The NHL Salary Cap Allocation Theory

Newton had his theory of gravity. Einstein had his theory of relativity. Randy Carlyle had his theory as to how helmets contribute to concussions.

Today, I present what I call my Cap Allocation Theory. The NHL’s implementation of the salary cap in 2005 has fundamentally changed professional hockey. No longer is a player’s value derived solely from their actual output, but rather the amount of value they create given their dollar value. The salary cap has not only helped differentiate the decent general managers from the elite, but see which front offices have the expertise to both build and maintain a competitive hockey team.

In 2016–17, NHL teams have 73 million dollars to construct the perfect team. Each dollar spent is a cost/benefit analysis mini-case: Is what a team is getting for the X dollars provided to Player A better or worse than how that team could spend X dollars otherwise? Every year, we see many teams sign deals that seem somewhat short-sighted that cause the prospect of the consistent contender to be a dream and not a reality.

The Cap Allocation Theory is a way to prevent cap mismanagement and adhere to certain principles when allocating money to different players. It is far from perfect, but there are some ideas that guide my thinking that I’ll explain in depth later on in this piece.

Cap Allocation Theory Ground Rules

Before getting into the roster construction, the following rules apply to the Cap Allocation Theory:

1: This is for Contending Teams Only

If a team is rebuilding, their cap structure is almost irrelevant. All that’s important for them is that their young players get ice time and that players are being showcased in order to trade at the deadline for assets in the future. It’s why Buffalo was able to pay Brian Gionta 4.25M for 3 years — salary cap space was a non-factor. Bringing in a veteran presence for the younger kids was more important than understanding that Gionta’s true value wasn’t really over 4 million dollars.

The Cap Allocation Theory therefore only applies for teams that are contending. This is for teams that are prepared to fight for the Stanley Cup consistently over a 5+ year cycle.

2: ‘MAIN ROLE’ Players are not on ELC Contracts

As I’m going to discuss, there are going to be certain roles on a team that I define as ‘main role’ players. This includes 1C, 1W, 2C, 1D, 2D, 1G, among others. Obviously, Connor McDavid is a #1 center. However, for simplicity sake, I’m making the assumption that these contending teams do not have their elite players at these positions on entry-level deals. Looking at the best teams in the league — PIT, WSH, CHI, STL, TBL, NSH — the players that were on ELCs at some point are not anymore, because the team was not good when they had the entry level deals. Of course, there are situations such as Tyler Toffoli being on an ELC when he was a meaningful contributor to LA, but the assumption is being made that this is often an anomaly.

Also, my idea of ‘main role players’ is inspired by Dom Luszczyszyn, @omgitsdomi, on Twitter. He wrote this piece for The Hockey News that helped shape my idea of what positions are truly important for a championship team. http://www.thehockeynews.com/news/article/eight-simple-rules-for-building-a-stanley-cup-contender

3. ‘Intangibles’ are an Extraneous Variable and not included

Ideas such as retaining players because of their loyalty, creating a culture where players are rewarded for their on-ice success, or otherwise do not matter in this model.

4. ‘MAIN ROLE’ Players are ones that are truly of that role, not just because they’re the ‘best option’

Currently, Tomas Plekanec is considered to be the top center on the Canadiens. Just because he’s the best center on the Habs, that does not mean he’s a #1 Center. Each main role is one of an elite player for that role.

5. Allocations among the ‘MAIN ROLE’ players are flexible

If a contending team’s #1 winger is the most important player on their team (such as Ovechkin or Tarasenko), money that would have gone to another main role player can be sent to the 1W slot from the 3C or 2C, for example. That being said, money from the main role players should not be removed and given to role players, unless there is ample cap room and the role player’s deal would be 1 year only.

The Team

Below is the standard 22-man roster that we will be using for the idea:

1W 1C 1W

2W 2C 2W

3W 3C 3W

4W 4C 4W

Extra C

1D 2D

3D 4D

5D 6D

Extra D

1G

Backup G

Let’s get Started:

GOALIES:

Main Role Player: #1 Goalie

Max % of Cap Allocated: 10% to both

- Max to 1G: 6.5M

- Max to backup: 1.3M

- Total = 7.3M (in a 73M cap)

Max Years:

- 3 to 1G

- 2 to Backup G

Rationale:

I’ve made goalies their own category because, frankly, goalies are wacky. Below is a chart of the goalies from 2013–2015 who played in each of the three seasons, and played enough games to create a legitimate sample size:

You need good goaltending to be a contending team, not necessarily consistently throughout the year but rather in the playoffs. However, the greatest predictor of future performance is past performance, so regular season output usually helps.

The chart above shows that goaltending is very difficult to predict. From 2013 to 2015, only 5 of 31 goalies finished above average in save percentage every year. 29 of the 31 were above average at least once. So you need good goaltending, but the biggest issue is that goaltenders are inconsistent and a goalie who finishes 1st in sv% one year can finish 23rd the next year, and then 7th the year after that.

So the Cap Allocation Theory says that it is perfectly fine to pay a starting goaltender in the 6 million-dollar range. However, the big caveat is that the theory recommends never having the goalie under contract for more than 3 years. Giving a long-term contract to a goalie is a very risky venture, because if consistency issues arise, or another goalie begins to rise in the team’s system, it’s almost impossible to trade the goalie’s contract. In Pittsburgh and Detroit, two goalies who were both signed to very fair deals at the time are either backups or splitting time with their former backups.

Tampa adheres perfectly to the Cap Allocation Theory here . Ben Bishop is a number 1 goaltender in the league. From 2013–2015, he was consistently above the average save percentage and was a finalist for the Vezina in 2016. However, the Lightning have Andre Vasilevsky waiting in the wings, and are prepared to move on from Bishop. Instead of having him locked under contract for 4 more years, his 2 year, 5.9M/year deal expires at the end of the 2016–17, allowing the team to move on to the next number 1 goalie.

Simply put, number 1 goalies are important but giving them long term contracts is far too risky. It’s smarter to give the goalie a higher AAV over less years than be hampered by the ill effects of a long term deal, to a position that has seen way too few goaltenders be consistently above average year-in and year-out

Finally, having a legitimate backup goaltender is necessary. A goaltender that can play 25–30 games throughout the year and prevent the starter from the wear and tear of a heavy workload is of value to a contending team. Therefore, the backup goaltender cannot simply be a player of replacement level, and should be allocated more money than simply the league minimum.

SKATERS

I’m going to show the allocation of the cap and then bring up the points of discussion that are of value:

DEFENCE

Main Role Players: 1D, 2D

Supporting Role Players: 3D, 4D, 5D, 6D

Max % of Salary Cap:

- ~12% to 1D (about 9M of 73M)

- ~9% to 2D (about 6.5M of 73M)

- ~8% to 3D & 4D (about 2.9M to both the 3rd and 4th D)

- ~1% 5D: Entry-level Contract

- ~2% 6D: (1–1.5 million) à POWERPLAY SPECIALIST

- ~1% 7D: (900,000)

- TOTAL = 33%

Max Years (not counting ELCs)

- 8 years: 1D, 2D

- 3 years: 3D

- 2 years: 4D, 5D, 6D

- 1 year: 7D

FORWARDS

Main Role Players: 1C, 2C, 3C, 1W, 2W

Supporting Role Players: 1W, 2W, 3W, 3W, 4C, 4W, 4W

Max % of Salary Cap:

- ~14% to 1C (about 10.22M of 73M)

- ~10% to 2C (about 7.3 of 73M)

- ~7% to 3C (about 5.1M of 73M

- ~8% 1W: (about 5.9 of 73M)

- ~7% 2W: (about 5.1M of 73M)

- ~6% to 1Wb & 2Wb, 3Wa (1 ELC = 1% + 3.65M for 2 other players combined)

- ~5% to 3Wb, 4C, 4W, 4W, Extra C (ELCs and late free agent acquisitions = 730k/player)

- TOTAL = 57%

Max Years (not counting ELCs)

- 8 years: 1C, 2C

- 6 years: 1W

- 4 years: 3C, 2W

- 2 years, 1Wb, 2Wb

- 1 year: 3W, 3W, 4C, 4W, 4W, Extra C

I know how you’re currently looking at this and thinking that it’s absolutely ridiculous. And to be fair, the theory is very crude and not perfectly tested. However, there are some ideas that I hope are the takeaways, and I’m going to discuss them further down below:

CAP ALLOCATION THEORY 1.0 TAKEAWAYS:

1a: For most NHL players, the difference between player A and B is marginal.

The first thing that probably jumps out from the theory is just how much cap space is allocated to very few players. 45% of the Salary Cap is committed to 4 players and 67% to 7 players. On the surface, this seems absolutely asinine. After accounting for 10% of the cap towards goalies, it means that the remaining 9 players will account for just 23% of the cap, or less than the top 2 centers of a team.

Simply put, the talent in the NHL is so strong that the difference between two players who aren’t truly elite is almost nonexistent. There is a very small difference between Kyle Clifford, Daniel Carr, Jay Beagle, or Magnus Paajarvi, all role players on different teams. Because of this, there is no point in spending any unnecessary cap space on role players.

1b: There are too many good players without pro contracts to pay a premium for role players.

This idea goes hand-in-hand with the point mentioned above. Currently, Brad Boyes, Kris Versteeg, and Jiri Tlustly are without NHL contracts and could be signed for under one million dollars. The difference in ability between these players and the 4th liners signed to long-term contracts is nothing. In fact, it’s very possible that they are better than many players who have professional deals. Because the talent pool is so deep, there will always be good NHL players in September willing to sign PTOs and sign for near-league minimum.

2: Elite Talent is difficult to find and acquire, and should be of top priority

While role players can be easily replaced, elite players simply cannot be. The difference in value between an elite player like Tyler Seguin or Drew Doughty and even a ‘solid’ NHL player is absolutely gigantic. Also, elite talent is incredibly difficult to find. Therefore, these players cannot be lost simply due to a lack of cap space.

The Cap Allocation Theory, even though it does award each player a percentage of the cap, basically says that these players should be kept no matter the cost. If the Kings decided to let Anze Kopitar reach free agency, there would be no use of his 10-million-dollar salary that would make Los Angeles a better team. This is because a team can have depth, but without superstars it is destined for mediocrity. The #1C, #2C, #1D, and #2D are simply irreplaceable, and should be paid accordingly.

3: Entry Level Contracts are the biggest cap advantage. Let the kids play.

The Entry Level Contract is absolutely the biggest gift that a general manager is given. In a salary cap league where players are always demanding more and more money, there is a legitimate rule that players on their first contract cannot be paid more than a certain amount. These young kids, who are willing to do whatever it takes to prove themselves as useful NHL players, can be inserted into a team for less than one million dollars.

The other factor, beyond price, is that these players on entry-level deals are legitimately good players. Brandon Saad, Tyler Toffoli, Tanner Pearson, Nikita Kucherov, Trevor Van Riemsdyk, and Tomas Hertl are just a few of the many players on Stanley Cup finalists that were on their rookie contracts at the time. So these players are at a contained cost and were of quite some value. In addition, as long as a team’s drafting and development is solid, there will always be players ready for ELCs.

4. Balanced Offensive Lineups > Top Heavy Offensive Lineups.

The old way of creating an NHL offense is simple. 2 lines of skill, one line that is defensive-minded, and one that provides energy. However, in today’s NHL there is too much skill and tactical planning to only have 2 lines that can score. Rather, it is more important to follow the model that teams such as Pittsburgh, St. Louis, San Jose, and Chicago have shifted to, which is to balance the lineup with skill throughout.

The Cap Allocation Theory therefore says that it is most important to have 3 centres who possess a lot of talent, and spread the talent of the wingers evenly among the lines. It has also been proven that players who are not exactly elite-level talents are quite capable of playing with superstars and producing. Balance of skill is more important than a cluster of skill and that is why the 3C is paid more than the other 1W and 2W.

5. Don’t give term to non-essential players

This is related to takeaway #1. Role players are replaceable, and giving them multiple years on a contract is almost more damaging than paying them more than they’re worth. Signing a 4th line player to a 3-year-deal may sound like a great idea, until the #2C wants 6.5 million instead of 6 million, and the reason that can’t be done is because the 4th line player has a 2.2-million-dollar contract for 3 more years. Giving term to role players opens a team up to the risk of being unable to sign the elite players that they need to in order to contend (see what’s happening with Kucherov or Lindholm in Tampa and Anaheim).

LIMITATIONS OF THE CAP ALLOCATION THEORY

1. What happens when a team has multiple players at a certain main-role level.

This limitation can best be explained by looking at what is happening in Tampa Bay right now. If Steven Stamkos is the 1C, Tyler Johnson is the 2C, Filppula is the 3C, Palat is the 1W, and Kucherov is the 2W, what will happen when Jonathan Drouin’s ELC expires and he wants to get paid like a top-tier winger (as he should be)?

The Cap Allocation Theory says that one of the wingers should be traded, potentially for draft picks and young players who are about to begin their ELCs, so that they can be re-signed to become the elite players when the current elite players lose said status. However, the question is whether or not that’s actually feasible — to consistently find willing trade partners for players that no longer fit. Also, it poses the question of whether or not these teams are okay with potentially trading these players for less than market value simply because they do not have the cap space to sign them.

2. How can it be adhered to if intangibles and human emotion were to be factored in?

My original constraint was that certain ideas such as loyalty, managing egos, and creating a team culture are not incorporated into the theory. However, if this idea were to actually be implemented, there would obviously be questions involved related to how this could be done with the human factor. Would a team be able to attract any free agents if they believed they were expendable? Would consistent roster turnover make the elite players unhappy because they feel instability? Would new players be able to understand the system that the coach has implemented quickly enough to be a championship contender? Would the egos of the elite players create a poor working environment for the role players? Does this system create a poor working relationship with different agents across the league?

There are lots of limitations in this regard, and would have to be the next step to determine which components of this idea are feasible and which are not.

IN CONCLUSION:

The first version of the Cap Allocation Theory is very much like the first time you tried to write an essay in high school. There are quite a few mistakes and anybody else who reads it may think it’s convoluted, but a main point does exist through all the muddle.

This theory is far from perfect, but it’s a snapshot into how I believe hockey teams should be constructed. The salary cap is specifically designed to prevent strong teams from creating dynasties by forcing them to continuously remove players who help them win. The Cap Allocation Theory would allow for teams to keep the right players and prevent those of lesser value from taking up cap space, the most precious commodity a team can possess.