Demand Counts Too

[M. Beaux-Eaux]

Demand Counts Too

Joe Tasca, Thomas Luongo and Eric McErlain all make more or less the same point about one possible impact of many more free agents hitting the market every year. Here's Joe:

...the lowering of the UFA age would still give teams like Edmonton the ability to sign some pretty big names in free agency simply because there would be enough free agents in the talent pool year after year to supress the market capitalization of each free agent. Instead of seeing five or six teams vie for the services of a Bill Guerin, it’s quite possible you’d see five or six free agents vying for the change to provide some services to two or three teams.

Just simple supply and demand economics, NHL style, if you ask me. Enough to keep the small guys afloat.

It is true that the supply of free agents will be much higher. Under the old CBA, about 60 players became unrestricted free agents for the first time, and perhaps another 60 players became free agents for the second time or third time. Under the new CBA, about 100 players will become free agents for the first time, and about twice that number - perhaps more - will become free agents for the second or third or fourth time.

Therefore the number of free agents on the markets in any given year will about triple. If all other things were equal, we would expect Joe, Thomas and Eric to be right. Salaries would fall because the supply increases rapidly.

The problem is that all other things are not equal. What happens to demand? Every free agent who leaves his team creates a vacancy and so demand increases every bit as fast. Under the old CBA, 100 players a year became free, which created 100 new vacancies. Under the new CBA 300 players a year will become free and that will create 300 new vacancies.

The supply of free agents increases, but it is the law of supply and demand. If demand increases at the same pace as supply, the price won't change at all.

- www.canuckscorner.com/weblog/nhllog/

[Ryan]

Not necessarily true is it? What about those teams not looking to sign another UFA because one of their own kids are ready? Or maybe they simply don't have the money to sign anyone?

One thing you might see is a lot of journeymen 27 year olds that can't live off "promise" anymore finding them selves without a chair when the music stops. Take players like Kilger, Isbister, and Dagenais (pending a solid season this year) for example. Will teams be willing to take chance after chance on guys like this anymore, or simply replace them with a kid from the A making half the money and chomping at the bit (ie. Ryder).

[M. Beaux-Eaux]

ryan said:

Not necessarily true is it? What about those teams not looking to sign another UFA because one of their own kids are ready? Or maybe they simply don't have the money to sign anyone?

One thing you might see is a lot of journeymen 27 year olds that can't live off "promise" anymore finding them selves without a chair when the music stops. Take players like Kilger, Isbister, and Dagenais (pending a solid season this year) for example. Will teams be willing to take chance after chance on guys like this anymore, or simply replace them with a kid from the A making half the money and chomping at the bit (ie. Ryder).

The youth movement scenario may indeed play out to a greater degree than before, but there are—varying from team-to-team—limits to the number of qualified prospects who can realistically earn palces on rosters.

I can't see a team loading up with raw kids just to avoid paying salary without being the brunt of public backlash—unless the franchise is willing to lower its ticket prices to junior hockey levels. "The NHL: the joke is on."

Beware the company that buys shoddy materials from their suppliers to save money, then prices and touts its merchandise as "quality product."

[Gogie]

I seem to recall several years ago that Major League Baseball explored the idea of making all players UFAs at the expiration of their contracts. This was during one of the many labour disputes baseball experienced. The players' union quickly put the kibosh to that idea - they realized that flooding the market with free agents every year would drive down salaries. Restricting the supply of free agents each year would serve to drive up prices. The players aren't complete idiots.

[M. Beaux-Eaux]

gogie said:

I seem to recall several years ago that Major League Baseball explored the idea of making all players UFAs at the expiration of their contracts. This was during one of the many labour disputes baseball experienced. The players' union quickly put the kibosh to that idea - they realized that flooding the market with free agents every year would drive down salaries. Restricting the supply of free agents each year would serve to drive up prices. The players aren't complete idiots.

But 20 UFAs = 20 vacancies, ergo 100 UFAs = 100 vacancies. Since the NHL is more or less a closed system, supply creates demand, and demand drives salary.

The number of free agents is irrelevant because the number of vacancies equals that number. An increase in the number of free agents creates an increase in the number of positions that will need to be filled. Since more teams will have such needs it stands to reason that more teams will be bidding for the services of particular players—and we know how some owners have handled that in the past.

Players won't suffer if the free agent pool is deeper—in fact many will likely benefit more than in the past.

[Cranky]

mrbozo said:

gogie said:

I seem to recall several years ago that Major League Baseball explored the idea of making all players UFAs at the expiration of their contracts. This was during one of the many labour disputes baseball experienced. The players' union quickly put the kibosh to that idea - they realized that flooding the market with free agents every year would drive down salaries. Restricting the supply of free agents each year would serve to drive up prices. The players aren't complete idiots.

But 20 UFAs = 20 vacancies, ergo 100 UFAs = 100 vacancies. Since the NHL is more or less a closed system, supply creates demand, and demand drives salary.

The number of free agents is irrelevant because the number of vacancies equals that number. An increase in the number of free agents creates an increase in the number of positions that will need to be filled. Since more teams will have such needs it stands to reason that more teams will be bidding for the services of particular players—and we know how some owners have handled that in the past.

Players won't suffer if the free agent pool is deeper—in fact many will likely benefit more than in the past.

FINALLY.....someone who understands supply and demand.

The larger supply means absolutely nothing if the demand is larger. In fact, the glut of players will have agentsworking overtime to play the teams against each other. The ONLY saving grace is that teams will be head bashing against a fixed cap.

[M. Beaux-Eaux]

habsaddict said:

The ONLY saving grace is that teams will be head bashing aginst a fixed cap.

Yes, we know that $7.8M is the absolute most that a player can receive from a team ($39M salary cap x 20% for highest paid player).

Makes me wonder how many players earned $7.8M+ in 2003-04? The results, courtesy of the salary database at USA Today:

Forsberg, Peter Colorado Avalanche $ 11,000,000
Fedorov, Sergei Anaheim Mighty Ducks $ 10,000,000
Sakic, Joe Colorado Avalanche $ 9,880,939
Sundin, Mats Toronto Maple Leafs $ 9,000,000
Modano, Mike Dallas Stars $ 9,000,000
Holik, Bobby New York Rangers $ 8,850,000
Weight, Doug St. Louis Blues $ 8,500,000
Yashin, Alexei New York Islanders $ 8,400,000
Allison, Jason Los Angeles Kings $ 8,000,000
Tkachuk, Keith St. Louis Blues $ 10,000,000
LeClair, John Philadelphia Flyers $ 9,000,000
Jagr, Jaromir Washington Capitals $ 11,000,000
Bure, Pavel New York Rangers $ 10,000,000
Guerin, Bill Dallas Stars $ 8,866,445
Lidstrom, Nicklas Detroit Red Wings $ 10,000,000
Pronger, Chris St. Louis Blues $ 9,500,000
Blake, Rob Colorado Avalanche $ 9,326,519
Joseph, Curtis Detroit Red Wings $ 8,000,000

18 guys who under the new CBA would have thrown their team's caps into the air. Of course some of them have had their contracts expire during the 2004-05 "season".

I'm curious to see if there will be 18 players in the entire league who will earn the maximum $7.8M for the 2005-06 campaign.