Originally Posted by
hockey216
1) Small market teams can win cups without a salary cap, but it is MUCH HARDER and they probably have to spend a lot to do it. Pittsburgh spent so much money in the 90's that they went bankrupt and had to start paying Mario Lemieux in shares of ownership instead of checks. That's what happens in bankruptcy. Debt holders become equity holders. Most NHL players would rather be paid in cash instead of shares in a depreciating asset, however. Your pittsburgh bankruptcy example is not very relevant. Most owners want to win. But they don't want to win so bad that they would be willing to bankrupt themselves in order to do it. Some small markets can win without a cap. They might get lucky and draft a hot goalie. but that won't sustain very long because 3 years later when the contracts up the hot goalie will leave for a higher paycheck in a bigger market. it is much easier for small markets to survive with a salary cap. If you were to make a model to somehow quantify small markets ability to win cups and salary cap, you would see a strong linear relationship between variable winning cups and variable salary cap. You are citing error terms in regression models and trying to say that the error term is the mean. No. The mean is the mean. It is the predicted value. Error terms have normality assumption with a mean of 0 and constant variance. Error terms happen because of variance. Citing the fact that teams could win (even though it was harder) does not mean that a salary cap does not make it harder.
2) You want owners to "spend more than what they take in." It seems you would be better suited for the business world if you worked in government than in an actual company. The government is the only entity that can operate at a loss. The goal of business is to make profit. You want to avoid investing in projects with negative value, and want to invest in projects with positive value. I agree that it does not make sense that winning owners should have to pay for losing owners. To eliminate that, you have two options. A) Eliminate the franchises that lose money; Or B) make the small market franchises profit, so that the winners wont have to subsidize their losses. Saying you want to enact a plan that would make the small markets suffer even greater losses does not rectify the problem. It enhances it. Owners would just have to pay MORE money to the losing franchises.
3) Your 50% (5/10) number is not for teams that are CURRENTLY small markets. But yes. it is an even bigger problem if you can win every night and still lose money. That enhances the need for a reduction in labor costs even further. The league doesn't make any money from media contracts. So they have to A) sell tickets and B) sell merchandise to cover for all their expenses. If you can't cover your expenses with your revenue from tickets and merchandise, you have two options. A) Keep losing money and go bankrupt, or B) lower your expenses so that the revenue from tickets and merchandise exceeds expenses. Aside from making more people want to watch hockey on TV, they have a choice between going bankrupt or reducing labor costs. Making teams less likely to win games by giving all the good players to the best teams reduces ticket sales. That makes small markets even worse off.
You have to understand that the goal of finance is to increase value. If you have two investments of equal risk, you go with the investment with higher value. If you have small market teams that are losing money every year, they will eventually go bankrupt or be eliminated. You aren't going to "find rich owners that want to invest in them" as you say. You say that we need to "find rich owners that will pay more than they take in". Spending more than you take in means it is a losing investment. Why would a person intentionally lose money by investing over $100 Million dollars into something when the value is negative? They could put it in risk-free US govt bonds and earn a positive percentage return. Why would they put their money in a losing investment instead?
You seem to get your ideas about business by watching the government. The government is not a model for how business should run. The only reason the US government can never go bankrupt is because it has a printing press. It can just use a printing press to pay off its debt no matter how large it is. Businesses don't have access to that printing press. Businesses can't just print the money if they go bankrupt. Business works different from the government. You will never find investers who want to intentionally lose money in investments.
So the "Find rich owners who want to spend as much as they take in" theory will not work. People will only invest if the revenues are higher than the expenses. Nobody wants to intentionally lose money.
4) If you do not want to eliminate the unprofitable markets, what is your plan? You don't want the losses to be subsidized. ok. neither do i. So eliminate the losses. How are you going to do that? By increasing the salary cap? No. That will not eliminate the losses by small markets. it will compound it. Over time small markets would get less competitive because the rich teams would be stacked with all stars and the small teams would be all C-level players and rookies. That would not increase ticket and merchandise revenues in small markets. Do you want to eliminate all the profitable teams and reduce to 16 nhl teams? Or do you want to make franchises profitable and have a more competitive league?
What is your plan to address the fact that many small-market NHL franchises are losing money?
You are seriously underestimating how strongly ticket sales are correlated to winning. If teams are losing everyweek because big market teams have all the all stars, they will not sell tickets. they will go bankrupt. Most fans wont pay $50,000 over the course of a decade for season tickets to a team that fuking sucks. Teams make so much more money when they are winning. A salary cap helps them win because they can get teams that are equally talented to the big markets. This is the best way to keep smaller markets competitive.