However, his economic analysis is a little misguided, and I will tell you why. Suppose that the NHL contracts a couple of teams. What effect does this have on the demand curve. Contrary to what the author claims, this does not entail a shift of the demand schedule. Instead what happens is you have a change in the number of players supplied (i.e. you move down and to the left on the supply curve). This leads to excess demand and an increase in salaries. Think of it this way, if you go to the supermarket and find that there a fewer varieties of candy bars to choose from, does this mean your preferences (i.e. your demand) for candy bars has fallen? No. It simply means you have fewer substitutes from which to satiate your tastes for canby bars.

The real problem with the NHL is that it exercises considerable monopoly power and therefore generates high profits. It is these rents which the owners and NHLPA bicker about.

Cheers;
Darren

I'm not sure I understand your reasoning on the supply/demand of players after contraction.

Assume there are 25 players per team on each of the 30 teams in the league. That's 750 players "of NHL quality". The number is actually higher due to injured players, top prospects, hold-outs, etc, but we'll go with 750 for now. Assume again that every team has 2 All-Star caliber players (could be more, could be less, but we'll average it out to 2), which gives us 60 All-Stars.
Player distribution:
NHL players available: 25/team including:
All-Stars 2/team

Now contract 4 teams. The number of players available hasn't changes (though the number employed has). Those hockey players from Florida still want to play and still can play even though their team is gone.

Here's how the player distribution looks now:
NHL players available: 28.8/team including:
2.3 All-Stars per team

The supply of players has remained the same, the overall demand has decreased (total # of jobs) and the demand per team remains the same (you have limited roster space, by rule, and are still limited by what your owner can afford to pay).

Increased competition for jobs drives the asking price of labor down among lesser skilled players. High skill players will still command top dollar, for the most part, though.

The mistake is in using the curves too much. The demand for NHL players is constand, there is virtually no day-to-day fluctation in that market (outside of replacing injured players). The supply is generally increasing with population and is much, much larger than the demand (and would be even if players were paid CAD30,000 to play, just look in the minors). You have to base your estimations of supply and demand on quality available, not quantity available.

Even so, contracting teams decreases total demand and doesn't change the supply of players.

Edit: To use your candy bar analogy, you've got it backwards. Right now I take 29 of my friends, we go to Giant and we each buy 25 unique items of varying flavors and nutritional content based on our wants and needs. As the aisle contains exactly 750 items to begin with, it is picked clean when we are through. A month later we have all finished eating what we bought so we go back. 4 of my friends are losers and would rather hang out with their girlfriends than go to the store with me, so they ditch. The remaining 26 of us again buy 25 items each from the re-stocked aisle. As the aisle was re-stocked with the same number of items as before (750) and we don't change our buying habits, 100 items are left on the shelves, mostly the stewed beets, haggis, and artichoke hearts. No matter how much the store changes the price on the items in that aisle, though, we won't buy more as we can't (league roster restrictions). If there is a discount on stewed beets, I might buy some and eat them instead of turnips or spinach, but I'll still only have 25 items in the end. I won't buy haggis instead of my canned pears in heavy syrup, though, no matter how much the pears cost and how little the spinach costs. Now substitute Olie Kolzig for pears, Ivan Ciernik for spinach, Rick Berry for turnips, Joel Kwiatkowski for haggis and you'll have my version of the analogy.

Let's Go Caps!
www.washingtonhockey.com

First, let me apologize for my lazy and rather hasty response to your original article. I responded to your erroneous claim that both the demand and supply curves shift:

“Now shift the demand line to the left as the net number of jobs is decreased by 50-100 (given that 735 players were on NHL payrolls to start this season, that is a significant number of jobs). Assume the supply line remains in the same place (although the supply of potential NHL skaters increases slightly every year), and the new intersection of the two lines is lower on the price axis. In simple terms, more people are competing for fewer jobs and so employers don't have to shell out as much cash to get good workers.”

But in so doing, I committed some of the same mistakes you did. But, first, let’s clear some technical details out of the way.

Demand and supply analysis is a lot more subtle then most realize. Most of the misunderstanding arises due to a lack of comprehension of what underlies the construction of the curves.

In the case of demand curves, the assumption is that there is an underlying taste or ordering of preferences that generates the steepness of the curve. The demand curve therefore “shifts” only in response to changes in these underlying tastes or preferences. Contracting the number of teams therefore does not move the demand curve per se , it simply imposes an artificial constraint on the equilibrium number of players. A good proxy for demand might be, say, the desire to win a Stanley Cup. So unless you are proposing that contracting teams somehow diminishes the owner’s desire for a championship, and therefore their demand for players of any caliber, the demand curve plays a passive role in the analysis.

Similarly for the supply curve. Supply curves embody technology, capital, labour etc. All the supply schedule says is that at a particular cost (price), existing technology allows us to produce this many widgets. Again, unless you are arguing that the contracting teams somehow impacts on the underlying production function that generates the supply curve, the supply curve also plays a passive role in the analysis.

The point is that the NHL, in exercising its monopoly power, imposes an artificial restraint on the market that drives up wages rendering the normal supply demand analysis moot. Contracting teams would therefore only serve to exacerbate the escalation in salaries. (to see this just draw a supply/demand diagram, and then draw two vertical lines (to the left of the intersection) extending from the horizontal axis upwards. The first of these lines then represents the current situation, while the one to the left would be the situation if some teams were contracted. The corresponding wage rates are found at the point of intersection of these lines with the demand curve).

The primary point is that the market is not allowed to function in any of the professional sports. I realize that competitive balance is an issue. Having said that, however, the population growth over the last few decades as far outstripped the increase in the number of professional athletes in each of the major leagues. In other words if, say, 2% of the population were professional athletes 30 years ago, then that percentage is considerably less today. So, if you believe, as many are wont to do, that there was some golden area of professional hockey some 30 odd years ago, then it follows that we could expand the NHL – thereby lowering wages – without watering down the product.

In simple terms, what we have now is too much money chasing too few players, a situation that inevitably leads to inflation. Your remedy calls for even more money chasing even fewer players.

Thanks again for the article and for forcing me to think and for pointing out my error.

Cheers;
Darren

Also, it is the garunteed contract that is the big albatros around the league's neck. Paying players who simply aren't worth it. If the league simply added a buy out clause, say one year's pay or a percentage of the whole, most finances would probably come into balance after a couple of years...

-HckyFght!

That said, two things-

1. I was wondering what effect expansion in the various leagues might have had, as applied to your numbers and charts- being an old timer, I can recall personally the 6 team NHL and the 16 team MLB. Taking your charts back to those years, does/would it make a difference in the analysis? Number of teams winning championships, number of teams in the finals, etc.. I have no idea myself, but since you've looked this deep in it, might as well go a little further, huh?

2. I took it upon myself to post a link to your article on Marc's boards (and I found the article through a link on the Caps' boards to the HockeyRodent site, somewhere I had not visited before- no idea how I missed that one)- I only linked it, knowing your distaste for purloined labor, but did use your title as the thread title on the TATC side. Knowing you visit us on occasion, please check it out when you can, and if it needs to be changed in any way or taken down, let me know. I'll add your copyright notice as soon as I finish here.

Thanks again; it's very nice to find this kind of thought-provoking article once in a while.

Expansion does indeed skew those "# of championship" numbers a little. Looking at the numbers from 1960/1970 on (depending on the sport) gives a better number. The early ones aren't invalid, though, as one-team dynasties were more prevalent back then.

Let's Go Caps!
www.washingtonhockey.com

Let's Go Caps!
www.washingtonhockey.com