, when he’ll be 43 38 (doh) years old. Only the Penguins could negotiate with him. But why are the most sought-after players signing in 2012 for the same prices they did ten years ago?

It’s partly that first liners aren’t worth as much as they were years ago. Star players are ensuring smaller pay days, but longer term deals, to allow management to work better players around them in the lineup. It hasn’t necessarily ruined the league economics, but it’s been a terrific boon to depth players over the age of 24, as well as younger top-end third liners since teams are paying for “potential” and losing bets.

That was brought up in an mc79hockey had a great post over the weekend looking at the increases and decreases in salary in certain areas. Longtime Canucks blogger Tom Benjamin had an interesting comment that I’ll quote here, in response to a point mc79 made about second and third line players as the best place to find competitive advantages:

It was pretty hard to convince anyone that this was true in 2004 though. I think this data shows how much better the old CBA was for the small markets. As long as you drafted players you could ice a very good, very cheap team by trading good players when they finally approached free agency.

We didn’t know it at the time, but the most important aspect for that 1995 collective bargaining agreement may have been the one that limited unrestricted free agency to players over 31. That age was dropped to 27 since, unless players have played seven seasons in the NHL. But teams tend not to control players between the ages of 25 and 27 in their systems who haven’t cracked the league as full-time NHLers yet.

The current deal works out for those players, and there’s where you see the salary increases since the last lockout. We’ve watched Chicago, Boston and Los Angeles win the Stanley Cup in consecutive seasons and can conclude that depth is important when building a hockey team.

In essence, both the players and owners are arguing for CBAs that will circumvent the free market. The owners want a tighter cap on player spending, and the players want teams to share revenues.

What I find interesting is that in the NFL, the league with the weakest union, is also the league with the strongest revenue sharing system. I woke up to an unsolicited email from my labour lawyer father, who contended that “folks who comprehend all of these fancy stats are so aloof about facts and black letter economics and simple finance when it comes to the business of hockey”.

Anyway, he explained revenue sharing like this:

This is also important as it relates to the foolish opinions about revenue sharing. Revenue sharing does not increase ticket prices in Toronto, Philadelphia, Vancouver and New York either. Those teams charge as much as they can extract from the market based on demand for tickets already. All it does, is reduce profit for each of the successful teams.

The reason revenue sharing is engaged in by smarter leagues, especially the NFL, is that demand for the product is enhanced as the product improves. When 80% of the league is within a game of the playoffs each year, every game is worth spending money on. The NFL has figured it out. Giving just enough money to a crappy team to ensure that it does not relocate does little for competitive balance. There is no product enhancement and demand does not increase. So it is just a commie tax on success.

I think I agree with him on that count. I’ve posted before about how small-market teams act as a place where the larger markets can extract benefits from players such as Rick Nash without paying them. TV revenues and the buzz when star players that aren’t normally seen come into town.

(Side note: the concern big-market fans have about revenue sharing is acceptable on a moral basis. If money is spent on tickets, jerseys and such, why should a dime of that be sent off to some lower-level club and allow that team to be better armed to face the team the fan, and many more others, supports?)

Every NHL team has a star or two to sell, but there are only about eight or ten teams who are honest-to-goodness part of a race in any given year. The only thing keeping the bottom teams virtually afloat (even if they aren’t. One franchise relocated last season, and as many as two more could in the upcoming years) is the divvying up of future stars each year known as the “draft”.

The draft works differently for all of the major leagues in North America, and hockey’s is probably the most “team-friendly” (read: small-market team friendly). You don’t have to sign your stars for a year to retain team control. You get a minimum of two contracts with these players as an RFA. The maximum rookie salary is affordable and unchanging. Most importantly in the NHL, you can allow junior and NCAA clubs to develop your players without spending a dime.

A healthier league makes more money for the top teams, even if it may not translate to wins on the ice. When New York and Toronto were buying up free agents during the last CBA period, several critics stressed that you couldn’t just “buy” a team. I think that sentence needs to be amended by suggesting you can’t just “buy” players over the age of 31 and expect them to produce like they did when they were 25. When you sign a contract, you sign for what the market expects the player to produce like, and not how the player produced in previous years.

If the owners get their way, this negotiation period is just an exercise in making small-market teams appear competitive while all the large-market teams are doing is cutting costs and reaping profits. Keeping the system as far away from a free-market system ensures little-to-no pressure on the game’s richest owners to pay the game’s richest stars what they’re really worth.

Then, establish the “commie tax on success” to keep Phoenix’s franchise value just high enough that the local government will figure the need to support it for a few years.