Thursday, December 10, 2009

The DBJ Financial Acuity Index

One element of life in the National Hockey League that I find most intriguing is the stark financial realities that teams operate under. The NHL is a league of "haves" and "have nots," and their salary structures lay out the pecking order.


Sure, there's a salary cap of $56.8 million. But the dirty little secret of the NHL is that the average cap hit absorbed by a given team right now, in the 2009-2010 season, is $55.083 million - almost $2 million below that which the league allows them to spend. In fact, only 12 of the league's 30 teams are at the cap ceiling. (Source: NHL Numbers)


What makes this whole issue fascinating to me is that teams who are playing with literally 2/3 of a deck (salary-speaking) are still extremely competitive - regardless of the opposing team.  This speaks to uniquely talented front office management (including drafting acumen, development of a top-tier farm system and free agency savvy) and coaching that goes well beyond the average.  It also speaks to GMs who pay like drunken sailors in the hopes of getting a Stanley Cup.

Take last night's game.  The Jackets have the 4th lowest salary cap number in the entire league.  (We're #27!)  Florida is the 19th highest - just under the average NHL team cap hit number - and $6.45 million more than the CBJ.  That's like adding RJ Umberger and Fedor Tyutin's salaries to the existing Columbus lineup - and I'm including Freddy Modin, who hasn't played yet this season.    One would think that Florida would have a decided advantage, but the standings aren't playing out that way.  The Jackets have 33 points, and the Panthers have 28 points.  Clearly, the Jackets outperformed the salary market last night.

This little comparison intrigued me, so I took it to the next level.  I created a very simple Financial Acuity Index.  ("Acuity" is defined as "sharpness of vision; the visual ability to resolve fine detail".)  My Index is really simple.  I took the Salary Cap rank of each team and subtracted the league-wide standings rank (not East/West, but all 30 teams).  The teams with positive numbers are, from a financial acuity perspective, outplaying their salary level.  The teams with negative numbers are underperforming.  The magnitude of the index number gives the reader a sense of how far a team deviates from its salary cap position.

The Index could be construed as punishing high-cap teams as they have a harder road to hoe in order to achieve a positive Index score.  Perhaps that's true, but a high-cap team that plays to an equivalent level in the standings gets a zero index score -- no embarrassment there, but not outperforming either.  All you are doing is delivering a return on investment commensurate with expectations.

And here's my first Dark Blue Jacket Financial Acuity Index of National Hockey League teams:




As the standings are updated on a nightly basis, and as player transactions during the season can affect a team's salary cap ranking, I'll have to update this periodically.  I'm thinking monthly right now.  But the lessons from this first iteration are clear:
  1. Money doesn't automatically mean success.  4 of the 5 top-ranked teams from a salary cap perspective are 4 of the 5 teams with the lowest Financial Acuity Index scores.  
  2. As a slight counterpoint to #1, Chicago and Washington prove that you CAN pay well and still outperform your cap rankings in the league standings.  Note, however, that those are the ONLY two teams in the salary cap top 10 with a neutral-to-positive Financial Acuity Index score.  
  3. (I know my Friendly Pens Fan will love this) Note that Pittsburgh is the highest scoring team that is above the league average salary level.  Well-run and well-performing - you'd think they could win Stanley Cups or something...
  4. Lou Lamoriello, GM in New Jersey, is in the Hockey Hall of Fame. Apparently with good reason...he toes the line on salaries yet always fields a competitive team.
  5. Don Maloney, GM in Phoenix, is a genius.  To take a team with a cap number $20 million lower than Toronto and get them to 9th in the entire league...WOW.  
  6. No matter how you look at Carolina, they are not a good team.
What do you think?  Is this index a useful way of looking at the relative competitiveness of the NHL?

1 comment:

  1. Your Friendly Pens FanDecember 10, 2009 at 5:58 PM

    See, I really do read this thing! Thanks for the shoutout!

    PS - I love the new layout!

    ReplyDelete