For new institutional economists, the NHL is a multi-dimensional laboratory right now. The six-year labor agreement signed last Friday, including team-level salary caps and revenue sharing, has spurred a flurry of contract buyouts. The Yahoo Sports NHL news archive since Saturday has been full of stories of teams buying out contracts of their star players. The Flyers have bought out John LeClair and Tony Amonte, the Red Wings have put Derian Hatcher, Darren McCarty, and Ray Whitney on waivers that could lead to contract buyouts, and so on.
If I had Vincent Lecavalier, I’d want to keep him too (and I mean that in many ways, he’s a great hockey player and he’s easy on the eyes!). But now the Lightning and other teams who might compete for his services have to come up with non-salary dimensions of the transaction.
In other words, the contract changes, the imposition of new contraints and the relaxation of others, are inducing a realignment of costs, personnel, etc. The parties have agreed to a contract that addresses a particular set of strategic actions that they think the other side could take during the term of the contract; in so doing, though, they have induced a realignment process for both owners and players. This is institutional change in action. Of course, complete contracting is impossible, so over the next six years I’ll be interested to see what opportunities evolve for opportunistic behavior on the part of both parties.
Another dimension in which the NHL is a NIE laboratory is in their proposed rule changes. The rules are primarily meant to increase the flow of the play (good), and continue to erode the strong benefits of the neutral zone trap defense, with an ultimate goal of making the game more television friendly. Some of the rules with the most interesting incentive effects are
- Offensive zones will be bigger, the neutral zone will be smaller, and the end zones behind the goal line will be smaller.
- The center line doesn’t count in a two-line pass.
- Offensive players can “tag up” on the blue line if they precede the puck into the zone and not be offsides.
- Goaltenders will have smaller pads and cannot play the puck behind the goal line in the corners.
- When a player instigates a fight in the last 5 minutes, he gets an automatic 5-minute penalty and one-game suspension. Suspension doubles with each additional incident.
- When a player instigates a fight in the last 5 minutes, the Coach is fined $10,000. Fine doubles with each additional incident.
- Ties will be decided by a shootout after a 5-minute overtime, and the losing team still wins a point.
My thoughts on the incentive changes and their likely results: I’ll be interested to see how changing the proportion of the ice that’s neutral will affect flow. I’ve always thought that the larger Olympic ice produced better flow, and it may be that the reason is larger offensive zones, but I don’t know what the proportions of neutral to offensive are in Olympic ice. It’s an interesting change to consider.
I’ve always thought that the mandatory helmet rule created enormous moral hazard and elevated the brutality of the physical side of the game. Given that we seem to be stuck with the mandatory helmet rule, the suspension/Coach fine combo sends a pretty strong signal that coaches must not condone fighting at the end of the game. But what about the other 55 minutes? Will it be business as usual? This also does nothing to address the mid-ice from-behind Scott Stevens specialty cross check, which I think is barbaric and should be subject to this kind of suspension and fine combination.
The interesting thing to me about this suspension/Coach fine combination is that it works to change the coach’s incentives in addition to the player’s incentives. I wonder what the league thinks the revenue effects will be of this rule; sadly, lots of people like the end-of-game fighting in hockey (and just fighting in general). At the margin, will this reduce the attendance of fans with these preferences? I hope not. Maybe it will have a civilizing influence on them …
I pretty much agree with the likely outcomes that Colby Cosh outlined; I also like the way he said that the rule changes are “complex, mutually interacting systems.” (my kinda language!) He nails the idea that the neutral zone trap is now not going to be as valuable. I particularly endorse his comments on the goalie rules:
The removal of the red line should renew some of the intense play in the corners we’ve lost as goalies have become quarterbacks. I didn’t object to the spectacle of free-ranging goalies like Marty Turco on its own merits; I’m open to tactical change in the game, and there are probably conservative NHL fans still learning to cope with the “new” rule that lets goaltenders fall down to make saves. What made goalie quarterbacking absurd was the degree to which they were coddled by the officials. The old rule was that the goalie was fair game for a hit if he left the crease (just as a quarterback can be sacked), and that would have kept goaltender adventuring in check just as well, but apparently it’s not an option. Since the modern goalie seems unwilling to grow a pair, we have little choice but to confine him to his stupid little trapezoid. (But N.B.: this rule change will bring a few more good pure puckstoppers into the league, since puckhandling will no longer be a make-or-break skill for young goalies.)
The new dimensions for goaltender equipment correct a recent, egregious, and entirely objectionable change in the game, and are the most thoroughly unimpeachable rule alteration adopted by the NHL governors. … Call me a crazed romantic, but I want to see the freakin’ glove save come back into hockey.
Amen, brother! And thanks for the Wiki and Hayek discussion link.
Eric McErlain also has some analysis and links to others.
My economic bottom line: I think many of these changes are meant to make the game more television-friendly for casual fans, a beast that the league has been wrestling for two decades. If the television-friendliness strategy pays off, then there will be more profit (or, to be technically correct, vertical rents) to be divided among the players, the teams, and the league.