An eleven-step program for self-destruction by NHL ownership, or the miracle of the free market system?
Salary escalation in the NHL is not, contrary to public opinion, the Rangers' fault. Not wholly. Yes, the Rangers certainly deserve a lifetime achievement award for perennially setting a new high-water mark for most dollars wasted on over-inflated salaries for under-achieving players. But the Rangers have, surprisingly, been followers more often than leaders in a salary spiral fueled significantly by teams that now cry poverty (or have in the past) -- teams like Chicago, Boston, Winnipeg, Quebec, Los Angeles, and Carolina. Here is a chronological look at the deals that most contributed to the salary spiral in the NHL:
1972 -- Winnipeg signs Bobby Hull to a five-year multi-million dollar WHA contract
The NHL was merrily rolling along, adding a decade of expansion revenue to half a century of holding players under the reserve clause, when the upstart World Hockey Association spoiled all the, um, spoils. That evil WHA! All the WHA did was exactly what entrepreneurs are supposed to do in a competitive capitalist market -- they saw a cheap source of labor in an expanding marketplace and found a way to arbitrage it. The entrenched monopolists in the NHL were outraged as the WHA scooped up players by offering them more money earlier in their careers than the NHL ever offered.
The first and most celebrated target was Bobby Hull, signed by Winnipeg to $350,000 a year for five years and a $1 million bonus after the corrupt cheapskates who have ripped off Chicago fans for decades on end (and counting) refused to give him a modest raise. Other stars joined Hull, forcing NHL teams to offer competitive salaries. The WHA tapped pools of talent the NHL snubbed, importing Europeans like Ulf Nilsson and Anders Hedberg (who in turn came into the NHL as high-priced free agents), and signing teens not yet draft-eligible. When the NHL lowered its draft age to 18, the WHA did the unthinkable -- Nelson Skalbania signed Wayne Gretzky, the child prodigy everyone was waiting for, to his WHA team at the age of 17 (he signed Mark Messier at 17 too, but no one knew who he would grow into).
In 1979, the NHL did what every other league has done to eliminate an upstart competitor -- if you can't beat 'em, buy 'em. The WHA merged with the NHL -- well, four teams did, including Edmonton, who had gotten hold of Gretzky and Messier, Winnipeg, who had started the spiral by signing Hull, Quebec, who would figure heavily later in the story, and Hartford, the team that kept Gordie Howe going. Of these four small-market teams, only Edmonton remains, and only barely, the others having moved to larger U.S. markets.
Pity poor Winnipeg, where hockey died because they could not keep up with the dreaded salary spiral forced upon them by players -- the entrepreneurs who took the team that started the salary spiral away from its public owners when they entered the NHL sold out to Phoenix, the leader of the group reputedly pocketing $10 million in "consulting fees" so he wouldn't have to share all the proceeds with minority shareholders like the Province of Manitoba, who underwrote half his losses in order to keep the team in Winnipeg.
1989 -- L.A. Kings trade for Wayne Gretzky and sign him for $2.5 million a year for seven years
Peter Pocklington was in trouble. The only asset he had of any value to help get him out of his financial difficulties was his championship hockey team, led by perhaps the best player ever, The Great Gretzky. Edmonton was the only WHA team to thrive in the NHL, thanks to the enormous playoff and promotional revenue generated by Gretzky and Co. But suddenly it was more lucrative to Pocklington to sell off Gretzky's future than to harvest it with Gretzky and his posse poised to cash in on past performances.
Enter Bruce McNall, the flamboyant new owner in L.A. with a bold vision for jump-starting hockey in California, where interest had waned since the Kings entered the league in the 60s. McNall paid a handsome sum to Pocklington in hockey assets (which Pocklington wasn't interested in) and in cash (his true goal), and then he paid a handsome sum to Gretzky to lead the Kings into profitability. No one could ever overpay Gretzky, but that's not the issue -- the issue is salary escalation. In a famous reverse-negotiation described by Bruce Dowbiggin in "Money Players", Gretzky demanded less pay than McNall was offering, McNall forcing him to accept more. No one held a gun to McNall's head, not even the greatest gunslinger ever.
It turned out McNall was playing with other people's money, and he went to jail for it, but not until he demonstrated a new, lucrative way to do business -- to make the necessary investment in talent and promote the hell out of it, not only increasing traditional sources of revenue (gate receipts and playoff revenue) but inventing new ways to mint money (promotion and television). The die had been cast -- players were going to earn more money, but they were going to enhance revenue in the process.
1991 -- Rangers sign Adam Graves for $500,000 a year
Glen Sather knew as well as Neil Smith that Adam Graves was on the cusp of busting out as he entered his prime. But Sather was unwilling at first to pay what it would take to keep Graves in Edmonton, and later unable to match the offer that brought Smith's Rangers a key member of their 1994 Stanley Cup team. Considering what a pittance Graves asked for by latter day standards, it seems insane for Sather to not have found a way to retain Graves.
But the real failure here was the compensation system the league had in place to keep young players from defecting to the highest bidder -- at that slice of time, Graves was the statistical equivalent of Troy Mallette. But as Smith and Sather knew, Graves was on the verge of realizing a huge upside that Mallette simply did not have, an intangible factor the compensation system had no way of taking into account -- further supporting the notion that Sather should've just paid Graves.
Still, Graves did not open any floodgates. The subsequent Group II signings of Scott Stevens and Brendan Shanahan by St. Louis restored sanity to the RFA market because of the steep compensation paid by the Blues -- five first round draft picks for Stevens, and then Stevens himself for Shanahan. The Blues tried to lure Stevens back as a free agent but New Jersey exercised their right to match the offer and won a tampering case against St. Louis. Then they almost lost Shanahan in a Stevens-like way when they signed Vancouver holdout Petr Nedved, but this time the arbitrator did not give the aggrieved party what they asked for. With St. Loo's picks, Washington selected Sergei Gonchar, Jason Allison, and three busts -- not a bad trade for the Blues when you consider how long it took Allison to emerge.
1992 -- Quebec trades Eric Lindros to Philadelphia and New York
Gretzky and McNall proved one thing in L.A. -- beyond hardcore hockey traditionalists, new U.S. audiences respond to star power. Mario Lemieux validated the maxim by saving bankrupt Pittsburgh with his unparalleled skill set, despite being more ephemeral off the ice than a star is expected is to be. So when The Next One came along, teams salivated -- Eric Lindros, nearly as skilled as Gretzky and Lemieux in a size package so formidable it made Howe and Messier look like obsolete models of power forward.
If the lesson was not lost on owners, neither was it lost on Lindros. In an unprecedented event, a player held out for a better deal before playing even one NHL game. Lindros not only wanted a salary commensurate with Messier, a top star and proven winner, he also wanted exposure one could not get in a remote outpost like Quebec (so remote, it resembles a European city more than an American city, which is wonderful for tourists but not for promotion-hungry superstars, though Lindros failed to factor in the renown achieved by Gretzky and Messier in the equally remote Edmonton).
The Nords drafted Lindros nevertheless, but then had to deal him a year later or risk losing him. Marcel Aubut, a leading small-market complainer, traded Lindros for a ransom in players and cash -- and he got so greedy, he did it twice, trading Lindros to both the Flyers and Rangers. The Flyers "won" Lindros in arbitration. Like McNall, Ed Snider was willing to give up a wealth of players, including one who proved to be better (Peter Forsberg), and a bushel of U.S. dollars to Aubut, plus a rich contract to the untested rookie -- one who turned out to be as injury prone as he was talented and intimidating.
All Aubut did to reap this huge reward was lose. His team drafted Lindros first overall because it was terrible. They had already drafted Owen Nolan and Mats Sundin first overall because they were so terrible for so long, and ended up with Forsberg instead of Lindros, and then some. Then Aubut cashed in. On the eve of a Stanley Cup championship, Aubut sold out his Quebec fans to the tune of $75 million, nearly fivefold what he paid seven years earlier. The Avalanche won the Cup with Forsberg and other players obtained for Lindros, and by parlaying other assets from the trade into Patrick Roy, the final piece to their puzzle (with Mike Keane as a throw-in!).
So feel sorry for Quebec fans -- they got shafted big time. But don't feel sorry for Aubut, no matter how many crocodile tears he may have cried. Lindros deserves some blame for insisting on a trade to more lucrative climes, but Aubut reaped most of the benefit when he cashed in his asset. Aubut was well within his rights to make the most of his investment (even with all his whining about how awful a business the NHL is), as was Lindros in marketing himself. But what rights do fans have, other than gaining entry with the tickets they bought?
1993 -- Ottawa drafts Alexandre Daigle first overall
Everything you need to know about the economics of the NHL is encapsulated in Ottawa's handling of Daigle in their second year of existence. The NHL let small-market Ottawa into the league the year before solely because it was one of only two bidders willing (though not necessarily able at first) to pay a $50 million entry fee -- the powers that be, the very ones crying poverty today, did not look past their greed for one split second. The franchise's future was pinned, as franchises so often are, to a real estate deal for an arena -- one should not be surprised that primary owner Bruce Firestone was a real estate developer hoping to marry his interest in hockey with his day job.
Complicating matters, financing for the arena was forever on the verge of collapse, which would have taken the team down with it. Firestone broke ground on the project without financing in place and soon was forced to relinquish the entire venture to Rod Bryden. Financing fell into jeopardy again for a reason that would be laughable if it weren't so incredible -- the location was so remote (owned by the team of course) that a highway interchange had to be privately financed and built!
With the first overall pick (one they reputedly tanked to get, leading to the lottery system now in place), Ottawa did not attempt to get the best player available (second overall pick Chris Pronger, wanted by their hockey people) -- they wanted the most marketable player: Alexandre Daigle, the charismatic French-Canadian forward openly coveted by the other two Quebecois teams, the Nords and Habs. Daigle got a Lindrosian rookie contract controversial in hindsight because he was such a huge bust on the ice.
But was Daigle really a bust? He wasn't drafted to play hockey, he was there to attract financing and sponsorship. And that he did, helping ownership get past its real estate crisis. They eventually went bankrupt anyway, mainly because team-owned land around the arena was slow to develop. So a small-market franchise was born strictly from the greed of NHL owners in order to justify its owners' real estate ventures, a pivotal moment in salary inflation was created by this economically fragile franchise strictly to salvage these real estate ventures, and the failure of the real estate ventures ultimately forced the hockey team in to bankruptcy. Any questions?
Thankfully, this story has a happy ending, as the Senators have proven to be a model franchise in building a highly competitive and entertaining hockey team the old-fashioned way -- solid talent evaluation, dedicated player development, good management and coaching. Ottawa is the best argument against salary escalation, better even than a salary cap (which would only force a team like Ottawa to break itself up prematurely when it came time to pay its stars for services well-rendered). And Daigle, in a bizarre turnaround, has transformed himself from a player who turned his back on hockey in his prime to a Masterson Trophy nominee.
1995 -- Chicago signs Winnipeg's Keith Tkachuk to a front-loaded offer sheet
The Daigle affair led directly to the 1994 lockout. By all accounts the NHL kicked the NHLPA's butt in winning huge concessions before the shortened 1995 season was allowed to begin -- free agency, limited to players over 30, gave teams undisputed leverage over restricted free agents in their prime; new compensation rules precluded a repeat of a Graves-Mallette scenario; rookies were under an entry-level salary cap that made any reincarnations of Daigle impossible; and arbitration was streamlined in a way that favored owners in several respects.
Nevertheless, it was no surprise when one owner raised the salary standard for RFAs with a ridiculous offer. But it was a surprise which owner did it. There is no bigger skinflint in the NHL than Bill Wirtz (I won't repeat his and his family's unsavory history -- books have been written about it). This is a guy who once stormed out of an NHL board meeting, crying that he cannot do business with idiots anymore (Ed Snider's willingness to spend to improve his team had gotten his goat).
So what does he do? He signs Keith Tkachuk, then 23, to a front-loaded contract that paid him what was then a cool $6 mil in the first year, followed by $2.6 to $3 million per season over the next four seasons. If he had a grudge against Winnipeg, I haven't found a hint of it -- was he getting them back for Bobby Hull these many years later? One writer suggests the Tkachuk offer was orchestrated to defuse an NHLPA accusation of collusion weeks earlier, but I don't agree -- several lightweight RFA offer sheets would have done the trick, not one that proved too weighty for the financially troubled Winnipeg team that had to match the offer.
Tkachuk scored 50 that season, and the Jets moved to Phoenix the next season. Coincidence? Perhaps. But there is no disputing the gall and hypocrisy of Wirtz, his franchise sinking deeper into the mire since then due to his steadfast refusal to ice a competitive team.
1997 -- Boston signs Joe Thornton to the "Model Contract"
In a fitting twist, the rookie salary cap was shattered within two years by another low-payroll team with a similar need to fill a new arena. Boston was not incapable of paying competitive salaries, just unwilling. But with fans in open revolt after a terrible season, attendance dwindling, and the Fleet Center, built privately and owned by Bruin owner Jeremy Jacobs, set to open, something dramatic was needed. Harry Sinden's best answer was first overall draftee Joe Thornton -- like Daigle, the power center would be rushed to the NHL a year or two before he was ready at age 18 for reasons other than on-ice performance.
Fearing his client's career could be hampered without proper development, Thornton's agent proposed a bonus-laden contract that resolved performance issues to his satisfaction while allowing the Bruins to get Thornton into a marketable position. The model was so effective it is now known as the "Model Contract" for entry level contracts, blowing out of the water one of ownership's primary victories in the CBA. Unable to control themselves even when the rules favored them, owners and GMs now seek drastic measures to shackle themselves.
As with Tkachuk, this serious step is salary escalation was taken by a notoriously miserly team. Sinden's defense, as quoted by Dowbiggin in "Money Players", is one of the best arguments the NHLPA could ever cite in support of its free market argument (which says owners do not overpay players, they pay them what they are worth): "I [said], 'From now on, I don't care what happens to you because of this contract. I let all kinds of players go over the years because I wouldn't pay them. I tried to do the party line, hold salaries. But you signed your players at whatever.' Now they can tar and feather me. I got a chance at the best player since Lindros, and he's come along really well. He has sold seats. Everyone is excited. We weren't going to sign him for nothing. We could not risk him going back into the draft."
1997 -- Vancouver signs Mark Messier for $20 million, Rangers give Joe Sakic a front-loaded $21 million offer sheet
We're deep into our list here, and yet still not ready to go directly to the one contract, the Joe Sakic offer sheet, often held up front and center as the main cause of salary escalation. As we have seen, small-market, low-budget, poverty-crying teams like Boston, Chicago, Quebec, Winnipeg, L.A., Ottawa, and Edmonton were at least as instrumental as free-spending teams like the Rangers, St. Louis, or Philadelphia in ratcheting up payroll standards. Vancouver, known to cry poverty now and again despite operating a gorgeous arena in a good hockey market, precipitated the Rangers' infamous Sakic offer sheet. With the Rangers no longer willing to pay a premium for the aging Messier for the 1994 Stanley Cup, the Canucks stepped in and lured him away with a three-year, $20 million deal. Faced with an unexpected hole at center, Neil Smith made a bold move to sign RFA Sakic from Colorado.
The offer sheet Sakic signed was not as heinous a raid as some portray -- with Forsberg and Sakic both restricted free agents, the Avs chose to re-sign Forsberg first, and were believed to therefore be unable to afford a commensurate salary for Sakic. To make it harder for Colorado to match, Smith put most of the $21-million three-year offer (barely higher than Messier's deal) into a signing bonus, and was prepared to give up the required compensation of five first round draft picks (a system that acts as an RFA signing cap -- you can only give up those draft picks once every five years). But Colorado matched (ironically, the infusion of cash Colorado received that enabled them to match came in part from Liberty Media, co-owned by Ranger owner Chuck Dolan, and in part from Fox Sports, owned by Ranger minority investor Rupert Murdoch).
In retrospect, Smith did little to change the landscape of NHL salaries with the Sakic offer sheet. Sakic didn't get much more than Messier, Tkachuk, or Forsberg. Paul Kariya, despite having the same agent, could not get a piggy-back deal from Anaheim, holding out well into regular season before settling for less. It was not the first front-loaded offer sheet designed to deter a poorer team from matching -- that honor goes to the Blackhawks' offer to Tkachuk. And only two others ever tried to load an offer sheet to discourage a team from matching.
The first was Bobby Clarke, literally weeks after crucifying Smith for this tactic, doing the exact same thing to Tampa to get Chris Gratton. Clarke worked a trade to get his compensatory draft picks back, but Gratton was such a bust in Philly that all players reverted to their original teams less than sixteen months later. The other was a truly heinous offer sheet in 1998 -- Carolina's Peter Karmanos structured an offer for hold-out Red Wing Sergei Fedorov that included a $12 million bonus for making the final four, something Carolina could not accomplish that Detroit was almost certain to (in fact, they won the Cup that year). Detroit matched, and Fedorov made $28 million that year -- thanks to Karmanos acting on his long-term multi-faceted grudges against Detroit owner Mike Ilitch.
1999 - Rangers sign free agents Fleury, Kamensky, Lefebvre, Quintal, et.al.
Very few pivotal moments in the history of the NHL salary spiral involve unrestricted free agents. This is the one area where the CBA actually worked as intended. By not allowing players to become truly free until they were over 30 (in rare circumstances younger), the CBA forestalled bidding wars on players in their prime. There have been anomalies, but most UFAs have gone for market value -- overpaid underachievers are offset by those who have to wait for contracts and end up settling for less (if anything at all). By contrast, troublesome rookie or RFA offers permanently raise the bar among players over whom management once had leverage.
The Rangers are the only club to never understood that UFAs are past their prime. Their biggest gaffe, the one that affected subsequent UFAs, was the binge of 1999 -- they gobbled up nearly every marquee UFA they could get in a misguided attempt to plug numerous holes. They overpaid wildly for Fleury, already known to have substance abuse problems that were not yet public, and for two other Stanley Cup alumni the Avalanche knew were done, Kamensky and Lefebvre. They paid depth defenseman Quintal to be a top pair D, which to everyone's chagrin proved to be a pipe dream, the affair ending badly all around. And to a lesser degree, adding fuel to an already out of control fire, they plugged lesser holes with the over the hill McLean and the fragile Taylor.
Neil Smith lost his job after this group not only failed to improve his team's fortunes but instead helped them crash and burn faster than ever. He learned no lessons from prior UFA failures (Ray Ferraro, Bruce Driver, Mike Keane and Brian Skrudland, John MacLean, and a bunch of lesser lights one step away from retirement -- even to some degree Wayne Gretzky in his final seasons). Shockingly, his successor Glen Sather, after berating him from afar and then again from within his former office, seamlessly continued making UFA blunders (Messier, Malakhov, Ulanov and Karpa, Ciger -- Holik and Kasparaitis have not been bad on the ice, but their contracts, for which a desperate Sather drastically overpaid, may yet prove to be albatrosses under the next CBA).
The problem created by the 1999 signings started with Sather's off the record hints before the start of the 2001 UFA season that he was going to sign every UFA he could get his hands on, starting with Colorado's Joe Sakic and Rob Blake. Sather's arrogance got the better of him, not for the first time nor for the last time -- he figured no one could stop him from repeating Smith's 1999 binge, but he was trumped left and right. Colorado re-signed their players before the deadline, Philly pulled off a deal of dubious legality with Phoenix when they de facto traded Daymond Langkow for Jeremy Roenick and re-signed John Leclair before they could reach the open market, and Boston snatched coveted power forward Martin Lapointe. The egg on Sather's face didn't dry for an entire calendar year -- he had to settle for Ulanov, Karpa, and Ciger in 2001, conceding that season right there, and was aggressive a year later pursuing and overpaying Holik and Kasparaitis (proceeding to mis-use them in another pair of lost seasons).
2001 - Islanders trade for Michael Peca and Alexei Yashin during the 2001 draft
There is one situation in which players do in fact hold a gun to a team's head demanding higher pay than they have coming to them. That is when a restricted free agent or a player in mid-contract holds out for more. In a sense, it's a Mexican stand-off, the team also holding a gun to the player's head -- he has no choice but to play for his team or not play (and get paid) at all. But the player is clearly the one making the power play, especially if he is failing to live up to a contract still in force. The best thing a team can do in that situation, as in any hostage situation, is to not give in.
Peca and Yashin are not the only players to ever hold out for significant portions of the season -- Petr Nedved did it twice to two different teams, once for more than a full season. What make Peca and Yashin unique is that they were both traded to the same team, the Islanders, within a day of each other, and given ridiculous contracts despite having no leverage under the CBA other than sitting out. Peca's team, Buffalo, did what they had to do in allowing Peca to sit out the entire 2000-2001 season and then trading him to the Isles for two good young prospects. Ditto Ottawa, who got an even better return for Yashin under threat of a second hold-out a year after the end of a season-long mid-contract hold-out.
The person responsible for allowing these players to get away with their nonsense is the one who traded for them -- Mike Milbury of the Islanders. The GM who once called a rival a "village idiot" has proven repeatedly that he in fact fits that description, literally trading away a full team of future (now) all-stars for less than a full team of lesser players (I worked it out, a full team, every roster spot -- and that doesn't even include taking Dany Heatley instead of Rick DiPietro first overall after trading Roberto Luongo and Olli Jokinen the day before the 2000 draft). Salary escalation for checking centers began with Peca (this season he's earning as much as Marian Hossa and Martin Havlat combined), culminating a year later with Bobby Holik's ludicrous $8.85 million annual salary.
Yashin's contract was even more ridiculous. The salary numbers alone are insane -- this season, Yashin is earning $8.4 million, a lot higher than dozens of better players. Even crazier is its length -- in 2011, the Isles (or anyone silly enough to pick up the playoff ghost's bloated contract) will owe Yashin, at age 37, $6.4 million. Maybe by then that figure will seem like a bargain, who knows? But one thing's for sure -- no matter how this CBA war ends, the escalation clause in his contract will ratchet his salary even higher than it is now to levels that will prove disastrous for the Isles. All this for a guy who, in three seasons on the Island, has barely matched his worst full season as a Senator.
2001 - Boston signs free agent Martin Lapointe for $5 million per season
Really, anyone who takes anything said by Boston owner Jeremy Jacobs seriously ought to have his head examined. A guy who became extremely wealthy by gouging us mercilessly when we have no one else to provide us with food and drink, Jacobs always led the charge in word and in deed in underpaying his players and cheating his fans out of competitive teams. Here's a guy who wouldn't even pay Raymond Bourque half what he was worth all those years he played so loyally for Boston teams that never had a chance to win a championship.
And yet, when it came to feeding his own personal needs, nothing else mattered. When he needed to make money off his new Fleet Center, nuking the rookie salary cap to get Thornton to the NHL two years early was OK. Even worse, when it came to getting revenge on Detroit's Mike Ilitch for an insult, Jacobs helped blow the lid off salaries for checking forwards by giving ex-Wing Lapointe $5 million per -- just to get back at Ilitch for defending Detroit's spending habits from Jacobs's attacks by noting out loud how many championships the Wings had won while the only thing Jacobs ever won was the first overall pick (a double dig, alluding as it did to the ruinous Thornton deal).
They shoot horses, don't they? What about lying, cheating, hypocritical dinosaurs?
Great piece again, Dubi.
I think this is one of the most complicated of subjects and it is a nice roundup.
I think one of the other factors was Alan Eagleson.
All of these numbers - even $500,000 for Alan Graves - are outrageous out of context. But how much should players be paid? What is their fair share? Who knows?
I think it is safe to say that the CBAs Eagleson negotiated resulted in the players taking far less than they deserved of the revenue pie. Average salary tripled before the existing CBA was signed.
Posted by: Tom Benjamin | Saturday, April 17, 2004 at 04:05 PM
I would be curious to see a comparison chart (if possible) of these ridiculous contracts compared to what similarly talented players earned in the same year.
Otherwise, an excellent article.
Posted by: Graham Hudson | Thursday, September 23, 2004 at 01:13 PM