Luxury Tax, Cost Flexibility, and Exploiting the Leafs' Monetary Advantage

The Pittsburgh Pirates are bad at baseball.

The term ‘bad’ is relative, of course. They would probably be a darn good softball team at your local diamond and might even tear up AA ball. However, when compared to their peers in Major League Baseball they don’t hit, pitch, or field baseballs all that well. As a result they have gone 20 years, since 1992, without making it into the post season.

To put that in perspective for a Leafs fan that is the equivalent of waiting until 2024 at least before witnessing playoff hockey (Phil Kessel would be 36).

The Pittsburgh Pirates turn a profit.

According to a 2010 ESPN article the Pirates made over $14 million in 2008 and over $13 million in 2007, all after taxes. They accomplished this by being prudent with all player costs and avoiding long term contracts to star players.

Herein lies the crux of what Donald Fehr, one of the founding fathers of the modern baseball luxury tax system, may be trying to implement in the NHL. Gary Bettman and the NHL want parity; a league where anyone can make the playoffs or win the Stanley Cup each year. In an ideal world, yes, we all want parity. You want a league where all teams have a real chance to win, but to do that in a league that as both a business and a sport you need to have one of or both of the following:

1. Strong revenue sharing

2. A lucrative TV contract.

The NHL has neither.

Significance Of Morgan Rielly Making Team Canada

This afternoon in Calgary, Morgan Rielly was among the Team Canada scratches as the coaches look to make some tough decisions on who to bring to Russia.  This is one occasion where you really want to be scratched as each of the scratched players (outside of possibly Ouellet who's currently injured) are locks to make the team.

Making team Canada as an 18-year old defenseman is no small feat, particularly in a season where your defense is bolstered by an NHL lockout.  Below is a list of defensemen in the last 10-years to make Team Canada at 18 or younger (those players preceded by an asterix were on the WJC team in their draft year):

2013

Griffin Reinhart, 4th overall

Morgan Rielly, 5th overall

2012

*Ryan Murray, 2nd overall

Dougie Hamilton, 9th overall

Jamie Oleksiak, 15th overall

Nathan Beaulieu, 17th overall

Scott Harrington, 54th overall

2011

Erik Gudbranson, 3rd overall

2010

Jared Cowen, 9th overall

Calvin de Haan, 12th overall

2009

Alex Pietrangelo, 4th overall

*Ryan Ellis, 11th overall

Tyler Myers, 12th overall

Colten Teubert, 13th overall

Cody Goloubef, 37th overall 

2008

*Drew Doughty, 2nd overall

*Luke Schenn, 5th overall

Thomas Hickey, 4th overall

Josh Godfrey, 34th overall

PK Subban, 43rd overall

2007

*Karl Alzner, 5th overall

2006

Luc Bourdon, 10th overall

Marc Staal, 12th overall

Sasha Pokulok, 14th overall

Ryan Parent, 18th overall

Kris Letang, 62nd overall

Kris Russell, 67th overall

2005

*Danny Syvret, 81st overall

Cam Barker, 3rd overall

2004

Brayden Coburn, 8th overall

Dion Phaneuf, 9th overall

Brent Seabrook, 14th overall

Shawn Belle, 30th overall

Kevin Klein, 37th overall

Now admittedly, I was expecting the list to provide a little bit of a clearer example of just how strong Rielly's pedigree appears to be, but let's take things a step further and trim the list to 18-year old defensemen taken in the top-10 of the Entry Draft.  If you do this, the list looks as follows:

Reinhart (4)

Rielly (5)

Murray (2)

Gudbranson (3)

Cowen (9)

Pietrangelo (4)

Doughty (2)

Schenn (5)

Hickey (4)

Alzner (5)

Bourdon (10)

Barker (3)

Coburn (8)

Phaneuf (9)

Now we're talking.  The list of 18-year olds to play on team Canada over the past decade is comprised almost entirely of impact defensemen and players who are still thought of as strong prospects and Cam Barker (also, a sad reminder of Luc Bourdon's accident).

This hardly qualifies as science but it does provide an interesting look at Morgan Rielly's pedigree.  While the combination of being a top-10 selection and a member of Canada's World Junior Team as an 18-year old may not guarantee success, the correlation between success and meeting those criteria is incredibly high.  Leafs fans will undoubtedly be looking on with interest as the tournament unfolds during this holiday season.

Short Seasons And Playoff Chances

We were sitting at the starting line on a cool autumn day in 2001, bristling with anticipation. The school board was holding its annual cross country running race for boys in grades 7 and 8. A gruelling 8-kilometre run across undulating terrain littered with 45 degree hills and muddied straightaways, and I’m lined up right next to Jimmy Wurner. Jimmy, standing at six foot one, was far and away the most accomplished distance runner in the school; we suspected that he had hit puberty 2 or 3 years earlier than the average 8th grader, thereby endowing him with superhuman strength and speed - the teenage equivalent of a Kryptonian emigrant.

99 times out of 100 Jimmy “the burner” Wurner would have no doubt mopped the proverbial floor with my sorry excuse of a 14 year old distance running body. But that day, there seemed to be something different in the air. Call it destiny, call it being hopped up on Fruit Loops, but whatever it was, something funky was going on.

For some indefinable reason, I ran my little heart out and ended up finishing 4th in the field of over 100; 3 spots ahead of the burner. Granted, the victory didn’t mean much, leaving me with a blue participation ribbon that would gather dust for years to come in a box at the bottom of my bedroom closet.

What that day reinforced is this; in most sports, if your sample size is small enough, weird and unpredictable things can happen. We tend to see this lot in the NFL - with a 16 game regular season, followed by single game elimination playoff rounds the league presents the smallest sample size of any major sport, lending credence to the popular cliché that on any given Sunday, anyone can win.

If NHL collective bargaining can finally come to a conclusion this month the season will be shortened a great deal, with the excepted number of games between 48 and 60. By looking at probability and statistical noise we can see that a shorter season could result in non traditional playoff teams sneaking into the postseason.

The New Landscape And The Toronto Maple Leafs

Brian Burke has come under a lot of fire as GM of the Toronto Maple Leafs.  The team has yet to make the playoffs during his tenure and the rebuild-on-the-fly is now entering the territory of the 5-year rebuild that Burke said he had no interest in.

In many ways though Burke's failures to date have been the product of a flawed system.  When the now-expired CBA was signed, the majority of the league --or perhaps all of it-- didn't foresee the opportunity that back-diving contracts would provide teams who sought a competitive advantage over their peers.  Moreover, the cap was supposed to provide cost certainty and eventually reach some kind of equilibrium.

What we saw instead was unprecedented and unevenly distributed revenue growth for a league where the salary cap is tied to revenue.  As such, the cap rose significantly every season which in turn allowed teams to retain any unrestricted free agent who didn't want out for non-financial reasons.  The rising cap, the team's lack of valuable assets, and Burke's unwillingness to circumvent the spirit of the CBA meant that the "July 1st is our draft" strategy was completely untenable for reasons which were, at the time, largely unforeseeable.

The new CBA, once signed, appears as though it will put the Leafs in a good position to succeed moving forward.  The salary cap is set to drop by about 14% which would see it settle in at roughly $58 - 60M.  The Leafs, prior to any buyout amnesty which may or may not exist, will have about $39.7M committed to the 2013-14 roster during an offseason rife with high-end UFAs.