Introducing Puckmarkets

Introducing your new source for NHL market analysis.

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Constraints are what characterize the job of an NHL general manager. In fulfilling their goal of putting a better 23-man hockey team than the 30 other GMs do, the tools are their disposal are three-fold; they can draft players using picks, they can trade for players using players and picks, and they can sign free agents. When using these tools, they face dozens of limitations that shape their decisions, and in-depth analysis is necessary to fully understand them. Despite the breadth of information available on the subject, there are few sources for analysis that truly considers underlying market factors. Our goal is to provide this analysis, both quantitative and qualitative, so that fans can understand the processes behind every move.

To begin with, I’ll introduce some of the important dynamics that underlie the league. A team’s only way to organically acquire a player is through the draft or as an undrafted signing, but the likelihood of a given draft pick fitting a team’s immediate needs are tiny, and predicting future player development is not an easy task. If a team cannot get what it needs from the draft it will have to tap the market, which is itself daunting. The player market is highly illiquid, with a mere 31 participants controlling only a few hundred total assets. All have specific needs that rarely align with one another. Thus, even finding potential partners for a trade can be impossible. When trades do come to fruition, asset valuation is made difficult by the high levels of risk therein. When a trade occurs, it does so at par value. For the par value of a trade to hold, each asset must perform the same post-trade as it was expected to pre-trade, so that each GM feels they were adequately compensated. The likelihood of this happening is low, and one GM will probably come away with value greater than par while the other underperforms.

An aspect that plays perhaps the largest role in managing a hockey team is the salary cap. With a hard cap, currently at $75 million for 20-23 players, new dynamics are thrown into the market. GMs can no longer seek absolute return; racking up as many goals, points, and wins as is possible with a roster of 23 players, but must instead focus on relative return, getting more goals, points, and wins than other teams can with a $75 million payroll. Thus, cap space becomes an asset just like players or picks, and GMs may be forced to give up more tangible assets like players to keep all assets, including cap space, in check. Players are evaluated with this relative value in mind. The goal of the GM is not to sign a roster with the most talented players, but to sign a roster with the cheapest players relative to their talent.

This is just a shallow consideration of the dynamics of this complex and unique market. We look forward to evaluating the three assets that make up the NHL; draft picks, players, and cap space, along with the 3 markets that they live on; drafts, trading, and contracts. Hopefully you can come away with better questions and answers than before.

Follow us on Facebook and Twitter @Puckmarkets.

 

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